How to Conquer Emotions while Trading – Part 1 




Emotions play a key role in trading and today I will share few things that I learned from my personal experiences.

Let’s start with a simple question –

Why does the price of any asset move?

Scarcity, lack of scarcity, Demand & supply, product value blah blah blah. Ask ChatGPT and it will give you some more reasons. You can say that Gold is expensive because it is scarce and has value as it doesn’t fade over the years. Same you can say about Bitcoin too. But what about Dogecoin or Shiba Inu? Product value, scarcity? How is Shiba Inu, a meme coin, among the top 20 cryptocurrencies by market cap, and Dogecoin in the top 10? How an asset that has no use case can pump generating thousands of percent profit?

The simple answer is, price goes up or down because people believe it can go up or not. If people believe in an asset, it becomes valuable.

Use cases, scarcity and product value are key factors, but most important thing is the belief of investors. If people believe in something, the asset becomes valuable. If they believe that a cartoon picture of a monkey is worth of millions of dollars, then it becomes so. My point is, if people believe in something then even a cartoon picture can become more expensive than a beachside villa in Dubai.

Price of every stock, every crypto is not programmed. It does not move automatically. Why does it happen that the price of a token usually goes up around a support and down from a resistance in most cases? It’s people who act in certain ways that drive the price in certain direction. Support and resistance, these are not computerised lines where price automatically reverses. Support is a price level where people are more comfortable buying an asset, while resistance is a level where people want to sell the assets. This is the herd mentality.

You need to develop the ability to read the market situation, understand what most traders would be thinking at a particular stage, and anticipate how their emotions will influence their actions. The actions taken by the majority of traders, driven by emotions such as fear and greed, lead to changes in the market price.

Emotion word comes from the latin word “Emovere”, which means “to move”. Emotion is something that brings motion to your thoughts, eg: sorrow, joy, hatred, anger, fear and greed etc. Now if you have read carefully, I said price goes up and down around the support and resistance. Focus on the word “Around”.

That’s where whales come in the play.

So the first thing is to conquer the basic emotions and understand common mentality. Once you start understanding what most of the people would be thinking at certain time, you can leverage the herd mentality. You don’t need very complex charts and indicators to predict the move of price, you just need to master the herd mentality.

Keep your charts simple and if you are not getting a clear idea of where the price is headed in the charts, stop drawing more lines. Making chart more complex and drawing more lines won’t help.

Don’t be like this

Once you start understanding the herd mentality, next step is to learn how whales use it. We will cover this in part two.

Thank you cupcakes.