Crypto Trading: Not Everyone’s Ride
The widespread belief that the market rewards risk and enthusiasm doesn't align with statistical research findings. Turns out, to make it as a trader, you need a whole different set of skills.
The research from Northwestern University, DePaul University, and the London School of Economics reveals essential characteristics for traders to avoid burnout and significant losses within months.
The study, involving traders and investors from leading exchanges, highlights that factors like age, gender, initial capital, or even IQ level are not pivotal for successful investment decisions. Success in trading hinges more on individual psychological traits.
The researchers pinpointed five key traits that influence an investor's success—or rather, their failure.
Being open to new experiences, fearless in experimenting, and maintaining a positive view of one’s surroundings and events aid in making correct decisions. In contrast, being preoccupied with internal feelings and the fear of making mistakes can block productive responses, leading one to miss even obvious profitable trades.
It's important to note that this quality is not related to the common terms "extrovert" and "introvert" used in everyday conversations. One can dislike noisy gatherings and prefer their cat's company while still having an active imagination and being open to new knowledge and experiences.
If you're prone to neurotic tendencies, research suggests they can pose obstacles to success in trading. Qualities like anxiety, disappointment, guilt, and envy can hinder your progress.
Neuroticism often includes a desire for excessive control, while the market operates based on various factors beyond one's influence.
Success might seem challenging, but remember, seeking professional help can make a difference.
Pessimists frequently grapple with distinguishing their psychological biases from the real market dynamics. This can make it difficult for them to determine whether the market is genuinely on a decline or if it's just their perception playing tricks on them. Consequently, they may be inclined to misinterpret the market, mistaking a routine correction for a complete collapse.
In a world marked by the current global crisis and rising inflation, unbridled optimism might seem rare. However, if you tend to be a pessimist, it's essential to recognize that opportunities may be closer than you think. While this observation might sound like a page from a newspaper horoscope, it's actually backed by research findings.
Navigating the world of risk-taking in trading demands a fine balance between embracing the thrill and taking full responsibility for your investments, especially in volatile assets like cryptocurrencies.
Even with a diversified portfolio, the risk remains inherent. Being ready to shoulder personal responsibility for unsuccessful trades can significantly enhance your financial prospects. Ultimately, there's no absolute right or wrong in the market. Blaming external factors for failures, such as SEC actions, market manipulations, or internet issues, isn't a productive approach. However, if your mindset is centered on an external locus of control, it's less likely that you'll sustain activity in the trading market over the long term.
Patience in trading is all about waiting for clear indications of when to enter or exit the market.
However, lacking the self-discipline to stick to your trading strategy and the patience to wait for favorable market conditions can work against your interests. It's important to understand that not every trade will result in substantial profits. Similarly, prematurely closing a trade for a small gain due to fear or an aversion to accepting losses is also unwise.
In essence, the report suggests that the ideal trader shares many qualities with an outstanding employee at a large international company: they are composed, logical, open-minded, friendly, optimistic, and disciplined.
The Ideal Trader. Source: Ardma
If exchanges were solely occupied by these flawless individuals without any psychological imperfections, the crypto market's daily trading volume might see a significant drop, and the number of digital platforms would be extremely limited.
However, in reality, the perfect world is nothing more than a fairy tale. Markets, with all their quirks and inefficiencies, are here to stay. The good news is, that this understanding opens up opportunities for growth in a space where it's both possible and necessary.