Emotions in the Way
We are emotional beings and our emotions quite frequently mess up with our investing endeavors. The two usual culprits are fear and greed. Ideally, we want to decouple our emotions and emotional responses from our trading. However, that is easier said than done. For that reason, it is a good idea to come up with a plan based on a certain strategy.
We need to have a plan before we start the investing process or preferably before each individual trade. Then we promise ourselves to stick to the plan irrespective of our emotions that inevitably develop down the road of investing.
Investing Plans
Investing (or trading) plans are never written in stone and we are allowed to change them. However, we need to recognize that changing our plans due to unhealthy emotional responses is not allowed. Part of the reasoning why we need to have trading plans is so we don’t succumb to our fears or greed at certain points on our investing journey. Deviating from our plans due to emotional responses results in damages inflicted upon our portfolio.
Having plans is a prerequisite for a success in investing. Executing trades according to our plans produces great financial rewards and ultimately contributes to investor’s satisfaction and happiness.
Planning a Trade
When we say “trade”, that does not mean just an individual buy or a sell. It usually entails the whole process of acquiring and disbursing an investment position. In case of crypto investing, a position simply relates to a stack of individual crypto coin.
Any serious position takes time to build. This process of accumulation of coins can last for months (and sometimes years). It consists of at least few and sometimes many individual buys. When the time (or more precisely price) comes to reduce the position, we again end up with multiple individual trades, this time sells. In between buys and sells, we sometimes just hold our position of crypto coins. In a more elaborate cases, we may chisel away portions of a position and also add to it at favorable times.
All in all, we need to have a good idea what we want to achieve and how we are going to go about achieving it. That is a plan for a trade. When we are creating our plans, we are in a state of reason, not emotion. Plans are created before initiating investing positions, i.e. before we make our first buys of crypto coins.
Trading a Plan
Trading a plan simply means executing trades according to that plan.
If the plan entails buying coins at certain low prices, we buy them when those prices are achieved. When fear creeps up, we buy them nevertheless.
If the plan entails selling coins at certain high prices, we sell them when those prices are achieved. When greed creeps up, we sell them nevertheless.
We always execute our investing plans irrespective of our state of emotions. Emotions tend to blind us or prevent us from doing the right thing or force us to do the wrong thing. What is the right thing and what is the wrong thing – your plan will tell you. You just need to trade it as planned.