Margin trading in the cryptocurrency sphere is not for the faint of heart. It involves leveraging your investment to magnify your potential gains, but with that comes heightened risk. It’s akin to walking on a financial tightrope, with exhilarating vistas of profit on one side and deep chasms of loss on the other.
Such high stakes are inevitably reflected in a trader’s mental state, which has all rights to be as advanced as the technical skills. Alas, the pivotal factor is frequently neglected, and that depressful fact drove my keen intention to share with you 5 essential tips to help keep your mind sharp and emotions in check while keeping up with margin trading.
But Before We Proceed…
What is Margin Trading?
Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker. In fact, it allows trading with a lower entry threshold.
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As a crypto investor, you do not need to operate with funds that exceed your budget — you should just hold 5%, 10%, or 20% (depending on the crypto exchange’s leverage) of the preferable investing amount, and achieve larger profits.
Simply put, whether you invested $1000 worth of $BTC and it has grown by 30%, you will make only 300 dollars and have $1300 in total. By contrast, if you aim to invest $10,000 in Bitcoin with 10x leverage, you are obliged to have only $1000 on your account as a collateral fee.
The gig is: when $BTC grows by 30%, you are not going to make a profit, which equals 30% of your balance — you will earn $3000 instead. Ultimately, the chance to gain higher profits with lesser investments truly spurs the interest to take up leverage-based trading options. See more here.
Not surprisingly, margin trade mounts the same cognitive obstacles that are taken for granted in traditional spot trading. Yet they are significantly emphasized by an increased chance of receiving bigger profits or experiencing larger losses on the other hand. Hence, it is vital to not only elaborate a technical strategy but also rally the emotions and mind.
Thus, here are five guidelines for proper emotional intelligence that will take your margin trading several stages further.
5 Mental Tips for Margin Trading
1. Embrace the Power of Patience
Imagine that you are a keen gardener. You don’t pluck the flowers the moment they sprout, do you? Instead, you wait, nurture, and give your plants time to mature, so that they would ensure durable, fruity outcomes.
The same rule applies to margin trading. Patience is indeed the key to everything, and crypto investment is not an exclusion. Especially, while the potential profits are more promising.
As a matter of fact, when the asset hits a certain price or starts to decrease in one, the temptation to lock in a profit can be higher than ever despite the probable lack of rationality. In that case, it is essential to shape the strategy, carry out deep scrutiny, or alter the tactics.
Whichever the decision is, it should not be taken emotionally and without a solid base. Be rational and insightful, but foremostly – embrace patience, as the best results often come to those who display one, waiting for the most opportune moments to enter or exit a trade.
The best results often come to those who display patience, waiting for the most opportune moments to enter or exit a trade.
2. Recognize Fear and Greed, But Don’t Let Them Steer
Indeed, patience can be sidelined, but which factors drive that unpleasant cause?
Using the issues of human cognitive perception, margin trading can be involved in setting mind and emotional traps. One of them is Fear and Greed – such a pivotal and common issue for investment behavior that it is even mathematically calculated.
Fear and Greed in crypto refer to a range of sentiments that depend on the market state and at the same time define the tendencies of the momentum. Simply put, Fear indicates trading behavior as a result of turmoil and a bearish trend, and Greed, by contrast, demonstrates a bullish attitude in the industry.
A crucial drawback of Fear and Greed is that it impacts the industry overall if achieves the status of trend, but not only individuals. Given that, it is lifesaving to resist Fear and Greed as a cognitive issue, and as a prevailing tendency as well. The clue to leveling it – strategic thinking, flexibility, and sticking to analytical data. Sounds simple, yet is not.
3. Set Concrete Limits – And Stick to Them
The crypto market can be turbulent. Any abrupt fluctuation may spur severe turmoil within your trading activity. But how to carry out proper risk management?
The answer is: to mitigate potential threats of being drifted too far astray from your trading strategy. Given that, it is vital to establish a set risk-reward ratio, determine stop losses, and decide on take-profit points.
The aforementioned analytical moves would be capable of leveling emotional expressions, occurring from up-and-down situations. Remember: half of the problem is solved with precautions taken. By committing to these in advance, you provide a buffer against emotional decision-making.
4. Celebrate Wins, Learn from Losses
It is not surprising that trading is unpredictable, which is, actually, its rewarding characteristic of it. But the thing truly crucial is the reaction to the outcomes.
Depending on the results, some traders may triumph, and others may turn somber. However, the essence of advanced traders lies not in emotions, but in overarching their market path. Each and every outcome should be considered as a motivation for altering the strategy.
The most precious knowledge is received through direct experience, hence it is important not to forget about it, but to learn from it. Savour your wins, yet spend equal time analyzing your losses and adapting your beneficial tactics.
Remember: every setback is an opportunity to refine and improve, and every win is a motivation for deep scrutiny.
In those terms, it would be effective to engage with the community. Group discussion is key to a more precise and versatile approach and a treasure trove of different insightful perspectives.
What is more, the crypto community is incredibly supportive, hence sharing your wins with them will add to your mental state. Still, not only trade colleagues tend to encourage. Namely, major cryptocurrency exchanges, like WhiteBIT, take up initiatives to support traders. The most recent one promises to grant users a bonus for sharing margin trading ROE on social media.
5. Regularly Unplug and Recharge
Despite a painfully common misconception, hard work is not a magic pill for crypto. Your mental and physical capacity, alas, tends to deplete. If you wear it off, the likelihood of decreased quality of trading will be greatly increased, and the focus will be washed out.
It is pivotal to refill your resources. Regularly distance yourself from the charts, take breaks, and engage in activities that rejuvenate your mental state. A refreshed mind is far more adept at navigating the intricacies of margin trading.
In Closing
Margin trading is as much a mental game as it is a financial one. By cultivating a resilient and focused mindset, you can dance with the crypto currents instead of being swept away. Remember, in the world of trading, sometimes the most important gains are not just in your portfolio, but in the wisdom and mental fortitude you accumulate along the way. Finally, don’t forget to keep track of your portfolio by using some of the best crypto-tracking tools available.
Read More:
- 5 Tips From a Female Trader on Margin Trading
- Investigating The FUD Around WhiteBIT: The Truth
- The Most Crypto-Obsessed Countries in Europe
- Binance Gets Fully Licensed in El Salvador
Paul Osadchuk
Paul Osadchuk is a digital journalist specializing in cryptocurrency and Web3 topics. He writes for GNCrypto, Cryptoslate, and Foresight News EN, and maintains analytical blogs on TradingView, Binance Square, and CoinMarketCap. With over five years of experience in marketing and PR for crypto and Web3 companies, he has gained deep industry insight and expertise in crypto trading.