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Margin Trading Psychology
Hello everyone, this guide was written by my good friend Sparta. We both started actively trading around the same time and wanted to share some insight from an incredibly talented trader. I hope you all enjoy!
Sparta’s Margin Psychology Guide
If you’re new to high leverage Margin trading you will likely notice that it comes with its own set of challenges. I firmly believe that most of a trader’s success in Margin is not due to TA (though it is still as important as ever) but due to an intimate understanding of their own individual psychology.
- Take responsibility for your losses.
It is incredibly easy for us to attribute our losses to external factors while ignoring exactly what it is that caused us to get rekt. In almost every circumstance, there is something you could have done better to prevent such a loss. Perhaps you should have not opened a position at all. It is seldom the case that a loss is truly unavoidable. Recognize that you never lose – you either win or you learn. A loss does not become a loss until you’ve failed to learn from it.
- Know your risk.
Margin Trading is absolutely not gambling but it can quickly become that if you lack the discipline necessary. Bitmex spoils us by allowing very high leverage but it is absolutely essential that the leverage you choose to trade with is appropriate for your trading plan and position size. If you are behaving erratically, getting liquidated at all, smashing the ‘close at market button’, or dealing with high blood pressure, your risk is absolutely too high. This leaves you vulnerable to making very, very stupid mistakes. What was previously a calculated activity becomes a degenerate gamblers haphazard effort to get rich quickly.
Personally, I never go above 25x leverage and most of the time I’m using 10-15x. With adequate position size and market volatility this is more than enough to make some serious money relative to your networth. Some of the people I work with only trade 50x+ and it works beautifully. That’s great *for them*. I know what keeps me sane. I know what works for me. I know what makes me consistently profitable.
- Know when to trade. Know when to live your life.
We’re blessed to have a 24 hour market and seemingly infinite opportunities to grow wealth in this space. It is very, very tempting to make Margin trading your full time job or to spend every waking moment of your existence staring at charts. Recognize that, unless you are a very specific kind of person, this is going to be counterproductive. As the saying goes ‘time in the market beats timing the market’.
Personally, I do not open a position unless I see an obvious opportunity. Take a second to recognize what odds are in your favor and then act appropriately. Do not open a position for the sake of it. Do not bet blindly on price going up or down.
- Do not allow others to trade vicariously through you.
Oftentimes we’ll find ourselves on Discord or in the Bitmex trollbox bouncing around ideas, TA, and deciding on what our next move is. It is very likely that you will perceive some traders as being better than yourself but it is essential that you do not open a position purely because someone you trust or look up to did. Willingness to learn from your mistakes is what will make you a good trader and this is very unlikely to happen in the event that you are trading based on someone else’s words/actions. No trader, no matter how successful, is infallible and allowing yourself to even contemplate such a thing sets you up to get rekt. We’ve seen time and time again how
Groupthink can lead to panic buying/selling. It is something you must stamp out at every opportunity.
This is not to say that you cannot allow people to influence you. What I’m saying is that you must first know where you stand in relation to the market and where you think it is going before you seek the advice of others. If someone whose opinion you value agrees with your point of view, then allow it to influence you. If they disagree, consider it an opportunity for discourse and furthering your understanding of the market at this point in time.
Basically, make sure your actions are *your own*.
- Develop your rules for trading.
Each trader has their own individual biases, weaknesses, and strengths. What works for others, may not work for you. Introspection and contemplation are the only things that will allow *you* to understand how you should trade. Based on a comprehensive understanding of your own thought patterns, you will be able to hone your trading intuition.
Develop a set of trading commandments you will refuse to compromise under almost any circumstances. Put them in writing and make sure they are visible from wherever it is you trade.
This will minimize your losses and maximize your wins, cutting through your emotion as long as you are sufficiently disciplined.
- Mentally disconnect yourself from the market.
You’ve heard time and time again that you should only invest what you can afford to lose. This isn’t new. Margin presents you with the opportunity to make a month’s salary in mere hours and so it can be very tempting to make Hail Mary plays in the event that you have some hospital bills or need to make rent. This is absolutely *NOT* what Margin and crypto are meant for. This is nothing more than another game you play in your spare time and treating it as anything else is ill-advised to moronic.
Your portfolio value is a high score you’re trying your best to beat. The second it becomes anything else, you’re opening yourself up to a host of mental vulnerabilities.
- Before you even consider opening a position, have a plan.
What course of action you choose is unique to you, but make sure that your approach is both sensible and resistant to emotion. It is so, so easy to get scared and close a position that would otherwise have succeeded. Find ways to counter your own mental vulnerabilities.
- Do everything you can to recognize and avoid the influence of Greed.
Nothing is responsible for more failure than our tendency to get greedy when trading. Greed will cancel your stop losses, turn a winning position into a losing one, and instigate failures in the most insidious way. Adequate self knowledge will allow you to recognize when you are being greedy. Strangle it to death.