Behind this lies the most genuine aspect of human nature.
I know that attributing problems to 'human nature' sounds rather abstract — as if everything in the world could fit into this category. But when it comes to trading cryptocurrencies, the issue of 'being trapped and holding on, taking small profits and running away' really does boil down to human nature.
People are inherently afraid of losses. The pain of losing the same amount of money is far stronger than the joy of making it. That's why there are those instinctive reactions: when in floating losses, we deceive ourselves by saying 'if I don’t sell, it doesn’t count as a real loss', and when in floating profits, we murmur 'locking in profits is the only reliable option'.
I’ve said it before, most people make judgments not based on rationality, but on emotions. Just like knowing that cola is high in sugar and unhealthy, but it feels great to drink — rationality rings the alarm on 'unhealthiness', but the feeling is fully drawn towards 'joy', and in the end, most still twist off the cap. This is emotions pulling behavior.
In trading, this emotional drive is even more evident:
When in floating losses, the red on the balance sheet stings, and some people simply close the software, thinking 'out of sight, out of mind', as if not looking makes the loss disappear;
When in floating losses, some people frantically average down, even if the logic doesn’t hold, just to shrink the loss percentage a bit to feel better;
When in floating losses, cutting losses is equivalent to turning 'paper losses' into 'real cash losses', and that moment is too painful, so one would rather hold on, betting on the possibility of breaking even;
When in floating profits, the joy of making money is very real, but as soon as the price pulls back a little, the anxiety of 'potentially losing profits' amplifies — quickly sell and hold onto the joy in hand, which is better than watching it slip away.
You see, whether holding on or running away, the core is not rational calculation, but the emotions of 'discomfort' and 'joy' pushing people to make choices. This is why so many people fall into the trap of 'being trapped and holding on, taking small profits and running away' — the answer is quite ordinary, but hits the nail on the head: human nature is just like this.
— Side note —
Speaking of this, some may take the opportunity to talk about 'how important stop-loss is'. But I want to say: don’t, it’s not that absolute.
Stop-loss has now almost become 'politically correct' in the investment circle. I used to believe in this, but now I understand: there is no universal truth, including stop-loss. Different methods are suited to different mindsets. There is no need to debate 'should we average down when the price falls' or 'should we stop-loss' — there are countless paths in investing, and no model can guarantee 'it will definitely work'.
Many principles only hold under certain conditions. Whether your approach is correct depends on two points: first, does it really bring positive feedback in the long run; second, can you genuinely accept its advantages and more so its disadvantages — for example, it might make you miss a rebound or help you lose less money. If you can do these two points, that's enough.