Dear friends:
Thank you for reading this article. Today I would like to share with you topics related to investment psychology.
When cryptocurrencies fall, we spend a lot of time analyzing, trying to predict the exact bottom, and generally being very cautious.
But when the market goes up, we become confident and buy directly without doing much analysis.
Why are we always like this?
Fear and greed — these two emotions seem to drive most of our behavior in the cryptocurrency markets.
When fear takes over, we view everything with a gloomy and depressing eye. Twitter/X feeds are filled with doomsday warnings of further collapse and calls for us to surrender.
"That's it, goodbye everyone, nice to meet you"
But when greed takes over, euphoria takes over, and suddenly everyone becomes an expert, confidently predicting new all-time highs are just around the corner.
“If this coin goes up another 10,000%, I can retire. LFG!”
Why does this happen?
Why are we so cautious at our lowest points, but so desperate at our highest points?
A lot of this comes down to loss aversion — the fact that we feel the pain of losses far more deeply than we feel the pleasure of gains.
We are also social animals, and the fear of missing out (FOMO) is unbearable. It’s hard to sit on the sidelines while everyone around us gets rich quickly, and herd mentality always prevails, so much so that we often can’t wait to join the market when it reaches its peak.
On the other hand, when prices plummet and investors flee, our animal instincts drive us to join them and holding on feels like fighting a losing battle, with the prospect of further losses obscuring the potential for future profits in our minds.
Yes, predicting bottoms and tops is foolishness for most people.
When sentiment reaches extremes, the ship has usually already sailed. When your Twitter/X feed is all bullish at the top and all bearish at the bottom, it may be too late to act on those signals.
Ironically, the best opportunities often exist when going against the trend.
Buy when others are afraid, sell when greed and euphoria creep in.
Yes, I know, it’s easier said than done – it takes a lot of mental toughness to bet against the masses.
But as one of the best investors of all time, Buffett, said, I am fearful when others are greedy and I am greedy when others are fearful.
So if calling tops and bottoms based on sentiment is generally a losing strategy, what’s a better approach?
One way is to focus on your own analysis and create a plan.
Rather than trying to find the perfect entry or exit, think about accumulating gradually on dips and taking profits on rises.
All you have to do is develop a strategy and stick with it, no matter what the crowd does. Develop a thesis based on fundamentals, technicals, or your own assessment of the market cycle, and let that guide your decisions.
You don’t know what anyone else’s “prediction” is based on. Maybe the guy who’s saying X is going to hit $100,000 in a week is just a 16-year-old who doesn’t even know what the funding rate is.
FOMO is a powerful force, and the temptation to abandon plans and chase the surge can be strong.
This is where discipline comes in handy.
A big mistake I find myself making over and over again is how to justify losses in my portfolio.
This defensive mentality would cause me to continue holding them just to break even, even though I knew the smartest thing to do would be to cut my losses and invest them in something else.
No one can seize every opportunity.
I'll say it again: No one can seize every opportunity.
There will always be that coin you didn’t buy that went up 100x, or that coin you sold too early.
That’s the nature of the market. The key is to not let FOMO dictate your actions. Have the discipline to stick to your strategy and believe that there will always be new opportunities.
By having a plan, staying disciplined, focusing on your own analysis rather than the crowd’s, and keeping a long-term view, you can buy low and sell high, rather than the other way around.
It’s not easy, but it’s this mentality that separates the few winners from the majority of losers in the crazy world of cryptocurrency.
The ultimate goal is to take emotion out of the equation as much as possible. Fear and greed may be inevitable human reactions, but we don’t have to let them control our every move in the market.
Let’s break it down:
Professional trading means having a plan and sticking to it, even when your emotions are high.
Consistency means applying your strategy day after day, not just when things are going well.
Discipline is about resisting the urge to deviate from your original plan when FOMO strikes or fear grips the market.
Repetition is all about putting in the screen time and getting the work done, even if it feels tedious.
Perhaps most importantly, the ability to overcome repeated failure and disappointment is crucial, as there is no perfect strategy and losing money is part of the game.
Okay, so now that we know the answer, why do most traders still struggle with this? Why are they bearish at bottoms and bullish at tops even though they know better?
A big part of the problem is that it’s so hard for us to truly internalize these basic but essential principles. It’s one thing to understand these concepts intellectually, but it’s another to apply them consistently when it counts.
Warren Buffett's famous quote about being greedy when others are fearful is well known.
But in fact, the crypto market is more cruel than any other capital market and tests human nature.
It’s very hard to keep buying when there’s blood in the streets and your portfolio is down 50%. Likewise, we know to be cautious when excitement is high, but the temptation to jump in and make a quick buck is overwhelming when everyone around us seems to be getting rich effortlessly.
How can people sit back and do nothing when they see headlines like “High School Student Makes $1 Million In One Night” several times a day?
That’s why it’s so important to have a strategy and stick to it. If your plan is to buy on dips, then you should buy when prices are falling and market sentiment is bearish, regardless of how you feel.
If your plan is to take profits when you reach your target, you will sell some of your profits on the way up, even if it feels like the rise could go on forever.
Catching bottoms and tops accurately may feed your ego, but it is not a reliable way to build long-term wealth. It is better to focus on executing your plan repeatedly, even if it means missing some of the best days.
In the world of investing, a slow and steady approach often wins the day.
But even the best laid plans cannot completely eliminate the influence of psychology on our trading. We are emotional creatures and we make mistakes.
The key is to learn from your mistakes, get back up, and keep moving forward.
Every trader has bad days, bad weeks, and even bad months. The ones who succeed in the long run are the ones who can recover from the inevitable setbacks and disappointments. They are the ones who continue to execute their strategies even when things get tough, they are the ones who can resist the temptation of FOMO at thousands of decibels, they are the ones who can withstand a fear stronger than a professional wrestler.
So the next time you find yourself feeling extremely pessimistic or irrationally excited, take a step back.
Remember that groups often make mistakes in extreme situations.
Remember your plan and the effort you put into making it.
Remember, discipline is the key to long-term success and every setback is an opportunity to learn and improve.
Stay rational, and may the benefits be with you!
The above is what I hope this sharing will be helpful to you.
Villages
0716/2024