The phenomenon in the cryptocurrency investment community where investors generally 'take a little profit and hold losses' is essentially a typical manifestation of the 'disposition effect' in behavioral finance. This phenomenon hides multiple psychological mechanisms and market characteristics, which I will analyze for you in depth:

  1. Loss aversion psychology (Prospect Theory)

  • Research by Nobel laureate Kahneman indicates that the pain from losses is 2-2.5 times the joy from equivalent gains

  • When holding profits, investors instinctively fear profit retracement, triggering the impulse to 'lock in gains'

  • When facing unrealized losses, the psychological pain from cutting losses far exceeds the paper loss, leading to the 'ostrich effect'

  1. Anchoring effect at play

  • Investors' subconscious will take the purchase cost as an 'anchor point'

  • When profitable: feeling satisfied as long as the price slightly exceeds the cost price

  • When losing: refusing to accept prices below the 'anchor point', fantasizing about rebounding to the cost price before exiting

  1. Cryptocurrency market characteristics amplify effects

  • 7×24 hours of extreme volatility: average annual volatility reaches 100-300% (traditional stock markets about 15-20%)

  • Lack of valuation anchors: Most projects lack cash flow support, and prices are entirely driven by market sentiment

  • Historical cases reinforce cognition: After the '3·12' crash in 2020, most cryptocurrencies reached new highs, reinforcing the illusion that 'holding will eventually recoup losses'

  1. Cognitive bias collection

  • Survivorship bias: only remember cases where holding resulted in a return, ignoring projects that went to zero

  • Sunk cost fallacy: continuously adding to losing positions in an attempt to average down costs

  • Illusion of control: believing 'long-term holding' feels more controllable than 'stop-loss'

  1. Market structure boosts

  • Exchanges strengthen holding mentality through 'rebound expectations' marketing

  • The contract market has a 'double explosion' mechanism, intentionally sweeping stop-loss orders

  • Project parties release positive news in conjunction with major players selling off, enticing retail investors to take over

Rational coping strategy:

  1. Quantitative profit-taking and stop-loss: using trailing stops (e.g., Fibonacci extension levels) and hard stop-losses (e.g., -15%)

  2. Rebalancing positions: extracting capital when profits exceed 30%, using profits to continue the game

  3. Time-based stop-loss method: set the maximum holding period (e.g., exit if expectations are not met within 2 weeks)

  4. Emotional accounting: record the psychological state during each trade, identify one's own irrational patterns

Typical case: During the drop of Bitcoin from $69,000 in 2021, on-chain data showed that most retail investors concentrated their losses at $58,000 (-16%) and $30,000 (-56%), perfectly missing the rebound opportunity at $43,000. This confirms the dual errors of 'early profit-taking + late stop-loss'.

Understanding these behavioral traps is the first step to becoming a mature investor. True trading discipline lies in allowing profitable positions to have ample development space while quickly cutting losses, which requires deliberate practice against human instincts.