Behavioral biases, when left unchecked, can lead to poor decisions in cryptocurrency trading and investing. In fact, there is an entire field of study known as behavioral finance, which combines theories of psychology and traditional financial economics. Biases are often unconscious, so you should pay close attention to your behavior to reduce biased decision making.
1. Overconfidence
Overconfidence bias applies to traders who are too confident in their trading ability, which results in them making risky market decisions or making excessively frequent trades. You can also be too confident in assets in which you are already heavily invested, leading to a portfolio that lacks diversification.
2. Limited attention
There are countless digital opportunities. However, we only have a limited amount of attention to devote to understanding each option well before trading. Furthermore, there is often a lot of market hype surrounding different digital opportunities. This can lead to trading decisions being made with incorrect or insufficient information.
3. Chase trends
Due to the volatile nature of the cryptocurrency market, traders may think that the price of a cryptocurrency's token will increase rapidly and neglect to consider the fundamentals that support this rise. Instead of jumping on the bandwagon of success, you should consider assets that are trading below their true value rather than focusing only on tokens that have performed wonderfully.
