Taking stock of psychological phenomena in the cryptocurrency market

Written by: BTC_Chopsticks

When the cryptocurrency market falls, people often spend a lot of time and energy on analysis, trying to accurately predict the bottom of the market, and act extremely cautious. However, when the market rises, everyone becomes confident and just keeps clicking the buy button with little to no in-depth analysis. We seem to become like there is no tomorrow, frantically chasing buying opportunities in the green.

Driven by Fear and Greed

The reason is that fear and greed are the driving forces behind much of our behavior in the cryptocurrency market. When fear takes over and market news is filled with warnings of further collapse and calls for surrender, it seems like everything is doomed. "This is the end, goodbye everyone, nice to meet you." However, when greed takes control, ecstasy and optimism permeate the market, and everyone becomes a confident expert, predicting new highs. "If this currency rises another 10,000%, I can retire. Rush!"

Loss Aversion and Herd Effect

Loss aversion in human psychology is the main cause of this phenomenon one of the reasons. The pain of losses far outweighs the pleasure of gains.

In addition, humans are social animals, and the fear of missing out (FOMO) is very strong. When everyone around us is getting rich quickly, it is difficult for us to stay out of it. The herd mentality takes over and we follow the trend and enter the market, often just when the market reaches its peak.

Extreme manifestations of market sentiment

The feeling when the market hits bottom is very unique, especially on the day of the bottom, this feeling is particularly obvious. However, guessing the top of the market is much harder, and people often start calling it long before it actually reaches the top. When it really reaches the top, the market is filled with extremely bullish voices and almost no bearish voices can be seen.

The wisdom of swimming against the current

In fact, predicting the bottom and top of the market is a foolish thing. When market sentiment reaches extremes, the best opportunities have often slipped away. Ironically, the best opportunities often lie in swimming against the tide: buying when others are overwhelmed by fear, and selling when greed and ecstasy run rampant. As one prominent investor said, "Be fearful when others are greedy, and be greedy when others are fearful." Bottoms and tops, but think in terms of accumulation and distribution. Develop a plan based on your own analysis. Don't try to find the perfect time to enter or exit. Instead, gradually accumulate when it falls and gradually make profits when it rebounds. Have a strategy and stick to it, no matter how the market moves.

Discipline and Plan

Professionalism means having a plan and following it to the letter, even when emotions are running high. Discipline is about resisting the urge to deviate from your plan when FOMO (Fear of Missing Out) strikes or the market is gripped by fear.

Repetition means consistently applying your strategy, even if it feels boring. Ultimately, the ability to overcome repeated failures and disappointments is the key to success.

Mindset and Practice

Warren Buffett’s famous saying “Be greedy when others are fearful” rings again. In practice, however, it is very difficult to buy when the market crashes and your portfolio drops 50%. Likewise, when markets are ecstatic, we know to be cautious, but when everyone seems to be getting easy riches around them, the temptation to make a quick profit is very strong.

stick to the plan

It is crucial to have a plan and stick to it. If your plan is to accumulate on dips, then you buy when prices are falling and sentiment is low, no matter how you feel. If your plan is to take profit when your target is reached, you will sell in stages along the way, even if it feels like the rally could go on forever.

Long-Term Investment Strategy

It may be ego-satisfying to catch the exact bottoms and tops, but it’s not a reliable way to build long-term wealth. A better approach is to focus on executing your plan over and over again, even if it means missing some of your best days. A slow and steady approach often wins out in investing.

Conclusion

Remember, in extreme cases, the herd is usually wrong. Remember your plan, and the effort you put into making it. Discipline is the key to long-term success, and every setback is an opportunity to learn and improve. Stay rational and wish you good luck with your investment!

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