Investment Psychology — Part 3 Final
To finalize this series on investment psychology, I wanted to list out some of these psychological battles or emotion battles that investors may find themselves in. Again, these are not new things and this article is not meant for it to be that way. However, this is a way to remind each others which phases of investment we are on and what are some techniques we may do to win against these psychological battles.
Optimism or enthusiasm
We, as traders and investors tend to stay too long in these enthusiasm stages and those may affect our visions and target goals. When the market is largely trending upward, you have an euphoria that prompts you to invest in the market. For example: Dogecoin is going up so much and you have never invested before but because everyone is talking about it, you now have the urge to invest in them. This feeling is often the basis of a bad investment decision and it’s typically not the best time to invest when you have them. Learn and understand why you are investing then invest.
Fear
The market is starting to go down. Suddenly, Bitcoin you thought was at 60K now is at 38K and is struggling to break through 40K again. Fear takes hold of you and causes you to question your investments. Maybe seeing your investment 20–40% down leads you to question everything you know about crypto. People who are stuck in this phase will most likely flirt with the idea of giving up everything and exiting the market without first analyzing and maybe looking at the long term goal.
You only fear the market if you never had a plan to begin with. Before you invest in any crypto, you need to know: Why are you investing? What’s the fundamental and technical analysis about that project? When do you want to get in? When do you want to get out? Have you set your stop loss and how much money are you comfortable losing? These questions although seem dumb at first but will take you long way in your crypto journey. Please see — Fundamental analysis for more info.
Depression
It has been 4 months and the coin you invest in is still dumping. Or, we are in the full bear market. The market continues to go down. A feeling of capitulation takes hold of you and pushes you to sell at levels lower than those in which you have invested. An investor at this level will tend to forget the whole Crypto 101 lesson of “buy red and sell green”. Even after hearing it a million times. Then, later when the market recovers, we stay in, day-dreaming about the huge opportunity we missed… “If only I bought that, if only I did that and so forth” . As an investor, one must show patience and follow discipline at any moment of the market.
Hope and relief
Here we go again, the market starts to rise again, Bitcoin makes it way back up to 42K and is looking bullish. You are relieved and then think of reinvesting. You buy when the market has already largely caught up with the previous dump instead of buying when it was red.
Again, it’s easier to read this and go “Huh, yeah”.. But the reality is, 99% of traders just don’t do it. We see this over and over. The moment the market crashes, Crypto Youtubers suddenly have millions of views. Everyone wants to know about “When is the market going to recover again”. People end up panic selling at a loss just to see the market going back up 3 weeks later. This is very sad and unfortunate. Everyone thinks crypto is easy and want to make money but don’t want to do proper research and study.
In your crypto journey, you will find yourself in doubt, fear, happiness, depression and more happiness. These are all part of the game. Your first response to panic during crashes is natural and trust me, everyone feels the same way. But, we have to remember that 80% of the success in crypto comes from our emotions and 20% on technical and strategies. Learning EMA and adding that to your chart is great. But, are you actually going to sell and cut loss when it is needed? Are you not going to follow the crowd and stick to your discipline?
Easier said than done.
To summarize, although we don’t give financial advice, I will leave you with this friendly advice. Remember to invest regularly and long term in good projects with great fundamentals. you can set up scheduled, monthly or quarterly payments. This method of DCA has been proven to be the best way to allow investors to grow their position and makes it possible to smooth their entry points without suffering from market volatility.
Team, this was my last article on this topic. I invite you to come and chat during our weekly call about this topic.
Thank you
