In the cryptocurrency market, psychological biases are often the key factor that causes traders to lose money. This article will take a deep dive into the top 10 common psychological biases of traders and provide coping strategies to help investors stay invincible in the market.

1. Anchoring Bias

Traders tend to become stubbornly attached to a particular price (anchor), which influences their decision making. For example, if a trader enters the market at BTC price of $52,000, they may think that BTC price of $61,000 is too high, while another trader who enters the market at $71,000 may think that the same price is too low. The key to overcoming anchoring bias is to analyze the market situation objectively, rather than relying on past price points.



2. Recency Bias

Recent events and information tend to have a more profound impact on traders, causing them to over-rely on the latest information when making decisions. This bias may cause traders' experience in the most recent transaction to influence the next transaction, leading to overconfidence or over-caution. To overcome the recent bias, traders need to integrate long-term data and avoid making decisions based solely on recent performance.



3. Loss Aversion

The pain of loss is often stronger than the joy of gain. Traders may sell promising assets too early because of fear of loss, or hold losing assets too long because they cannot accept the loss. By establishing a reasonable risk management strategy, such as setting stop-loss and take-profit points, the impact of loss aversion can be effectively mitigated.



4. Endowment Effect

After holding an asset, traders tend to overestimate its value and find it difficult to sell it at the right time. Overcoming the endowment effect requires traders to remain objective, assess the actual market situation rather than personal emotions, and make timely buying and selling decisions.



5. Herd Mentality

Blindly following the market crowd's behavior can lead to investment mistakes. Traders should develop independent trading plans and avoid making impulsive decisions due to market sentiment fluctuations. The crowd's behavior should only be considered when conducting an objective market sentiment analysis.



6. Availability Heuristic

Traders tend to pay too much attention to recent events or the most emotionally powerful information. For example, the recent market crash may cause traders to be overly pessimistic about the market outlook. The availability heuristic can be effectively overcome by analyzing market data comprehensively and avoiding over-reliance on a single source of information.



7. Survivorship Bias

Success stories tend to be widely spread, while failure stories are forgotten. This bias can cause traders to systematically overestimate the probability of success. To overcome survivorship bias, traders should pay attention to failure cases, learn lessons from them, and improve their risk identification ability.



8. Framing Effect

The way information is presented can affect traders’ decisions. Positive emotions can lead to underestimation of risk, while negative emotions can lead to overestimation of risk. Traders should try to look at information from multiple perspectives to avoid being influenced by a single perspective.



9. Confirmation Bias

Traders tend to look for information that supports their view and ignore evidence that contradicts it. For example, a trader who is bullish on a particular asset will look for all bullish information and ignore bearish data. To overcome confirmation bias, traders should actively look for opposing viewpoints and fully evaluate market information.



10. Captain Hindsight

After an event occurs, traders often feel that the outcome is obvious. This tendency to be smart after the event can lead to overconfidence. To overcome this bias, traders need to fully consider uncertainty and risk when making decisions and avoid being overly optimistic about future forecasts.



Psychological biases are a major challenge that traders face in the market. By recognizing and overcoming these biases, investors can improve the quality of their decisions and reduce investment risk. Maintaining objective, rational and independent thinking and establishing a sound risk management strategy are important foundations for successful trading.