When the cryptocurrency market is falling, people often spend a lot of time and energy on analysis, trying to accurately predict the bottom of the market, and being extremely cautious. However, when the market is rising, people become confident and just keep clicking the buy button without doing any in-depth analysis. It seems that we have become crazy chasing green buying opportunities like there is no tomorrow.
Driven by fear and greed
The reason is that fear and greed are the driving forces of most of our behavior in the cryptocurrency market. When fear takes over, the market news is filled with warnings of further collapse and calls for surrender, and it seems that everything is coming to an end. "This is the end, goodbye everyone, it was nice to meet you." However, when greed takes over, euphoria and optimism permeate the market, and everyone becomes a confident expert predicting new highs. "If this coin goes up another 10,000%, I can retire. Go!"
Loss Aversion and Herding
One of the main reasons for this phenomenon is loss aversion in human psychology. We feel the pain of losses far more than 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 when the market reaches its peak.
Extremes in market sentiment
The feeling of a market bottom is very unique, especially on the day of the bottom. However, guessing the top of a market is much more difficult, and people usually start calling it a top long before it actually happens. And when it actually happens, the market is filled with extremely bullish voices and almost no bearish voices.
The wisdom of swimming against the current
In fact, predicting market bottoms and tops is a fool’s errand. When market sentiment reaches extremes, the best opportunities are usually gone. Ironically, the best opportunities often lie in swimming against the tide: buying when others are overwhelmed by fear and selling when greed and euphoria reign. As one prominent investor once said, “Be fearful when others are greedy, and be greedy when others are fearful.”
Professional Trading Strategies
A trader's job is not to predict market bottoms and tops, but to think in terms of accumulation and distribution. Develop a plan based on your analysis, and don't try to figure out the perfect entry or exit, but gradually accumulate on declines and gradually profit on rebounds. Have a strategy and stick to it, no matter how volatile the market is.
Discipline and Planning
Professionalism means having a plan and sticking to it, even when emotions run high. Discipline means resisting the urge to deviate from your plan when FOMO (fear of missing out) strikes or the market is gripped by fear.
Repetition is about consistently applying your strategy, even when it feels tedious. Ultimately, the ability to overcome repeated failure and disappointment is the key to success.
Mindset and practice
Warren Buffett's famous quote "Be greedy when others are fearful" rings true again. However, in practice, it is very difficult to buy when the market crashes and your portfolio is down 50%. Similarly, when the market is euphoric, we know to be cautious, but when everyone around seems to be getting rich easily, the temptation to make a quick profit is very strong.
Stick to the plan
Having a plan and sticking to it is crucial. If your plan is to accumulate on the dip, then you buy when prices fall and sentiment is low, no matter how you feel. If your plan is to take profits when your target is reached, then you sell in stages on the way up, even if it feels like the rally could last forever.
Long-term investment strategy
Catching the exact bottoms and tops may be ego-satisfying, 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 the best days. A slow and steady approach often wins out in investing.
in conclusion
Remember, the herd is usually wrong in extreme cases. 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 good luck with your investing!
