Behavioral biases, when left unchecked, can lead to poor crypto trading and investing decisions. In fact, there is an entire field of study called behavioral finance, which combines psychological theory with conventional financial economics. Biases are often unconscious, so you must pay close attention to your behavior to reduce bias-charged decision-making.
1. Overconfidence The overconfidence bias applies to traders who are too sure of their trading ability, causing them to make risky market decisions or overly frequent trades. You can also be overconfident in assets you have already invested heavily in, leading to a portfolio lacking in diversification.
2. Limited Attention Span There are countless crypto opportunities available. However, we only have a limited amount of attention to spare to properly understand each option before trading. Furthermore, there is often a lot of market noise surrounding different crypto opportunities. This could lead to trading decisions being made with incorrect or insufficient information.
3. Trend-Chasing Due to the volatile nature of the crypto market, traders may be misled by a token’s exponential price increase and neglect studying the fundamentals that support this spike. Instead of jumping on the bandwagon, consider assets trading below what you feel is their intrinsic value instead of just focusing on tokens that have performed spectacularly well.
