Cryptocurrency Investor Psychology Analysis: Why Don't You Take Profits and Cut Losses in Time?
As a psychologist, I have observed and analyzed many investor behaviors, especially in the cryptocurrency space - a volatile and emotional market. One common phenomenon I have noticed is investors' hesitation when faced with profits and losses: not taking profits and not cutting losses in time. This phenomenon deeply reflects complex psychological factors that we need to understand better to make smarter financial decisions.
1. Greed Psychology and Justification
As asset values âârise, one of the most powerful emotions that drives investor behavior is greed. This is a primal instinct that Freud referred to in his theory of the Id - the instinctive part of humans that always craves to satisfy basic needs without regard to the consequences.
In the cryptocurrency market, when prices rise sharply, investors often feel satisfied, but at the same time, they also have a desire to earn more. This leads to not wanting to take profits even when they have achieved significant profits. Justification comes into play when investors convince themselves that prices will continue to rise. They use reasons such as âthis technology has great potentialâ or âthe market is in an uptrendâ. This is a psychological mechanism that Freud called illusion building â a way to avoid facing the reality that prices may not continue to rise.
2. Fear and Repression
Conversely, when prices start to fall, many investors are reluctant to accept reality and cut their losses immediately. The fear of loss here can be stronger than the joy of making a profit â a phenomenon known in behavioral psychology as Loss Aversion. According to Freud, this fear can be seen as a form of repression â a defense mechanism in which investors try to push unpleasant emotions such as losses out of consciousness, so as not to face the pain they bring.
This fear can also cause investors to delay cutting losses, hoping that prices will recover. This leads to holding on to assets for too long, increasing the level of losses. This is not just a fear of loss, but also a denial of reality â one of the most obvious manifestations of pent-up.
3. The Role of the Ego and the Superego
In the context of investing, the ego acts as an arbitrator between primitive instincts (Id) and moral and social norms (Superego). When faced with gains or losses, the investor's ego must balance the desire to continue holding assets for further gains and the fear of loss.
However, if the ego is too strongly dominated by the Id â with its primitive instincts such as greed and fear â the investor will not take profits or cut losses at the right time. This can lead to irrational decisions and greater losses.
On the other hand, the superego â which represents moral and social norms â can cause feelings of guilt when losses occur or when the original investment plan is not followed. However, in many cases, the superego can be overridden by the ego when greed or fear takes over, causing the investor to continue holding assets even when it no longer makes sense.
4. Crowd Psychology and Collective Influence
In the cryptocurrency market, crowd psychology also plays an important role in investors' decisions. Investors often look to the behavior of the crowd to make decisions, rather than relying on personal analysis. When the market is rising, the crowd can create a sense of excessive optimism, encouraging investors to hold on to their assets instead of taking profits. Conversely, when the market is falling, the panic of the crowd can cause investors to continue holding on to their assets in the unrealistic hope of a recovery.
Conclude
Psychological factors such as greed, fear, rationalization, and crowd influence all play an important role in the decisions of cryptocurrency investors. Understanding these mechanisms not only helps investors avoid making bad decisions but also helps them develop a more rational investment strategy. From there, investors can better control their emotions, make decisions based on reason instead of letting emotions dominate, contributing to increasing the likelihood of success on their financial path.
