The truth is not like this. Mathematicians, financial experts and other very smart and professional people often make the same mistakes as retail investors.
Why is this so? Because playing with memes is really playing with human nature.
There are three biggest psychological barriers when it comes to fighting the Earth Dog: sunk costs, anchoring effect, and disposition effect.
1. Sunk cost. Sunk cost refers to the psychological effect that the cost of incorrect investment in the early stage affects people's later behavior.
To give a simple example, when you download a very bad movie at home, watch it for 15 minutes and can’t stand it anymore, you will turn off the player without hesitation.
But if you watch the same movie in a movie theater, you will most likely force yourself to finish it. Why? Because the cost you put in is different. Downloading a pirated version at home costs almost nothing, and a movie ticket costs 50 yuan. You think it’s a pity to leave the theater halfway through, so you endure it.
In fact, whether you finish watching the movie or not, the cinema will not refund your money. Insisting on finishing the movie will not reduce your losses. Instead, you will have to waste an extra hour and a half. The 50 yuan you spent on the movie ticket is the silent cost, because you cannot get rid of its influence and you pay an extra hour and a half.
The most common application of silent cost in cryptocurrency trading is covering a position. Many people start to cover their positions continuously after their positions fall and they are trapped. The more they cover, the larger the position they cover, and finally they use all the funds in their wallet to buy in. This is the result of your inner sunk cost.
In fact, the most important thing to decide whether to cover a position is to look at the community and trading volume. At the same time, search for contract selection on Twitter - the latest to see how long no one has discussed it and cx.
2. Anchoring Effect
The anchoring effect mainly refers to the fact that people are easily influenced by some recent signals to influence their judgment. The anchoring effect is also very common when trading. Why can't I bear to sell when it has increased fivefold? It's because I see that others have increased their prices by dozens of times recently, and their market value has increased by tens of millions or even hundreds of millions recently. My market value of 15 million still has room for growth. I feel that I didn't sell it at the highest point just now, which was ten times, and I felt unwilling to give up. I thought I would sell it when it increased tenfold, but I never waited until it increased tenfold.
When the market is pulled back, it is anchored by the highest point just now, and then falls by 20%. It is anchored by the highest point just now, and keeps falling. It is always anchored, and it is always unwilling to give up. This is why when the market plummets continuously, everyone is often dumbfounded, loses the ability to operate, and is unwilling to give up. When the market rebounds a little bit, it is like waking up from a dream, and quickly cuts losses or sells out to recover the investment, because once the market rebounds, the price of the currency is likely to reach the previously anchored position, so there is a strong urge to cut losses and sell at a loss.
3. Disposition effect.
The typical operation is that you cannot hold on to the price when it goes up, and cannot accept the loss when it goes down, and soon you are in a state of all-in.
The bad habit of not holding on to profits determines that you can only make a little money in the cryptocurrency circle at most. The bad habit of holding on to losses determines that you will lose money sooner or later.
Many people have heard the saying "let profits run and cut losses", but saying is easier said than done.
Behavioral finance has said that retail investors' tolerance for missing out is twice as much as their tolerance for losses, which means that the pain of missing out on 20,000 yuan is the same as the pain of losing 10,000 yuan. This is an important reason why many people cannot hold on to their profitable coins but like to fight to the death with their losing coins, because people will instinctively choose the option that causes less pain.
How many of the above psychological barriers do you suffer from?
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