When you have a stake in the crypto world, emotions often play a significant role in your decisions—not only because of how fast-paced and volatile the ecosystem is but also because the emotional part of your brain goes into overdrive when it comes to buying and selling.
Learn how to detect the emotions that shape your crypto choices in these ways—and how to make sure you’re investing responsibly.
1. Build Investment Principles
Creating a plan for your investments can help you stay objective when evaluating them. It’s essential to have investment principles in place for critical scenarios, such as setting and sticking to price targets.
Additionally, it’s crucial to conduct thorough research on your investments and maintain a close understanding of the project’s or token’s value. This can help you make informed decisions and avoid being influenced by your emotions.
2. Get Over the FOMO
One of the best ways to eliminate FOMO (fear of missing out) is by having clear and precise targets for your investments. If you buy something at $5 with the plan of selling it at $10, you must stick to your plan, regardless of market conditions.
To avoid FOMO, consider selling 50% of the asset for 100% of what you put in once the price doubles. You may be able to eliminate the risks while still exposing yourself to the potential upsides.
3. Make Sure You Don’t Marry Your Bags
When it comes to cryptocurrency, receiving your profits is a crucial aspect of trading. This allows you to participate in various environments and other decentralized options like staking, which can earn you an annual percentage yield while retaining your investment.
Gaining profits through volatile investments can be lucrative, but avoiding getting attached to a particular asset is important. Even though we all have our favorites, it’s best to prioritize making gains. One possible strategy is to withdraw 50% of your profits while keeping the other 50% invested to maintain your position.
4. Get Past the FUD
Understanding your investments is crucial in overcoming fear, uncertainty, and doubt (FUD). Generally speaking, there is little difference between investing in shares that cost $20 or $50 each.
However, if the asset you have your eye on continues to drop in price, this could be an opportunity to buy more units at a lower cost. This is attractive because it can help you build a diversified portfolio.
5. Don’t Get Greedy
Greed can contribute to FOMO, especially when you break your plan to sell at $3 instead of rationalizing not selling until $5. It is not wrong to take profits too early rather than not taking profits at all if you stick to your investment plan and are principled.
6. Avoid Herd Mentality Bias
Asset valuations can fluctuate between fair, overvalued, undervalued, and cheap as investor enthusiasm rises and falls over time. Unfortunately, personal biases and the heavy influence of cryptocurrency trading can often lead people to feel pressure to conform to group behaviors. This herd mentality can result in buying hype coins simply because others are doing so without considering the actual value of the investment.
7. Don’t Believe the Buzzwords
Understanding the psychology of trading in crypto is crucial, as is being aware that many people worldwide possess digital assets. It is not uncommon for us to receive seemingly unbelievable investment offers that trigger our greed and surprise. However, we should be cautious when dealing with buzzwords.
In particular, when it comes to investments in Blockchain, AI, DeFi, and Yield—especially if we hear these words being used without any context or clear value proposition—they’re just words. They shouldn’t be taken at face value.
8. Stay Aware
Understanding the psychology of cryptocurrency trading and being aware that many people worldwide possess digital assets is essential. When you plan to make informed investment decisions, it’s crucial to research the project you’re interested in, comprehend its value proposition, read its whitepapers, and engage with its community on social media.
A clear understanding of what you’re investing in will give you the confidence to achieve your investment goals.
9. Loss Aversion and Its Pain
One of the fundamental concepts of behavioral economics is loss aversion. Many new investors check their assets frequently during the day and become stressed over small daily losses, often forgetting that they will also gain profits. This tendency can cause them to experience deep pain when they lose money, equivalent to the pleasure they feel when they gain earnings.
10. Avoid Confirmation Bias
The web3 community is small and tightly knit, and it’s not uncommon for people to get isolated in an echo chamber—online spaces where individuals only seek out specific information that validates their preferred assets and projects. This sort of thought process is known as confirmation bias: the inclination to seek information that aligns with a person’s pre-existing beliefs.
Considering all perspectives—even if they are not favorable—is essential. To make well-informed decisions about cryptocurrency, you must actively seek objective and balanced sources of information rather than relying solely on comforting confirmation biases.
11. Avoid Excessive Confidence
Around 80% of investors believe they are above average at investing, according to countless studies. This is no different from crypto traders, who check their apps hundreds of times daily and can develop an inflated sense of control over highly volatile assets.
Lastly, markets quickly humble this overconfidence. Avoiding the temptation of overconfidence bias is key to crypto investing with clear eyes.
12. Don’t Overestimate Earnings
Investors who are overconfident may overestimate their knowledge of financial markets or specific investments. It’s crucial to understand that the crypto trading environment is risky, and things can go wrong frequently. Overconfidence can lead to poor investment decisions, but it’s essential to stay objective and maintain a healthy balance between investments and research.
13. Avoid Eternal Despair
The past two years have been quite tumultuous for the crypto community and many web3 projects. After experiencing massive bull runs, the extreme crypto bear markets have reached despairing lows, causing accumulated fear.
These lengthy downtrends have created a depressed environment that can leave many long-term holders emotionally drained and exhausted. However, even if it feels like the situation is lasting too long, there is no need to give in to despair.
Instead, it is best to focus on other projects and learn about different sides of the evolving technology. When you remain calm during despair, you will be able to take advantage of sentiment mean reversion.
14. Avoid Over-Projecting in Crypto
Projection bias in cryptocurrency is a common mistake we make when we overestimate how much value it will have in the future. This causes us to make hasty decisions without considering all the relevant factors.
Our brains tend to use these shortcuts, so when it comes to making decisions, we rely on these reference points as anchors. This state of mind can lead us to assume that others think, feel, believe, and invest in crypto the same way we do.
Discipline Over Emotion
Mastering the emotional ups and downs of crypto requires self-discipline that can only be learned through experience. Becoming more aware of our internal biases is the first step to improving our understanding of them.
However, self-awareness is not enough on its own. We must also develop pre-planned, systematic strategies to be successful crypto investors. In the web3 community, we say, “Enjoy the ride, my friend,” as we know that crypto investment involves both highs and lows. It’s important to stay SAFU.