-Whether we are experienced traders or novice learners, even masters in finance and investments, we must never forget our weaknesses that turned into strengths.
-In the cryptocurrency trading market, investor behavior is often influenced by psychological factors, market emotions, and risk perception. Below are some reasons that may lead investors to not close positions (lock in profits) when they are making money, and to opt for cutting losses (stop-loss) when they are losing money:
1. Greed and fear:
- When prices move in a favorable direction, investors may wish to take more profits due to greed, and therefore, are not willing to close positions too soon. They may think that the market will continue to develop in a favorable direction, ignoring potential risks.
- On the contrary, when falling prices cause losses, fear leads some investors to flee the market to avoid further losses, which usually happens after the market has already changed in a noticeable way.
2. Anchoring effect:
- Investors often use the purchase price as a reference point (i.e., the "anchor"). When the market price is above the purchase cost, they feel they are in a position of profit and expect to achieve a higher return; but once the price falls below their acquisition cost, it is easy for them to feel panic and consider selling.
3. Loss aversion:
- Research shows that people feel losses much more intensely than gains of the same amount. This means that even if market conditions are unfavorable, people may cling to their positions, hoping for a market recovery, rather than accepting small losses in reality.
4. Overconfidence:
- Sometimes, traders become overly confident in their judgment or predictive ability, especially after having several successful trades. This overconfidence can lead them to hold positions when they should have taken profits, hoping to obtain greater benefits.
5. Market noise and information overload:
- The volatility of the cryptocurrency market is extremely high, and there is a large amount of news reports, social media comments, and other information from informal channels. All of this can interfere with the decision-making process of investors, leading them to make impulsive choices in situations of uncertainty.
6. Lack of a clear trading plan:
- Not having a clear entry and exit strategy makes it difficult for many retail investors to respond rationally to market changes. Without a pre-established target price or a stop-loss level, it is easy to fall into a state of following the crowd.
7. Herding effect:
- Sometimes, investors follow the behavior of the crowd, seeing that others are making money and want to participate, even if they do not fully understand the investment logic behind it. Similarly, when the market suffers a major correction, mass selling causes others to sell as well.
-To overcome these issues, investors are advised to develop a detailed trading plan, which includes establishing reasonable profit-taking and stop-loss points, and to adhere strictly to them; furthermore, maintaining a calm mindset, without being influenced by short-term market fluctuations. Additionally, continuous education and the accumulation of experience are key to increasing the success rate in investments.
-Investing carries risks; much study and analysis are required, do not be too BOLD AND GREEDY !!!!
