Published on October 30th, 2021
When do you make decisions best? Is it when you are emotional or not? I guess we both have the same answer. It is the former, isn’t it? In crypto trading, we also look at mass psychology as part of technical analysis.
This concept is also known as market emotion because the emotion of the numerous persons that participate in it dictates the price movement.
Most traders make consistent decisions. They claim an individual is unpredictable, but when grouped, one becomes predictable. When they expose themselves to large groups, they become impulsive and react based on their emotions rather than logic.
Most of us base our decisions on what others do since we lack confidence in our abilities. That is why we prefer to delegate decision-making to others.
Barry Schwartz touched on this topic in his Ted talk entitled The Paradox of Choice. We, as humans, tend to ask someone who is more knowledgeable to decide for us.
Most probably, we do this because we are afraid to take the consequences of our own decisions. To illustrate, patients ask their doctors to make crucial decisions regarding their health even if that responsibility belongs to them.
One can trace this human mentality back to Stone Age times. A hunter walking in the woods alone has a greater chance of not surviving when attacked by a wild animal.
But if they are a hunter group, their chance of survival is higher. And it is already branded in our roots; we join the group for safety led by a great leader.
Especially if we are not sure of something, we have a higher chance of jumping into the crowd. Joining the group will help you with something else. However, it is not accurate in terms of trading.
Why? Because joining a group affects rational thinking and decision making. There are times that we know we should hold our trading positions and times when we know we have to cut losses.
However, we do not follow our judgment because the crowd affects our decision. We can relate it to the idea of FOMO or Fear of Missing Out.
According to Investopedia, it is the act of purchasing a stock or other tradeable security such as cryptocurrency in response to a short squeeze — an unexpected scenario that causes rapidly rising prices. To join the trading community, start your investment via the BitQT App.
But do not get it wrong. You do not have to be against an organized crowd. The crowd is bigger and stronger than you. You have an option; it is either you join it, or you act independently.
You have to be practical and know when to keep up with the pack and when not. An inexperienced trader is enveloped in joy when the trade favors him and fear and anger when the market price is against him.
They become crowd members when they feel stressed and threatened. They lose their confidence, imitate others, or look for a leader to follow.
When a child feels scared, they want their parents or whoever is older to tell them what to do. Similarly, traders in that situation consult professional crypto traders, who will advise them on what to do.
They also look for a new trading system, newspapers, and other market leaders. There is nothing wrong with this, especially if you are just starting crypto trading. But remember that if you want to be called a trader, you need to think and act as an individual eventually.
The weakest part of a trading system is the trader himself. But it does not mean that you should not join groups and become a hermit. However, other traders prefer the latter.
The point here is you have to make a decision independently without being affected by the crowd. Own your decision through rational thinking and not by depending on others.
Crypto trading is like playing chess in which success depends on the players’ ability to make sound decisions. One should take responsibility for one’s own choice.
The ideas about crypto trading that you read on the internet, including this article, should be taken as open-source knowledge and not necessarily a piece of advice.
It is your call if you want to follow because, in the end, you make your own trading decisions. For others, connecting professional crypto traders in crypto trading platforms (like BitQT App) is a strategic move to lower the risk of crypto trading and minimize the mental discomfort that decision making gives.