As the market changes, our psychology changes, sometimes (almost) beyond our control.
The biggest and strongest example we can use is the FOMO, which stands for Fear of Missing Out.
FOMO is what happens whenever a new cryptocurrency drops, and it’s hot. And you want it on the action.
We’ve seen it recently with Celestia and Pyth, we’ve seen it in the past with memecoins such as Bonk and Shiba INU
FOMO is not a friend. This is because when the circumstances that create FOMO are in place, it means said coin is already too hyped and the only way it can go is sideways or down, usually.
Confirmation bias is also another big factor.
With confirmation bias, investor cherrypick the data they want to see, looking for whatever confirms what they already believe, and ignore everything else.
Say you believe coin XY will go up, and there are 9 indicators out of 10 that say it’s unlikely. But there’s one that says it might happen.
Confirmation bias will make you focus on that one indicator, ignoring the other 9.
The third factor is the anchoring bias.
An anchoring bias occurs when you can’t let go of the past, so to speak.
For example, say you’re looking at the candlestick chart for a certain crypto.
Say you spotted what was undoubtedly a bullish signal. But the market is unpredictable and the bullish signal was misleading, and nothing happened after.
Anchoring bias will make you focus on that one signal while being sure something will happen, even though reality proved that the opposite has happened.
I’ve crossposted this article on Publish0x.
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