Most people think that investing in cryptocurrency is easy. After all, it seems simple: you buy some crypto, watch it go up and down, then sell it when you make a profit. Nothing to it, right? However, if you’ve been investing in crypto for any amount of time at all, you know the truth: the market can be brutal.
In fact, we humans are wired in a way that makes crypto investing difficult. In this article, we’ll take a look at seven psychological rules for successful crypto investors and how they can help us make better decisions.
Crypto investors are irrational
When it comes to investing, you might think that being rational is the best approach. But in fact, that’s not always the case. Many of the best investors are irrational in some sense. They do things that don’t make sense on paper but work out anyway.
Investing is often a combination of art and science, so it makes sense that your decisions should involve both sides of your brain. Research has shown that when we try too hard to be logical, we can get locked into our preconceived notions and miss out on opportunities for innovation and discovery.
Here’s one example: When evaluating technology companies for investment purposes, some investors were shown financial information about two businesses. One was an established company with a high-profit margin. Another was an upstart company with low margins but much higher growth potential (and thus risk). When these investors were asked which firm they would invest in if given $100 million to do so, most chose the more profitable option, but when given only $1 million instead?
Those same investors chose the riskier project! It seems clear why this happens. Less money means less time spent thinking through each decision. It leads people towards answers they believe will bring them success rather than letting them explore new ideas which may turn out well or badly depending upon circumstances beyond our control.
Anxiety and uncertainty prevent good decisions
We all feel anxiety, but when it becomes excessive and interferes with your ability to make good decisions, it can be a sign that you should scale back your investing. Anxious investors tend to be overly conservative in their choices and miss out on opportunities that could help them achieve their long–term goals.
Anxiety is a natural part of being human; it’s the fear response we use when we’re afraid of losing something important or hurting someone else. It’s also protective, without anxiety, people would take more risks than they can afford or handle emotionally (which could lead to bad outcomes).
So while anxiety may not always work in your favour, it doesn’t mean there’s something wrong with you if you experience it from time to time. It just means that something has triggered an alert inside your brain telling you not to take any risks at this moment because doing so isn’t safe (or necessary).
Little steps leads to bigger gains
You’re likely to be more successful if you take small steps in the beginning as opposed to making a huge leap into the crypto world. This is because it is easier to achieve smaller goals, and it is also easier to maintain consistency over time by taking small steps. Smaller goals are also less likely to fail or lead to regret since they are not too big of an undertaking, so you won’t have any major regrets if they don’t work out.
Taking small steps will lead you towards success more easily than trying something new or changing your lifestyle drastically because there will be less pressure on yourself when achieving each step along the way.
Fear of missing out (FOMO) leads to bad decisions
Fear of missing out (FOMO) is a powerful emotion. When you’re trying to figure out which cryptocurrency to invest in, it can make you feel like you need to find the next Bitcoin or Ethereum in order to profit from this new phenomenon.
However, there are plenty of reasons why FOMO may lead you to make bad decisions when it comes to investing in cryptocurrency. First, your gut instinct might not be right: there’s no guarantee that the coin you think will be successful will actually do well after all! Also, any investment can lose value at any time due to market volatility and other factors. So while it may seem like getting into the market now will pay off down the line, that could change without warning.
Psychology is affected by sleep loss
We’re all familiar with the fatigue, grogginess, and lack of focus that follows an inadequate slumber. That’s because sleep is vital to our health and well-being, but many people don’t realise how important it is for making good decisions.
A recent study conducted by researchers at Dartmouth College found that sleep deprivation can lead to poor decision-making on par with alcohol intoxication (a legal limit for driving being 0.08 percent). They believe this happens because lack of sleep disrupts brain activity in ways similar to alcohol consumption.
It reduces activity in areas responsible for higher cognition (such as problem-solving and memory) while boosting activity in regions associated with emotional processing. This results in lowered impulse control and decreased ability to deal with complex situations effectively due to increased reliance on emotions rather than logic when assessing risk/benefit ratios associated with various courses of action available at any given moment.
Pessimism prevents good decisions
In psychology, pessimism is defined as an emotional state in which one expects the worst possible outcome to a situation. Pessimistic people are more likely to find negative patterns in life and perceive things in a negative way. The good news is that this mental state can be helpful too! As long as you don’t get carried away with it or let it take over your life, pessimism can be used to your advantage by making you think twice before making a decision. It makes sense: if there’s no hope for something, why waste time on it?
This may seem like a bad thing at first glance (and yes, there are times when being overly pessimistic is not good for you). However, if used properly and moderately – like most things – then pessimism can actually help us make better decisions by preventing us from doing foolish things that could end up causing us to harm later on down the road because they didn’t seem worth it at the time.
Optimism is key for making good decisions
It can be easy to fall into the trap of thinking that optimism is a bad thing. We’ve all heard the phrase, “Don’t be so optimistic,” or something along those lines. But this isn’t true. In fact, it’s quite the opposite. Optimism is one of the most important traits you can have as an investor in crypto because it helps you make good decisions and stay motivated through long periods of time when there are no big wins or profits to be made.
It’s true that when things are going well in the marketplace, you’ll feel more optimistic than when they’re not. However, being optimistic even during tough times will keep your spirits up and keep you motivated so that when things do turn around again (and they will), you’ll be ready.
One of the most important things to understand about investing in cryptocurrencies is that it’s very much an iterative process. You will learn from your mistakes and make better decisions in the future, but only if you’re willing to look back at what went wrong and not repeat those same errors.
When we look at things from this perspective, it’s no wonder that people say the most important skill for a trader is not technical ability but psychological stability. By deciding what to focus on and how to use context, these seven rules can help you achieve success in trading. Moreover, they can help you become more mindful when making decisions with your money in all areas of life.
James Wallace did his degree in psychology at the University of Hertfordshire. He is interested in psychology, mental health, and wellness.