Psychological Biases in Trading
Why do we incur large losses in crypto?
Not just because there's no commitment or stop loss… but due to a deeper psychological factor called Loss Aversion.
Simply put:
We feel pain from losses more than we feel joy from gains.
In crypto, the situation becomes riskier because the fluctuations are very violent.
The price drops 10%… you think it's okay, it will bounce back.
Drops 20%… you think the whole market is crashing.
Drops 40%… you think I'll wait a little longer.
Drops 70%… you sell at the bottom of despair.
Why didn't I sell earlier?
Because your mind refuses to acknowledge the small loss… so it magnifies it for you.
The problem is that this bias is useful in our everyday lives,
but in trading, it makes you:
• Hold onto the asset while it's falling
• Justify negative news to yourself
• Refuse to implement a stop loss
• And only sell when you lose hope
The solution?
Treat crypto as numbers, not emotions.
Set an exit point before you enter the trade.
Accept small losses… so they don’t turn into a disaster.
The toughest battle in the market is not with the chart…
but with yourself