Fear is an inborn feeling that breaks in when investors and traders smell a possible threat to their holdings, like a sudden decline in their portfolio’s value or bad news emerging about the market and potentially impacting crypto prices.
Greed, on the other hand, manifests when a crypto’s price starts to climb and investors hold onto their accumulations in an attempt to maximize their profits, sometimes leading to overinflation.
For instance, Bitcoin broke the $20K mark in 2017 on the back of hype and speculation, only to drop significantly in the period that ensued and generate losses for many investors.
Herd behavior occurs when investors direct their focus and funds on specific crypto just because there’s hype around it and many other market participants invest in it. In part, this urge to get the crypto that looks promising is caused by a fear of missing out.
Say you spot the XRP price rising and see more and more investors place bets on this crypto. Then, naturally, you may be inclined to consider socketing some money away in it, too.
After all, so many investors funneling their money into an unreliable project would sound delusional. Chances are that they have some insights you might miss on.
Many of the emotions you may feel when faced with a decision regarding crypto investing and trading are hardwired into your human behavior and can have a considerable effect on two things. On a smaller scale, it can determine how your portfolio behaves.
Zooming out, it contributes to the overall effect on the global asset market. For all these reasons, you should conduct a deep introspection and figure out how various market moves and news can sway your decisions. Suppose you are considering getting into crypto and need more confidence.
In that case, this article might help you sense tendencies and triggers before they can control you and sway you from your fundamental strategy.
Let’s commence the journey, shall we?
Fear versus greed
Two fundamental emotions dominate in the crypto realm, namely fear and greed. The former occurs when traders feel urged to cash in on their assets out of panic and due to precautionary pulls.
Oppositely, greed manifests in the bliss of the bull market, when climbing prices can’t help but draw investors in and push them to stick to their assets a bit longer in a misleading belief that profits will boom.
The abundance of contradictory emotions transforms into a tug of war that doesn’t impact only the persona in question but the whole market. It transforms into a collective contest that crayons crypto’s ebb and flows in numerous ways.
Now, the concept of a “crypto fear and greed index” is a widespread one, and you’ve likely encountered it on social media feeds.
In simple terms, it is an index that offers investors insights into the broader market sentiment, focusing on the two emotions in question. On a 1-100 scale, the index evaluates the market’s emotional climate.
This is just a sign showcasing how important managing your instant emotions is.
A “0” score means there’s uncertainty, doubt, and possible undervaluation. Conversely, a “100” mark discloses a potential overvaluation driven by excessive bullishness and confidence.
This way, investors can better understand the bearish or bullish emotions impacting the whole underlying landscape.
The index consists of four categories: orange, yellow, bright green, and green.
The fear of missing out
The fear of missing out, shortened FOMO, can often incite investors to buy. Psychologically speaking, the fear shines the most when a crypto’s price rises and pulls investors. Traders may get swept up in the herd’s investment decisions, heightening market movements.
You can envision this wave as a blasting demand for the latest Apple gear debut—not all buyers necessarily need the product, but they buy it anyway so as not to miss out on something fantastic and align with other purchasers in the “crowd.”
What you can draw from this is evident. In the world of trading and tech, keeping abreast of the news and remaining mindful of your biases might save you some trouble down the road since this precaution can keep you from resorting to rushed poorly-informed actions.
Creating emotional resilience
In the crypto world, being emotionally resilient is like securing your wallet from thieves by always wearing it on you. You ensure you have clear rules, stay committed to constant education, and embrace mindfulness.
Many strategies can help you develop emotional resilience, such as playing demos with various types of volatile assets—including crypto. See how you would react if your favorite crypto’s price were to drop overnight.
On another note, learn more about your urges when an asset booms in price. Is Bitcoin’s latest rally unsettling you because you could’ve bought more units when it was humbly priced two years ago? If the answer is yes, you have some food for thought to munch on.
And if it’s not, then you might have the seed of emotional resilience already implanted in you. Start watering it and see how the roots spread, developing an investor that can hardly be moved and swayed by changing market conditions.
These recommendations don’t just hint at surviving on the market, but at flourishing in the volatile crypto trading realm.
Conclusion
Crypto trading goes beyond the simple act of purchasing low and selling high. Grasping the emotional undercurrents that push investors to enter or leave the market, as well as their actions in crypto, can be a pillar of your success. Crypto trading is a test of willpower against an unpredictable, powerful market.
Consider it a marathon of thoughts.
As you progress, consider discovering what triggers your intentions in crypto better to protect yourself from undesired outcomes driven by uninformed decision-making.
The educational content on the internet is boundless, so pick a source of your liking and go with it until you make sure that no fear, greed, or herd can negatively impact you.