We are all victims of human psychology

The cryptocurrency market is in a downtrend. It's obvious now that the major coins have lost 80% of their market value in the past 12 months and the fact that I haven't written much in that time span is a pretty clear indication that I was caught up in the psychology of the crowd. I was a sheep, it's true. Thankfully I wasn't too heavily invested so it didn't pain me that much, but I continued with my forex trading regardless of the crypto market's performance. Asking some questions might help us reflect on why we acted the way we did, such as:

Why did you lose all of our gains?
Why are you down from your initial investment?
Why do you believe that the crypto market will re-emerge stronger and livelier than before?
Why have many abandoned the crypto market completely?

Well my friends, it all comes down to human psychology. The reality is that we are not born with genes that readily enable us to look at the market purely objectively and rather our judgement is constantly clouded by our feelings. When your money is involved your emotions are amplified even further. It's like getting punched in the face by a heavyweight boxer and then immediately trying to have a serious conversation about philosophy. It's not going to happen. You are not thinking straight when your emotions are fluctuating wildly, and you are more than likely being irrational. If you've just lost a huge chunk of your investment you're likely acting like a an upset toddler for having his toy taken away from him. If you've made money which many people did in the beginning, you became ignorant and arrogant. You thought you were unstoppable and every call you made was due to your own genius, and the fact that the market was confirming this made your bias stronger than ever.

Why have you lost all of your gains?

Because of your vanity and hope. You became blind to your success. You we're arrogantly believing that you knew what you we're talking about even though you probably got lucky in the beginning and so you held on to your holdings even though the market continued to fall, and you lost everything you made. Your pride is stopping you from seeing what is actually happening around you, and you're hoping for a turn around.

Why are you down from your initial investment?

Because you're angry. This can tie into your arrogance if you were up at some point but it's mainly because you followed the crowd at the wrong time. You saw everyone else making money and you jumped on the bandwagon at a relatively high price and the market started to reverse on you. You are now acting like the toddler holding on to his toy because you think the market is being unfair to you, when in reality the market is not a person and you are failing to acknowledge this. Hope is secondary here.

Why do you think that the crypto market will re-emerge livelier and stronger than before?

Hope. There is the possibility that you are being objective here because the market has performed really well before by reaching new price levels never seen. But if you are still holding on to your investments while they are basically down 90%, you are still hoping to some degree. From an objective standpoint you might not care about the last remnants of your initial investment. I am guilty of this myself.

Why have you abandoned the crypto market completely?

Because you got BURNED. Why else is nobody talking about crypto right now? Don't answer that. This stems from fear that a bad experience will repeat itself. It's a basic human response, fight or flight, and the ladder has prevailed here. The market is terrified and that's why they aren't saying much.

Traders and investors will give you every reason under the sun to why they aren't performing as well as they could or should be. The reason for that is that we are "rational" beings and we have an inherent need to rationalize what is happening around us. The issue is that most of the time we are actually wrong in our judgments because we're clouded by emotions such as greed, fear, hope, and anger.

The main thing to take away from this is that we can only judge what is happening by what the market is objectively telling us. If it's going down, then it's probably going to keep going down. If it's going up, then the opposite is true. All of your reasoning in-between new price levels are usually just rationalizations of your good or poor performance. We make excuses for negative outcomes for what we had once hoped to be positive, or we beat our chests like gorillas because we were proven right at some small turn in our pathetic little lives.

Don't beat yourself up about it though because we're just being human, and I'd say we probably wouldn't have made it this far if we didn't follow our tribal instincts. However, to make money in the market you need to come from a foundation of the correct psychology, and what this means is that you must trade like a contrarian in human psychology. You must therefore learn to channel your emotions properly. This leads us to a widely accepted axiom of trading that I will discuss next time.