Human psychology is wired for survival not optimal investing. Crypto, being fast paced, volatile, and emotionally charged, magnifies our cognitive biases. Inspired by ironically by Charlie Munger's work on human misjudgement, here's a tight breakdown of 9 common investor biases, how they affect your trades, and what you can do about it. 1. Confirmation BiasWhat it is Favouring info that supports your existing beliefs. 2. Overconfidence BiasWhat it is Thinking you're smarter than the market. 3. Loss AversionWhat it is Feeling the pain of loss twice as strongly as the joy of gain. 4. Recency BiasWhat it is Giving too much weight to recent events. 5. Herd MentalityWhat it is Following the crowd feels safe, trading against the popular opinion feels stupid. 6. Sunk Cost FallacyWhat it is Justifying staying in a bad trade because you've already invested. 7. Anchoring BiasWhat it is Getting fixated on arbitrary numbers (e.g, ATHs, your entry price, whole numbers). 8. Risk Tolerance IllusionWhat it is Believing you're ok with risk until it punches you in the face. 9. Ego AttachmentWhat it is Equating being right with your identity. While biases hurt, they also highlight a simple truth: the crowd is usually emotional and wrong at extremes. This is where the opportunity is in crypto markets today. Bitcoin is working it’s way into a little wedge where we will need to decide if this is going to go exponential like previous bull runs or settle into a supercycle pattern. This could take the rest of the year to play out and we are only a month or so away from the period in summer where everyone goes sits on a beach and forgets about silly internet money. ETH/BTC had a little bounce and is now consolidating around 0.025. With it lies hope for Ethereum and the rest of the altcoin markets. Some levels to keep an eye on are $120k for Bitcoin, a break above this could put things into an accelerated timeline. A break below 62% BTC.D (Bitcoin dominance, currently 64.2%) could signify a longer term adjustment and alt cycle. Social links are below and if you enjoyed this newsletter I would appreciate it if you could share this content |
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