Buy high, sell low - why are people losing money? (Maria Stankevich) PlatoBlockchain Data Intelligence. Vertical Search. Ai.

Buy high, sell low – why are people losing money? (Maria Stankevich)

Since 2009, Bitcoin and cryptocurrency markets have gone through many cycles of growth and recession, even within larger ongoing trends known as bull and bear markets. Though every market decline to date has been accompanied by recovery and significant growth,
so-called crypto winter can be very stressful and difficult to survive through for both professional traders and newbies.

This is a quite familiar image, isn’t it? 

Unfortunately, this picture is the exact situation that we see when BTC is reaching its ups and downs. At EXMO, we usually say that if your granny asks what Bitcoin is, it’s too late to buy it. While thousands of people are queueing to buy overpriced assets,
there is only 30% of the customers who are ready to buy when the market is down (EXMO data).

There are plenty of reasons for that, let’s take a look at the two main ones:

FOMO

This is probably one of the main reasons for the described behaviour. FOMO (Fear of Missing Out) can lead to poor decision-making, lack of long term thinking, and can cause people to trade without thinking too much about it. People are afraid that they are
missing out wonderful opportunities to become rich. FOMO is driven by many emotions and fears, such as greed, impatience, jealousy, fear, overconfidence, and anxiety. When markets are fast-moving or volatile, such as with cryptocurrencies, FOMO trading gets
even worse. It can also be caused by a winning streak, hearing news about a coin, seeing speculation on social media, or seeing other people have successful investments.

Loss aversion

Loss aversion is a behavioural bias in which individuals tend to experience more emotional pain from a loss than the emotional pleasure from a corresponding gain. To avoid emotional discomfort and financial loss, individuals may impulsively sell assets at
a loss to avoid further declines – even when they are loosing money. Those clients tend to buy high and sell low, just because loss gives them more emotional pleasure than a potential gain (weird, isn’t it?)

Thank God, not all the investors are behaving like some retail users. Big investors – crypto funds, hedge funds, trading firms, etc. – see the price drop as an opportunity and use the method to buy the dip. When the crypto markets are dropping, there are
opportunities for people who know what they are looking at. Where others see a cold, dark winter for cryptocurrencies, smart investors see an opportunity to purchase coins and tokens at a lower price, then make a profit.

  • Some traders who could not participate in previous market gains can use buying the dip to get back in the market, or increase their position. Even when the market is declining, there are still small ups and downs.
  •  Traders who have learned about technical analysis can make use of that knowledge to predict short term changes and profit from buying low and selling high. 
  • Also, betting that an asset’s value will go down (aka short selling) can be a good way to earn a profit during dips. While markets are down, you get more crypto for your dollar, because DeFi and staking help ensure that your actual crypto balance is always
    increasing. 

These activities also help make sure that your returns are more even, so that in a down market, you still have support to make sure that your crypto balance is still growing.

So, don’t follow the flock, stand out and buy the dip.

***

Disclaimer
This information should not be considered as direct legal, financial, investment or tax advice. I remind you that cryptocurrency investments are high-rewarding, but also involve high risk. Remember that each trader is personally responsible when carrying-out
trades or choosing a project for investment. I do not guarantee any particular outcome.

Time Stamp:

More from Fintextra