95% of crypto investors fail because of their own brain, that\u2019s the culprit. It\u2019s not the whales manipulating the price that keeps us from succeeding; It\u2019s their own thinking or rather our cognitive biases that push us to make poor decisions. Everyone has these no matter how smart logical or experienced you are; It\u2019s part of our human condition. The good news is that these biases are very well known. You can avoid them if you\u2019re able to spot them and know how to resist them.<\/p>\n\n\n\n
Unit Bias<\/strong><\/p>\n\n\n\n People would rather own a whole unit of something rather than a fraction of it. A great example is if you feel better about owning 10,000 of some meme coin rather than 0.1 of a Bitcoin. The problem with this is that owning a large quantity of something may make you feel good, but that says nothing about the underlying value or growth potential of that coin. If bitcoin goes up 10% while the meme coin only goes up 2%, then your 0.1 of a Bitcoin would have made you more money.<\/p>\n\n\n\n The point here is to not just look at the raw price of a coin and how many you can buy. You have to factor in things like their market cap and make a projection of how much that could grow in the future.<\/p>\n\n\n\n Anchoring Bias<\/strong><\/p>\n\n\n\n We put too much importance on the first piece of info that we learn about a coin or project. Let\u2019s say you discover SOL after it already rocketed 3x. You may be thinking \u201cDang I missed out on the rocket ship, it went up too much already.\u201d You end up not buying it but then it rockets 10x more on top of that. You missed out on all those gains, and it turns out you weren\u2019t even that late when you first discovered it.<\/p>\n\n\n\n This has happened to me so many times before. Thinking I\u2019m too late because I discovered a project after it had already rocketed. The right approach here is to evaluate it based on its future potential, not on its past behavior.<\/p>\n\n\n\n Confirmation Bias<\/strong><\/p>\n\n\n\n We only look for info that tells us what we want to hear. An example of this is closing our ears and screaming \u201cbut\u2026\u201d when we hear something that goes against our favorite project. Another example is if we only follow influencers who tell us what we want to hear, and we block the ones that we disagree with. This gets dangerous because what we want to hear is not always the truth.<\/p>\n\n\n\n Sometimes it is indeed FUD but not always. You have to be open-minded and willing to do your own independent research to tell one from the other. The point here is to not get married to your investments and to really strive to get to the truth, which can only help you make better investment decisions.<\/p>\n\n\n\n Sunk Cost Fallacy<\/strong><\/p>\n\n\n\n We hold on to losing positions just because we\u2019ve already invested so much time, money, or effort in it, even if the costs outweigh the benefits. A common example is if we hold a coin through a bear market and we\u2019re like \u201cDang it\u2019s down so much already. Let\u2019s just hold on to it until it recovers.\u201d<\/p>\n\n\n\n What if, we sell that coin and buy something else that\u2019s more promising and recovers even faster? That would be the more financially savvy move instead of just saying \u201cOh well I\u2019ve waited so long and invested so much that I\u2019m gonna ride with it.\u201d My point here is that you have to constantly reconsider the opportunity cost in order to make the best decisions.<\/p>\n\n\n\n Loss Aversion<\/strong><\/p>\n\n\n\n This is the common psychological behavior, where we feel more pain from losing then we feel pleasure from winning or gaining something. A great example of this comes from my own experience, I encountered some scam or rug pull ICOs back in 2017. I vowed never to do token sales again because I hated that feeling and wanted to avoid rugs at all costs. But If I was more open-minded like my buddy and bought some in 2019-2020, I would have gotten massive returns without even facing that many rug pulls.<\/p>\n\n\n\n The point here is that we should always ask ourselves, what\u2019s the worst thing that could happen if we took this action? and what\u2019s a realistic probability of that coming true? Sometimes the risk reward calculus is better than we think; It\u2019s our loss aversion that\u2019s irrationally keeping us from doing something.<\/p>\n\n\n\n Recency Bias<\/strong><\/p>\n\n\n\n We put more weight on recent information\/events than they deserve. Let\u2019s say we noticed that in the past few months, some on-chain or TA metric flashed and then Bitcoin proceeded to rocket right afterwards. You\u2019re like \u201cOkay it just happened again so i\u2019m gonna bet big this time. It worked all the previous times so why not this time\u201d Then it proceeds to fail and Bitcoin dumps instead and you get wrecked.<\/p>\n\n\n\n This is actually basic statistics like if we\u2019re in a casino and we notice a roulette table has been hitting a long string of greens, then we think that it\u2019s a greater odd of being green next, even though that\u2019s definitely not the case. The point here is that we need to zoom out and look at more complete data, to make sure that we\u2019re actually building a solid statistical case, rather than cherry picking data to inform our views.<\/p>\n\n\n\n Survivorship Bias<\/strong><\/p>\n\n\n\n We only study the winners or survivors and try to copy them to recreate their success, even though it may have been blind luck. We all hear about someone buying a few thousand dollars\u2019 worth of meme coins and becoming a multi-millionaire in a few months, but we don\u2019t hear about the thousands of people who bought meme coins and lost a ton of money.<\/p>\n\n\n\n It\u2019s a fool\u2019s game to try to copy the winners without studying the losers as well. The problem here is that sometimes it\u2019s harder to notice or get information about the losers, and that\u2019s why this bias is so prevalent.<\/p>\n\n\n\n Authority Bias<\/strong><\/p>\n\n\n\n This is simple, it\u2019s our tendency to follow the leader or authority figure. For example, if you\u2019re like \u201cWow! this analyst has been around since 2015 and they have a million followers on twitter. They must be super legit and have a great track record.\u201d then you follow their trading calls, and it turns out wrong and gets you wrecked.<\/p>\n\n\n\n Like PlanB for example, so many people followed his stock to flow model, and swore by his crazy 120k Bitcoin by December prediction. Point is you got to realize that authority figures get it wrong too, so don\u2019t take their word as gospel. Also, be sure to ask yourself what their motivation or incentives is to say what they\u2019re saying. Oftentimes we need to take their word with a grain of salt and come to our own decisions instead.<\/p>\n\n\n\n Outcome Bias<\/strong><\/p>\n\n\n\n This is where you judge a decision based on the final outcome that happened, rather than separating the quality of your decision from the eventual outcome. One example is if you FOMO into a random meme coin and then it goes 10x. That is amazing for you but a terrible decision, the reason why is because if you do those nine more times, it may all fail and get you losses instead. When evaluating the result, you have to account for randomness or variance that could explain it.<\/p>\n\n\n\n Herd Mentality<\/strong><\/p>\n\n\n\n This is where we like to follow and copy what everyone else is doing. Like \u201cOh wow! Everyone is buying these NFT collections so I gotta do it too.\u201d This type of FOMO behavior could lead you to \u201cbuy the top\u201d in many instances. You really want to do your own clear-headed analysis rather than get sucked in by emotion too much.<\/p>\n\n\n\n Now that we\u2019ve identified these common biases, the question becomes how we resist them. One thing you can do is to print out a checklist of these 10 biases, along with all the other ones out there. Go through them every time you want to make some investment decision, like whether or not to buy some coin you just heard about. After you refer to it enough times, it will become more muscle memory.<\/p>\n\n\n\n The next thing you could do is to create a trading or investing framework for yourself. You set your own rules, like in what situations do you buy something, and in what situations do you avoid or wait. Just follow that to a tee so it\u2019s not left up to your gut feeling on any given day.<\/p>\n\n\n\n But of course, you can adjust that over time. Like if you notice a string of underperformance, you can review your system, and make changes as need be. No system is perfect after all and it\u2019s all about iterating to make it work for you. Related to that it\u2019s just keeping a journal of good and bad moves to see what you can learn from in the past.<\/p>\n","protected":false},"excerpt":{"rendered":"95% of crypto investors fail because of their own brain, that\u2019s the culprit. 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