The Psychology of a Successful Cryptocurrency Investor
If you’re new to cryptocurrency, you were probably sucked into this rabbit hole for one of three reasons:
- You heard about the hype regarding Bitcoin, Litecoin or another very popular coin and you wanted to be one of the first adopters of a potentially world-changing piece of technology.
- You saw the returns that people were getting from cryptocurrencies and heard the stories of folks that had gone from a $100 investment to sitting in a mansion with two Lamborghinis outside.
- For reasons #1 and #2.
I will not make any assumptions about what attracted you to this sphere, but I will make some inferences based on what I know about human nature as well as the cryptocurrency field.
More than likely, you are completely aware of the absurd amount of money being raised and transferred to the cryptocurrency space. At the time of writing, the entire space is worth approximately $429 billion and ICOs, or newly released coins, which garnered a whopping $5.6 billion in 2017 alone.
These numbers are enough to tempt any rational, money-driven (which most of us are) individual to at least peruse some of the options available at his or her disposal to accrue more money.
If you have taken it upon yourself to do so, then you have more than likely stumbled on the fact that there are a healthy amount of exchanges out there that allow people to trade between hundreds of cryptocurrencies.
Yes, there are hundreds upon hundreds of different cryptocurrencies and tokens that are currently being traded on the open market within crypto. Maybe you have analyzed some of the charts for these cryptocurrencies, and you realized that a few of them were accruing absurd profits. So, you have decided to foray into the world of investing in cryptocurrency.
The rest of this article will be dedicated to warning you against the pitfalls of cryptocurrency investing, and there are a considerable number of them if you are not vigilant and careful.
Be wary of Twitter/Social Media personalities
One of the first things you may have noticed after deciding to invest is cryptocurrency is that there are many individuals in the space that claim to be ‘experts’ on all things related to cryptocurrency.
Few of them are identifiable by name and usually, have some animated character or figure as a profile picture rather than any identifiable account. A few are at least smart enough to give the disclaimer that they are not ‘financial advisors.’
Unfortunately, a great many of these individuals have absolutely no clue what they are talking about and following them will lead to substantial losses if you are not careful. Here is an example of one of those individuals:
Those that were unfortunate enough to listen to the half-assed ‘advice’ that was given by this trader and decided to enter in this range would be down nearly 20 percent at the time of writing.
Is there a possibility that the price of bitcoin will eventually continue to rise at some point? Sure. However, there is no reason to take losses in an unnecessary situation.
Never Ever Ever Join a Pump and Dump Group
Yup that includes any and all ‘signal’ groups, ‘whale’ groups, ‘dolphin’ groups, etc. You would not get rich there. Any concrete analysis rarely supports the entries and targets that many of these groups give and most of them refuse to provide any.
More than likely, if you attempt to follow these groups, you will end up losing a substantial sum of money in the long-term. Following such groups will lead to your ultimate demise as an investor sooner rather than later because you would not even be solvent enough to continue following some of the ‘signals’ that are getting posted.
Now, there are times where nearly any ‘call’ that is made will turn up successful because there is a flood of money rushing into the crypto space. December 2017, was one of those times. However, most of the time, this is not the case. Right now, for instance, anyone following ‘signals’ would more than likely have lost over 40 percent from their initial position in just about any given cryptocurrency over the last month.
Stay up late researching, wake up early to research. Research until it hurts to research and then research some more.
Here is why you need to do this; as we noted earlier in this article, there is a crazy sum of money that can be made from crypto, there is no denying this fact. However, the vast majority of that money is made by those that know what they are doing. Even if those people happen to be delivering the same information to you, they most likely have already made their moves and taken their positions/stakes in something before they have gotten around to writing about it or informing you. So, even if you are lucky enough to run into someone that knows what they are talking about, it is more than likely that you will find yourself ‘behind’ the curb anyway.
The very reason why research is crucial. It allows you to know everything about what is going on and not have to rely on individuals. Then, you will be able to use these ‘experts’ for what they are really good for, a supplement to your research. For example, sometimes I know who can chart correctly and who can not. I follow the ones that can, and I will view their chart if I am unable to access mine (out on the road) or I’m looking to see if there are any patterns that I missed. Based on my prior knowledge, I can see what has been posted and validate whether the idea that the trader had is legitimate or bullshit. Sometimes, I see things that I didn’t see before.
Another reason why research is critical is that it gives you a perspective on cryptocurrency that most people do not have and it assists significantly with your fundamental analysis (we will get to this later) of various coins.
What Do You Mean By Research?
I mean research everything. You need to understand how cryptocurrency works from its fundamentals. Know who Satoshi is. Why did he create Bitcoin? Where did he get the idea from? What is a blockchain? What are Merkle trees? How do hash functions work? What is a hard fork? What is a chain split? What is a BIP? What is ‘Bitcoin Core’? Who is Gavin Andreesen? Who is Charlie Lee? What is Proof of Work? What is ASIC? Who is Bitmain? How do fees work in the system? What is Cardano? What are zk-SNARKs? What is China’s legislative policy on cryptocurrencies and exchanges at this moment? How much are ICOs raising at this moment? What is the total market cap of cryptocurrencies? Can I explain the concept behind Ripple without looking at anything? What does Wall Street think about cryptocurrency? What firms support and reject it? Who is Roger Ver? What is a block height?
And that is just the fundamental aspect of everything. You also need to understand and read as much as you can about technical analysis too.
You need to research about what technical analysis is. Who are the prominent traders? Who is not prominent? What is a good trading strategy? What is the MACD? What are Bollinger’s Bands? Can I plot them? Can I identify the name of each line of the Bollinger’s? How many periods do they cover? What is a period? What are the advantages of looking at different time frames? When should I look at a logarithmic vs. ‘regular’ line chart? What does it mean when the price of something has gone parabolic? What defines a ‘bear’ and ‘bull’ market? What is a trend line? What are oscillators? Can I use all of them? Who are some renown traders? How do I plot Elliott Waves? What’s the success of trading based on this strategy versus holding?
Sounds like a lot, right? It is. There’s no shortcut. If you want a piece of all that money that exists out there, this is the research you need to do.
But That Will Take Hours/Days/Weeks/Months/Possibly Years!
Of course! You thought you were just going to come into this space, make millions and leave? No way, buster. You need to make sure that you know as much as you can know. The more knowledge you are armed with, the smarter your decisions will be in every aspect. In fact, you will notice yourself being able to call out the bullshit with startling quickness in situations where you could not tell up from down before. You will start to become adept at looking at a chart and quickly assessing what the future direction of a given cryptocurrency will be. You will be able to read through the whitepaper of an ICO and look at the ‘promises’ that it makes and it’s development team and determine from that alone whether it is legitimate or not. You will begin to become familiar with different ‘players’ in the crypto space and understand how things work.
If you are not willing to do that research, then I firmly advise that you leave ASAP. Otherwise, you will be making many donations in the form of losses on the market or money that you senselessly gave over to others running groups.
Never Trust Self–professed Gurus that Charge You to Join Their ‘Group’ or Selling ‘Seats’
They are usually full of shit, and truthfully, it is highly illegal and risky for anyone to be doing this without an official license to dispense financial advice to others.
There is also this fundamental question that I ask of most people that are currently in the crypto space: “If _________ is such a ‘guru’ at trading, why do they need your money to run a group? They should be making a killing on the markets.”
This logic should ring true to you. In theory, if an investor put his money in the ‘right’ coins and re-invested his or her returns throughout 2017, then they could have easily made north of $1 million if they started with a $100 investment, assuming that they are the ‘guru’ they purport themselves to be.
So, in light of this knowledge, seriously ask yourself why you are paying anyone on planet earth to ‘teach’ you about stuff that you can learn about through Googling.
Stick to Your Guns, No Matter What
This tidbit is for the more seasoned investors out there. If you have done your homework, looked at the charts and the coin itself and you are convinced that you have made the right choice, then stick to that choice.
There have been times where I thought the value of a coin was going down when everyone else thought it was going up. A few of those times, it looked like those people would be right. Sometimes a coin would go up 10 percent from the point where I announced that I thought it was going down. People would ridicule me, laugh, brag about the potential ‘profit’ I was losing, and I would see all of this feedback.
As a human being, the immediate temptation you will face in this scenario is to say ‘fuck it’ and just grab a bag of whatever is going up in value. When I first started out investing in this space, I would do that.
You know what happened?
I found out that more often than not, I was right. In the example I posted above where I predicted a coin going down significantly and end up getting ridiculed by others for my ‘wrong’ guess, I ended up being completely right. So, I essentially lost out on money that I should have never lost out on all because I didn’t trust myself.
I just was not sticking to my guns. I plotted everything right, did the homework, justified it to myself and felt confident from the beginning. However, I would just price watch 24/7, and that would lead me to second-guess myself or start letting the opinions of other people get to me. Then, I would modify my strategy and end up taking myself out of a winning strategy. In nearly every instance that I did this, it would result in inevitable losses, or I would end up missing out on a substantial sum of money from an investment opportunity that I decided to forego because of the opinion of one of these ‘experts’ running around on Twitter/social media.
After I missed out on a few magical opportunities that I had identified from the outset, I finally had had enough. It was at that point that I decided to trust myself. I knew there was a possibility that the dissenting voices would be right in some situations, but they were going to have to prove themselves right. I decided that I would live and die by my decisions, no matter what.
Unfortunately, these are just a few of the pitfalls that can plague every investor. I will continue to write about more of these pitfalls as time progresses. However, for the time being, I hope that this serves all those who are reading this very well and effectively adopts the role of ‘guidelight’ for any and all individuals that are making their first foray into cryptocurrency investment.