Everyone knows that buying low and selling high is the way to do it. But why are most people not following this logic? Social psychology has answers to why we are self-sabotaging economic opportunities.
Traders claim that the trick in making the best economic decisions is to not follow your feelings, but to stick to a plan. A plan could be to try to analyze the overall feeling of the public and decide on whether to buy or sell an asset. Put it simply, buy low and sell high. Easy right? Not quite.
How we think and how we relate to the world is highly affected by our social environment. To survive and make sense of our complex world we communicate with each other and try to find cues that direct our behavior and navigate our decisions in life. We use other people’s opinion to validate our decisions and even our self-worth. But the problem is that because other people think something does not make it right.
After writing a few books on personal development it’s easy to conclude that our self-worth should not be based on other people’s opinion. Your highest self will not be found anywhere but within yourself. But a crypto asset is very much dependent on the simple premise that the public decides on its value. The value of shit coins is a prime example that marketers only have to say that they are popular, and they do not need to prove that something truly has value. It might be smart to follow the shit coin storm for a while, but we need to unfollow before it hits the fan.
If we don’t just want to follow the goddess of chance, we need to be aware of market signals. When we buy a crypto asset that we believe will skyrocket we are hitching a ride with a group mentality, and we need to be knowledgeable about the specifics of that group. What do the holders of the crypto asset believe in? What is happening within the ecosystem? Back in the days we were forced to listen to the town crier to know what is happening. Now days we may have to follow the discussion on twitter and news outlets.
When it comes to trading, we should be aware of the herd mentality but not conform to it. Successful trading is like being mindful and being aware of one’s ego.
In 2022, when everyone thought, Bitcoin was going to 100 000 USD I followed the masses. Even original gangsters believed strongly that it was inevitable that Bitcoin would break the 100 000 USD mark. Most followed what was socially rational and those who were bearish were considered naysayers. But for how long should we keep a coin when it has already gone up significantly? When have we become greedy?
Typical signs of greed are:
· When we experience a tingling exciting feeling in our chest.
· When we think about what we can buy when our investment has skyrocketed.
· When we add to our position to make even more money.
· When we eagerly buy an asset that has already increased in value significantly.
Do not forget. We have experienced multiple economic bubbles because the herd turned greedy. Therefore, knowing that we are influenced by social factors is vital. Social psychology teaches us that we seek external validation for our thoughts and actions, but maybe successful trading is closer to ourselves than we think. It seems that greed is a superficial experience. It holds a feeling of stress and excitement. It is certainly not a calm and settled feeling in our heart. To go deeper than greed, we can go within ourselves and turn to mindfulness. Meditate. Allow yourself to settle stressed feelings. Deep down I think we know when we have turned into Scrooge.
But hey, what do I know? I am not even a financial advisor.