Panic Buying And Selling

in #hive-16792215 days ago

I've noticed recently that I'm more susceptible to panic buying than panic selling. Somehow, I have to strategize first before clicking the sell button, like what amount of loss will I realize at the time of selling or how much potential upside I might be forfeiting.

With buying, I'm more optimistic on the future value or potential upside of a project, so if it resonates, I just jump in, riding the wave of FOMO.

In a way, buying and selling are on the opposite sides of the spectrum between being an optimist and a pessimist from an investor's perspective.

Of course, this is oversimplified, and I'll rather be more realistic in matters of trade and investing than tread the extremes of this spectrum.

Two Opposing Forces

Now, as much as being rational gives you an edge in trading, you also have to handle the fact that markets often act irrationally.


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This creates a sort of dilemma, you have to switch between two mental states, one that is analytical and risk-averse, and the other which is emotional and impulsive.

The latter has to do more with keeping up with the pulse of the market through gathering information, and the former is more or less about cutting through the noise and focusing on fundamentals as much as one possibly can.

I think one of the reasons why markets act irrationally is because the majority of market participants are driven by their emotions and behavioral biases, rather than pure logic and fundamentals.

I'm not sure if this is an absolute. Because the majority aren't usually the main drivers of market movements - often, it's the actions of large institutional investors, algorithmic traders or other well-informed and well-capitalized players that have an outsized influence. Nine times out of ten, these category mostly act rationally.

That said, the irrational behavior of the masses can still create significant volatility and disconnect the market from underlying economic realities.

Think of it like emotional contagion and herd mentality manifesting in situations like speculative bubbles, panic selling, and over-exuberance during bull runs. No wonder people say that the market is a beast of its own.


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Dynamic Challenge

So we have these two almost opposing forces that seem to govern the markets - the emotional irrationality of the masses, and the more calculated, analytical approach of the informed institutional players.

As an individual investor, navigating this dynamic is challenging against the backdrop of information overload, social media influence and 24 hours news cycle.

A good start is having some form of awareness of these two forces, the behavioral pitfalls of each. And learning to separate emotion from reason is crucial, especially when it comes to maintaining an open and long-term perspective.

Of course, not getting swept up in the prevailing sentiment - whether it's optimism or pessimism is also crucially important. For me, the goal is always to see reality just as it is, as much as I can.


Thanks for reading!! Share your thoughts below on the comments.

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Well said, man. Technical Analysis and Market Psychology really both compete for dominance in controlling market direction . I believe that which the market is more likely to succumb to, is determined by the extremity of the option. I noticed a FVG recently on Bitcoins trading chart, and have been thinking price will fall to that level to fill it: maybe it will, maybe not. But price has been going up significantly since then, and that’s just proof of the excitement (greed) in the market overriding technicals and FOMOing price up consistently.

That's the thing lol, technical analysis can only take us so far before it starts to become a bit more irrelevant. Market forces driven by market participants always have this knack to defy fundamentals, albeit temporarily. I think focusing on extremes can be a good way to be a bit ahead of the curve.

Thanks for stopping by :)

I’m more on the buying side than I am selling but I have gotten into selling a little bit when necessary. I don’t think I’ve got the time to do things every single day and really maximize the upward and downward swings but I’m able to manage it pretty well.

I think you should dip your toe in the water of selling a little bit occasionally. We have to take the emotion out of it and sell to make a tiny bit of profit. Otherwise we are just collecting digital stamps lol

Right, that's a really valuable point. I tend to find myself in this state by which I get a bit too attached to digital assets/collectibles, thinking to hodl them for a long period of time. But it's actually not practical for the most part, as it is a bit far removed from reality.

I'm thinking of employing such a strategy, selling gradually as the market rises.

Thanks for stopping by :)

You can find ones that you like the most and keep those, but keep it limited to only 2 or 3 and then just figure out what to do with some others. Keeping them long-term is ok, but with the notion that you will take some profits eventually is a good strategy I think!

Most definitely! Taking profits has to be embedded in every investment decisions, even for long term projects.

Pure logic has no place in crypto and we all know why; money. When it comes to losing or gaining, we can't make the right decisions. For example, look at how people have been panicking recently, instead of taking advantage of the low prices to prepare themselves.

Right, money for the most part is an emotional thing. Pure logic will probably also make the market very boring with little to no volatility.

Thanks for stopping by :)

Haha well, we signed in for everything. Like you've said, if it was probably completely logical then it might be boring indeed