Part 6: Emotional Attachment
It should be obvious at this point that no coin will go up forever. Every single coin has a good and bad day. With the volatility in the space it is not unheard of to to see coins drop in value fast. With the long term approach it is not such a big deal if you get somewhat emotionally attached to a coin.
If you are a trader that is where it can get more tricky. Trading is more about decision making and how to react to changing conditions. If you want to be successful at trading then you need to make the right decisions. This is easier said than done as you are influenced and may not even realize it.
I am sure that you only want to enter ‘good’ trades and avoid making bad decisions. There is one psychological bias which can mess with a trader. It is referred to as “being married to a trade”.
There is a famous experiment out there on horserace betters. They were asked to estimate the likelihood of outcomes of certain races before placing bets.They then placed their bets and were asked how certain they were after placing the bet. Once the bets were placed they were more certain about the outcome of the race. This is funny because nothing actually changed.
So the question remains as to why they had such a stronger opinion after putting down the money.
The psychological phenomenon is called “cognitive dissonance”. It is normal for us to like order and if something is not going as planned then we fix it.
The betters bet their money on a outcome. They were made to believe by their minds that it was the right decision. It would have created extra stress if they would have doubted them.
Trading works the same way. We buy an coin and we believe that its price will go up. If the prices start to fall then our position moves against us. We then look for information that confirms our initial thought. We create a state of harmony by convincing ourselves we made the right decision.. The more price goes against us, the more certainty we need to avoid cognitive dissonance, which then creates the effect of “being married to a trade”; we can’t cut our loss because it would confirm that we were wrong.
Below is a screenshot that shows a trade before it plummets. To stay in the trade and to justify his position, the trader looks for anything he can get his hands on to justify his actions. They look for outside confirmation, news, etc hinting at anything that may result in a price spike. all the confirmation he can get his hands on.
The further a coin drops then the more you have to lose if you close out your position. Some traders misunderstand unrealized losses and treat them as not real. In some situations it is better to cut your losses as is. So remember when trading take your emotions out of the game!