Psychology plays a key role if you want to become a successful investor.
And cognitive biases are the most dangerous aspect that could affect your profitability.
Here is a list of the 10 most important cognitive biases that you need to be aware of.
1/18 👇🧵
And cognitive biases are the most dangerous aspect that could affect your profitability.
Here is a list of the 10 most important cognitive biases that you need to be aware of.
1/18 👇🧵
1.
♦️Common mistakes.
• Chasing green candles.
• Feeling FOMO.
• Holding a dead token.
• Selling strong projects for hyped ones.
Why do these mistakes happen?
Because cognitive biases deceive our minds and force us to take bad decisions.
Let's analyze them.
♦️Common mistakes.
• Chasing green candles.
• Feeling FOMO.
• Holding a dead token.
• Selling strong projects for hyped ones.
Why do these mistakes happen?
Because cognitive biases deceive our minds and force us to take bad decisions.
Let's analyze them.
2.
~ Confirmation bias ~
• Searching for information that tells you what you want to hear.
• Following people that only talk well about a project.
• Blocking everyone who talks negatively.
Invest ➩ research ➩ distinguish FUD from real information.
~ Confirmation bias ~
• Searching for information that tells you what you want to hear.
• Following people that only talk well about a project.
• Blocking everyone who talks negatively.
Invest ➩ research ➩ distinguish FUD from real information.
3.
~ Sunk cost bias ~
Sunk cost bias makes us continue a behavior and pursue an inferior alternative because we have invested resources previously.
“A new tokenomics would improve this project but I invested so much that I will keep holding”
Learn when to leave the ship.
~ Sunk cost bias ~
Sunk cost bias makes us continue a behavior and pursue an inferior alternative because we have invested resources previously.
“A new tokenomics would improve this project but I invested so much that I will keep holding”
Learn when to leave the ship.
4.
~ Authority bias ~
Our human nature tends to force us to follow leaders.
Big account ➩ must be an expert ➩ trust everything he says
Influencers could talk positively/negatively for personal purposes or get paid to do so.
Never blindly trust anyone.
~ Authority bias ~
Our human nature tends to force us to follow leaders.
Big account ➩ must be an expert ➩ trust everything he says
Influencers could talk positively/negatively for personal purposes or get paid to do so.
Never blindly trust anyone.
5.
~ Endowment effect ~
The tendency of preferring objects we possess over those we do not, becoming emotionally attached.
• You buy “x” coin ➩ high value
• Your friend buys “y” coin ➩ low value
If you didn't own this investment, would you invest in it?
Clarifies a lot.
~ Endowment effect ~
The tendency of preferring objects we possess over those we do not, becoming emotionally attached.
• You buy “x” coin ➩ high value
• Your friend buys “y” coin ➩ low value
If you didn't own this investment, would you invest in it?
Clarifies a lot.
6.
~ Clustering illusion ~
The bias of seeing a pattern in what is actually a random sequence of numbers or events.
• You want to buy “x” coin because it performed well in the past 10 years.
• Your mind identifies a “trend”.
Past performance is not indicative of future ones
~ Clustering illusion ~
The bias of seeing a pattern in what is actually a random sequence of numbers or events.
• You want to buy “x” coin because it performed well in the past 10 years.
• Your mind identifies a “trend”.
Past performance is not indicative of future ones
7.
~ Echo Chamber ~
The self-reinforcing process of collective belief formation by which an expressed perception triggers a chain reaction that gives the perception increasing plausibility through its rising availability in public discourse.
~ Echo Chamber ~
The self-reinforcing process of collective belief formation by which an expressed perception triggers a chain reaction that gives the perception increasing plausibility through its rising availability in public discourse.
8.
• Bitcoin 100k.
One of the biggest Eco-Chamber we've seen in crypto was the incorruptible idea that Bitcoin was “programmed” to hit 100k in 2021, with the Plan B chart spammed everywhere.
The majority was 100% sure of this event.
Mass belief ➩ whales profits.
• Bitcoin 100k.
One of the biggest Eco-Chamber we've seen in crypto was the incorruptible idea that Bitcoin was “programmed” to hit 100k in 2021, with the Plan B chart spammed everywhere.
The majority was 100% sure of this event.
Mass belief ➩ whales profits.
9.
~ Overconfidence bias ~
Overconfidence bias is the tendency to overestimate knowledge and abilities in a certain area.
This usually leads to bad financial decisions.
“That project is amazing, I did my research and it will make me rich for sure”.
~ Overconfidence bias ~
Overconfidence bias is the tendency to overestimate knowledge and abilities in a certain area.
This usually leads to bad financial decisions.
“That project is amazing, I did my research and it will make me rich for sure”.
10.
~ Unit bias ~
The desire to buy an entire unit of a cryptocurrency instead of a small fraction.
“I will buy DOGE instead of ETH or BTC, it costs less and thus can make me rich”
Cheap doesn't mean quality.
Marketcap and fundamental analysis are the 2 holy grails here.
~ Unit bias ~
The desire to buy an entire unit of a cryptocurrency instead of a small fraction.
“I will buy DOGE instead of ETH or BTC, it costs less and thus can make me rich”
Cheap doesn't mean quality.
Marketcap and fundamental analysis are the 2 holy grails here.
11.
Do you remember DiCaprio in “The Wolf Of Wall Street?”
He was selling “Aerotyne Ind”, a penny stock worth 0.10$ with the promise of insane profits for the buyer.
The buyer has clearly fallen for the unit bias, purchasing cheap crap.
Do you remember DiCaprio in “The Wolf Of Wall Street?”
He was selling “Aerotyne Ind”, a penny stock worth 0.10$ with the promise of insane profits for the buyer.
The buyer has clearly fallen for the unit bias, purchasing cheap crap.
12.
~ Loss aversion ~
This bias refers to an individual’s tendency to prefer avoiding losses to acquiring equivalent gains.
Losing 1000$ makes you feel worst than gaining 1000$.
The fear of realizing that loss can make you holding too much on a bad coin hoping for a bounce.
~ Loss aversion ~
This bias refers to an individual’s tendency to prefer avoiding losses to acquiring equivalent gains.
Losing 1000$ makes you feel worst than gaining 1000$.
The fear of realizing that loss can make you holding too much on a bad coin hoping for a bounce.
13.
~ Survivorship ~
It occurs when researchers focus on cases that have passed some sort of selection process while ignoring those who didn’t.
• A man made millions with “x” coin.
• 9 men lost everything.
• You think that it’s possible to make millions ignoring that 90%.
~ Survivorship ~
It occurs when researchers focus on cases that have passed some sort of selection process while ignoring those who didn’t.
• A man made millions with “x” coin.
• 9 men lost everything.
• You think that it’s possible to make millions ignoring that 90%.
14.
♦️ Problem-solving.
Ok, now that you heard about cognitive biases how can you prevent falling into these mind traps?
Well, the fact that you're reading them can position you in an alarm condition.
You're starting to be aware of their existence.
But there's more..
♦️ Problem-solving.
Ok, now that you heard about cognitive biases how can you prevent falling into these mind traps?
Well, the fact that you're reading them can position you in an alarm condition.
You're starting to be aware of their existence.
But there's more..
15.
~ List ~
I write down every sort of cognitive bias that could obstacle to my crypto path.
Every time I risk falling into these mind tricks, I take a step back and realize it reading the list.
Of course, experience is part of my cultural baggage.
~ List ~
I write down every sort of cognitive bias that could obstacle to my crypto path.
Every time I risk falling into these mind tricks, I take a step back and realize it reading the list.
Of course, experience is part of my cultural baggage.
16.
~ Solid plan ~
Creating a plan to respect with strict discipline will help you to avoid mental biases.
In general, rationality is your best friend.
Always be skeptical and think/act without arrogance.
I'm sure you'll benefit in the long run.
~ Solid plan ~
Creating a plan to respect with strict discipline will help you to avoid mental biases.
In general, rationality is your best friend.
Always be skeptical and think/act without arrogance.
I'm sure you'll benefit in the long run.
17.
~ Bonus ~
A book that changed my perspective and helped me a lot to develop rationality and a proper mental attitude is “The Art Of War” by Sun Tzu.
War should be avoided with diplomacy or fought minimizing damages and using psychology.
Recommended.
~ Bonus ~
A book that changed my perspective and helped me a lot to develop rationality and a proper mental attitude is “The Art Of War” by Sun Tzu.
War should be avoided with diplomacy or fought minimizing damages and using psychology.
Recommended.
18.
That's it!
• If you liked this thread follow me @IamZeroIka for more crypto insights.
• Also like and RT the first tweet to support my work!✌️
• Want to have access to deeper guides and info?
Subscribe to my FREE newsletter!🤛 (link in bio)
That's it!
• If you liked this thread follow me @IamZeroIka for more crypto insights.
• Also like and RT the first tweet to support my work!✌️
• Want to have access to deeper guides and info?
Subscribe to my FREE newsletter!🤛 (link in bio)
Loading suggestions...