Human psychology makes it virtually impossible to profit in financial markets without having a clear game plan. The average investor is prone to buy the top of a market since that stage is accompanied by great euphoria and every asset seems to be going even higher. At low prices, however, the average investor is likely to sell since the media is now reporting a huge disaster entailing the collapse of prices. The cryptocurrency market even amplifies this behavior due to its drastic volatility and its very early stage. The market hasn’t proven long-term sustainability and investors don’t feel very secure. The final caveat is that as a simple investor one stands at the bottom of the food chain and large institutions, who are manipulating the market, are trying make money from you. Thus, trying to be profitable in the cryptocurrency market without having a concrete strategy can be compared to trying to win a Formula One race without knowing how to drive.
→ psychology, data-driven decisions
→ human nature leads to drastically negative expected value
→ throwing a dice to E(x) = 0 (→ for symmetrical distribution of prices)
→ effect of emotions (explain main biases) → limit orders > market orders and indicator signals > buying spontaneously problem: confirmation bias (interpret any chart how you want to) → need rules and discipline
→ emotion market cycle
→ necessarily undervalued prices come with everyone saying crypto is dead, never going to go up again, distrust etc. and overvalued prices necessarily entail hype/10x price targets etc. (thus, never listen to the news/projections etc. but use an objective metric to consistently buy when undervalue and sell when overvalued: use VARV and Context Bands for that matter!)