Trading emotionally means you aren’t committed to following a clear strategy.
In cryptocurrency, where volatility is high, traders who closely follow the market are naturally susceptible to acting on emotions. Especially those who’ve entered the space without an appreciation for the historical trends that have occurred during the lifespan of an asset class.
Let us consider that as traders concede to emotions, they may be feeding a pattern of behavior. One that masquerades as strategic action, while being a mere manifestation of the pleasure principle, i.e. seeking pleasure and avoiding pain.
Imagine how it felt when Amazon stock prices sunk in 2003 and hovered between $26 and $59 for almost three years. Perhaps you were a trader who had bought some Amazon stock a few years prior when the price was around $45. You might have thought the stock was overvalued and decided to drop it.
It turns out that the Amazon stock price was at around $35 in 2006, then it recovered, went on to gain moment and is averaged at $1620 per share as of this month in 2019.
If you dropped your stock back then to avoid pain, you missed out on a 3566% return.
To put it into perspective, buying into the S&P500 in 2006 and holding out over the same period wouldn’t have earned you as much, at a 110% return.
This makes it apparent what kind of earning potential can slip through the grasp of an emotional trader.
Proponents of a high-frequency trading approach tend to be eager to respond to market fluctuations as they turn a profit off of short-term highs in the share price. By doing so they open themselves up to more risk – the risk of trading emotionally. And charted throughout any stock price history the cost of these missed opportunities accumulate and slow down the overall growth of their portfolios.
“On the other hand, investing is a unique kind of casino—one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favor.”
― Benjamin Graham, The Intelligent Investor
Sticking to proven fundamentals puts the odds squarely in your favor.
Warren Buffett, Benjamin Graham’s former student and CEO of Berkshire Hathaway, advises investors to reflect on whether they would hold a stock for ten years before buying in. We would add that investors who deal in cryptocurrency should reflect on how much volatility they want to stomach as well.
The price of crypto is finding its way toward stability, and the last coin is expected to be mined 120 years from now. The network itself is being supported by efforts from energy suppliers, hardware manufacturers, and tech engineers. The miners have an incentive to improve the speed of exchange as they will earn more crypto in the form of transaction fees. The number of bitcoin wallets created is increasing exponentially.
The technology is maturing, and those who understand the field know that fluctuations are to be expected as we cover new and uncharted territory.
Smart money says HODL.