Cryptocurrency Trading: Common Logical Fallacies (Part - II).

Originally Posted On Publish0x

As I mentioned in the introduction of the previous article "Cryptocurrency Trading: Some Examples of Cognitive Bias (Part - I)", cryptocurrency trading is not only profitable, from my point of view (and it is a very personal opinion I confess), it is as exciting as practicing high performance sports, the feeling is indescribable, but as we say in my country "...hot blooded and cold minded...". The "collision" with logical fallacies of trading can lead investors to make wrong and potentially costly decisions. Continuing with the idea of the previous article we will explore some of the most common logical fallacies in cryptocurrency trading and how to avoid them.

📌Argumentum ad Populum Fallacy (Directed to the People): This is a logical fallacy that involves responding to an argument or assertion by referring to the supposed opinion that people in general have of it, rather than to the argument itself, taking it to mean that an argument is valid just because many people believe it to be so. In the realm of cryptocurrency investments it usually manifests itself for example when someone says: "many people are investing in this cryptocurrency, therefore, it must be a good investment" or "most people believe that the price of this cryptocurrency will go up, therefore, you should buy it" or "most people believe that this cryptocurrency is safe, therefore, you should invest in it". However, keep in mind that the fact that many people are investing in a cryptocurrency does not necessarily mean that it is a good investment, that many people believe that the price of a cryptocurrency will go up does not necessarily mean that this will happen and the safety of a cryptocurrency does not depend on popular opinion but on technical factors such as the robustness of its code and the strength of its network. As a cryptoasset trader the correct "formula" that could bring you potential profits would be for you to only make decisions based on facts, objective information and rigorous market analysis.

📌Argumentum ad Verecundiam Fallacy (Fallacy of Authority): This type of fallacy occurs in the context of cryptocurrency trading when someone accepts an argument or assertion simply because it comes from an authority rather than evaluating the evidence and reasoning behind the argument, it could manifest as "a cryptoasset expert said that this cryptocurrency is a good investment, therefore, it must be true." Remember that even experts can be wrong, instead of blindly accepting what authorities say, it is important to do your own research and carefully evaluate the evidence and reasoning behind any claim or argument.

📌Post Hoc Ergo Propter Hoc Fallacy (after that, this; or as a consequence of that, this or after that; or because of that): Very common in our way of thinking, this fallacy in cryptocurrency trading occurs when someone assumes that because one event occurred after another, the first event must have caused the second, for example "the trader assumes "after a certain famous person tweeted about X cryptocurrency, its price went up, therefore, the tweet caused the price increase." Beware, correlation does not imply causation, just because two events occur one after the other does not mean that one caused the other. Carefully evaluate the evidence and consider other possible explanations before jumping to conclusions.

📌Gambler's fallacy: Occurs when cryptocurrency investors believe that future events are influenced by past events when in fact they are independent. A practical example is when we think "this cryptocurrency has gone down in price for several days in a row, therefore, it is more likely to go up in price tomorrow." Crassus errare (unforgivable or very serious mistake), it is important to remember that future events are independent of past events, the fact that a cryptocurrency has dropped in price for several days in a row has no effect on what will happen to its price tomorrow, carefully evaluate the evidence and make decisions based on real facts and rigorous analysis.

📌Ad Hominem Fallacy: Occurs when someone attacks the person presenting an argument instead of evaluating the argument itself, the interlocutor would say something like "you shouldn't listen to that person about cryptocurrencies because he is a scammer". Personal attacks have nothing to do with the validity or soundness of the argument presented, instead of focusing on the person presenting the argument, it is important to carefully evaluate the evidence and reasoning behind the argument.

As you can see there are many logical fallacies that can be common both in everyday life and in cryptocurrency trading, I almost always recommend that you make informed decisions to avoid making costly mistakes, be very careful when trading in the cryptocurrency market because of what others think, evaluate the arguments and claims of "experts", try to make sure that your decisions as a trader are based on your own "vision" of the market after you have ascertained all the facts and perform a rigorous analysis of your investment strategy.

 “Everyone has their own forms of expression. I think we all have a lot to say, but finding ways to say it is more than half the battle" - Criss Jami.

"Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth" - Marcus Aurelius.

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"You will ask yourself: And if I take a risk and lose...? I will ask you: AND IF YOU RISK AND WIN? Success begins with thought, because sooner or later the man who wins is the one who believes he can do it. Do not be afraid of mistakes or failure, winners are not afraid of losing, losers are, in most cases the risk comes from not knowing what you are doing, so trust yourself, learn, be patient, manage your emotions and above all, enjoy the journey, what the wise man does at the beginning, the fool does at the end" - Anonymous.

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Author's Note: The opinion expressed here is not investment advice, is provided for informational purposes only, and reflects the opinion of the author only. I do not promote, endorse or recommend any particular investment. Investments may not be right for everyone. Every investment in the market and every trade you make involves risk, so you should always do your own research before making any decision. I do not recommend investing money that you cannot afford to chair, as you could lose the entire amount invested.