Cryptocurrency Trading: Some Examples of Cognitive Bias (Part - I).

Originally Posted On Publish0x

Much is said and argued, especially by us crypto ecosystem advocates, that cryptoasset trading can be truly exciting, and of course, potentially profitable. But also, as many know, because they have experienced it firsthand (in their investment portfolios I should say), it can be a minefield of cognitive biases, cognitive prejudices and cognitive predispositions that affect trader operability in one way or another. These biases can lead many investors to make wrong and, as a rule, very costly decisions.

But what is a cognitive bias, what is a cognitive prejudice, what is a cognitive predisposition, in general terms (not to confuse things) are alterations in the human mind that are moderately difficult to eliminate and that tend to distort the perception of the information we receive, leading us to make an inaccurate judgment or an illogical interpretation of a fact, situation, argument, etc.

A small clarification before continuing, although the arguments that I will expose in this article on examples of Cognitive Bias, Cognitive Prejudice and Cognitive Predisposition will only be related to investments in cryptoassets, you should keep in mind that they are not "exclusive patrimony" of cryptocurrency traders, and equally fulfilling in everyday life in any sphere or scenario.

Some examples of Cognitive Bias that cryptocurrency traders face are:

📌 Confirmation Bias: Confirmation bias is the tendency to seek, interpret and remember information in a way that confirms our prior beliefs and opinions. If we look at it in the context of cryptocurrency trading it could manifest itself when an investor only looks for and pays attention to information that confirms his belief that a particular cryptocurrency is a good investment. To avoid falling into this bias, it is important to make a conscious effort to seek out and consider information that challenges our beliefs and opinions, which includes reading news and obtaining analysis from sources with different points of view, consulting experts who may have different opinions than our own and contrasting them.

📌 Anchoring effect: This is the tendency to base our decisions on the first information we receive, even if that information is misleading or irrelevant. It manifests itself when a cryptoasset investor bases his decision to buy or sell a cryptocurrency on the first price he sees, instead of carefully evaluating the available information. I believe that you should always take your time to carefully evaluate all the information before making a decision, compare prices on different exchanges, consider factors such as market trends and relevant news.

📌 Hindsight Bias: Although we don't think about it much it is very common, we tend to believe that we could have predicted or avoided past events after they have already happened, as traders, we often berate ourselves that we should have known that the price of a cryptocurrency was going to go up or down after it has already happened. Don't kid yourself, don't berate yourself, cryptocurrency trading is inherently uncertain and no one can predict with certainty what will happen to the price in the future. Instead of focusing on what could have been, learn from your mistakes so that you make better informed decisions in your next trades.

📌 Availability Bias: Closely related to FUD (Fear, Uncertainty and Doubt) and FOMO (Fear of Missing Out) is the tendency to base our decisions on information that is readily available or memorable rather than on all relevant information. It manifests as a cryptocurrency investor, we make decisions based on a recent news story or memorable event rather than carefully evaluating all the information at hand. Consider all the important information before making a decision, thoroughly review the historical analysis of the cryptocurrency in which you intend to invest, the trends of these in the short, medium and long term, its volatility, volume, demand, etc., a priori decisions, without a thorough prior analysis will suffer your investment portfolio.

As you can see there are many Cognitive Biases that can affect the decisions that cryptocurrency traders make (and these are just a few examples), being aware of these biases will help you to take measures to minimize their impact. If I may give you one last recommendation, remember to always make, as a cryptocurrency investor, informed decisions, study the market and trust your own strategy, this way you will avoid making mistakes that could be very costly to your trading as a trader.

 “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.