Crypto investment – considering the mental factor

Some months ago I added a separate page on my blog just to mention a few bits about bitcoin and cryptocurrencies in general.  This was sparked by several friends and family inquiring as to whether I thought it would be a good investment.  Click here to see those explanations.crypto


Lately, the topic of cryptos has surfaced more and more regularly in conversations with friends and around dinner tables.  No surprise given the large amount of media attention that cryptos have been receiving, and secondly, due to the huge price swings (up and down) that the cryptos are experiencing, as well as the huge overall appreciation rally in 2017, with bitcoin rallying from $998 on 1st January to yesterday’s close of $10,869 (an increase of 9,890%).

Personally, I have not paid a lot of attention to these price movements and I have not entered into any trades in any of the crypto markets.  I don’t know whether it is a bublle or not.  However, I wanted to add one perspective to the mix – something that I know a very well.  A perspective based on my experience in trading various financial instruments using a range of trading strategies over the years.

I am motivated to share this for the benefit of my friends who are considering ‘investing’ some of their savings in these instruments, as they may not be aware of what awaits once they have pulled the trigger.

Watching a market go up and down in price is incredibly easier when one is sitting and watching from the sidelines, without having a vested interest in it.  It becomes incredibly  easy to have a hindsight and develop explanations for why one should have, or would have,  been able to predict future price movements.

The entire activity becomes incredibly more difficult when one actually has money on the line.  This is largely to due with emotional and psychological factors at play once one has invested money in something.  Traders with many years of experience regularly attest that psychological issues, such as fear and greed, continue to be hurdles in the path to trading success.

Recently I gave a webinar on how to overcome fear and greed in trading (you can watch the webinar here).  The discussion focused largely on hard work and extensive preparation being the building blocks for avoiding emotional hurdles in trading.

Jumping into the deep end

Now take somebody who normally does not invest, trade, or speculate on the financial instruments.  They don’t have a tested trading strategy, they know little about the in’s and out’s of the relevant market, they don’t know about money or risk management, leveraging or margins, and they have no experience of being in a live trade.

Now complicate the matter further by throwing them into the crypto market where prices routinely move up or down in excess of 10% in a single day.  [This is what attracts the human psyche in the first place – big gains!]

My intended warning here is that non-experienced investors are setting themselves for a baptism of fire and price swings, potential gains and losses, and percentage movements, that they are not going to be mentally equipped for.  You are setting yourself for a losing trade!

Just wanted to share this point of view briefly and concisely.  Hope it provides an additional perspective on the matter that the typical person considering a crypto trade may not have participated.




This entry was posted in Financial Markets 101. Bookmark the permalink.

One Response to Crypto investment – considering the mental factor

  1. Pingback: Feb’18 Trading Banter | Trick or Trade

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.