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Sobre FinGurú


Sep 23, 2023

Economía y finanzas

Tecnología e innovación

Política y sociedad

y Bienestar


How to avoid the retail investing cycle model and be sabotaged by behavioral biases

Juan Bautista Selvatici

Retail traders are foolish optimists during a bull market but they don’t know how to stay foolish optimist during a bear market. They get out now, take their losses and come back at the top. Rinse and repeat.

Market sentiment change all the time but the fundamentals doesn’t. The technology hasn’t gone anywhere, still, retail investors keep sabotaging their goals through irrational behavior. But, it is not your fault, emotions are encoded within our genes, and they become inherent to us.

So I am going to do a quick guide on what I learned about emotions through 6 years of trading and living enough bear markets to understand how fear and greed works.

The human mind is absolutely the most difficult machine in the world. There are not two of the same kind, but we can agree there are patterns. Still, the brain under the stress of the financial markets works in a pretty different way.

Let’s say you see a 80% discount in a pair of shoes you would like to wear. You would definitely buy them. You will run to the shop and use that great opportunity.

Now imagine you believe in the technology and the fundamentals of an asset such as Bitcoin, we can say you “like” bitcoin the same way you would like to wear those shoes from the previous example. Bitcoin goes down an 80% from it’s all time high. Would you buy?

Incredibly, the answer tends to be no. You get sabotaged so hard by your emotions that they make you stop believing in what you previously believed. Your mind tells you Bitcoin is a scam right now. But before, at its all time high your mind believed it was the financial revolution, the incarnation of an anarcho-capitalist movement and the mother of decentralization and the struggle against centralized organizations.

Big money is made during BEAR markets by people who have an unbelievable high conviction about a very specific asset or technology. These people called “luckies” are the ones who have patience and go against their emotions. The bottom usually is when tarders are at their max pain. See the fear and greed index to potentially identify the bottom and the top.

Some gifts for you:

1- Be greedy when others are fearful. Be fearful when others are greedy. You might have heard already this. But fear still catches you.

2- Be loyal to your convictions. I know holding your positions during extended drawdowns is extremely hard. But during that time, millionaires are built.

3- Stop overestimating what you can accomplish in 1 year and underestimating what you can accomplish in 5 years. People study +5 years to become who they want to become. Still you want to master the markets in 1 month. Trading is a marathon, never forget that.

4- Plan, plan, and… plan. If you fail to plan, you are planning to fail. Create a system, backtest it, and fulfill it to the letter.

5- Understand the cycles. Bull markets make you money, bear markets make you rich. Respect the time, and adjust your system depending on what the market tells you. When bull, distribute, when bear accumulate.

6- History doesn’t repeat itself, but it often rhymes. Why anyone would bet agains an asset that has taken repeated 90% beatings and responded with 20–1000x rallies? Retracements are part of a healthy price action. Don’t think they are the enemy, they are actually your friend. They give you second opportunities.

7- Tom Dante knows how to say it:

Welcome to the hardest game in the world.

Unfortunately, you’re playing with some of the sharpest, fastest, most intelligent, well informed, stubbornly irrational and in many cases, unethical minds in the world.

You’re up against the computer that can react faster than you.
The trader who has more experience than you.
The fund that has more money than you.
The insider that has more information than you.
The others that will misinform you.
The inner voice that will do it’s best to undo you.

So, leave all your dreams of making quick and easy money behind.

The first aim is survival.
Your absolute first goal is to learn how to stay in the game.

You can only do this by mapping the territory.
By understanding how the enemy thinks and acts.
By having a solid game plan.
And by picking your battles very, very carefully.

Ready to play?


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