Why Is Crypto Volatile? Understanding Market Psychology

bitcoinYou have been wanting to invest in cryptocurrency but are afraid of how volatile the market can be. It’s understandable as in early 201 there was a huge crash and Bitcoin and others lost a lot of value. If you had timed it right, however, you could have made a bundle.

Not that there are any guarantees of success, but when you understand the psychology behind the market, then it helps you identify certain areas of opportunity. And likewise, when you should get out.

In this article, we will go over some of the things to understand about market psychology so you can trade with more confidence.

1 – How market cycles work

Before you buy your cryptocurrency and secure Bitcoin wallet, you’ll need to understand how the market cycles work to identify when to buy-in. Of course, the basics are to buy low and sell high, but it pays to know if a dip is coming and to wait to buy.

A market cycle is simply a trend. It’s how the value of a currency rises and falls. It almost looks predictable and in some ways can be forecast. When the rise or fall is tied to some news in a certain industry comes out. This could be negative or positive depending on the news itself.

For instance, if there is some news of an advance in a technology that helps the blockchain, then this likely is going to lead to a boost in the value of many coins.

2 – How the psychology works

It is widely understood that many people make purchases based on a range of emotions. This is also true for trading in cryptocurrency. There isn’t always a rational reason for when people choose to buy or sell.

And since many people react in the same ways based on emotional responses, when a market starts rising, it triggers more people to want to buy. The reverse is true when the value starts to fall.

There are cycles to psychology with people starting out feeling very optimistic. Whether they have a reason to be is beside the point. They want to feel good about the future and buy based on their “gut” feeling. Then, when the market continues to rise, they feel like they’ve beaten the market and that their optimism was justified.

This confidence in their wisdom makes it hard to see what is happening next. When the market starts to drop, they are in denial. They don’t want to give up on the optimism they once felt so they justify not selling at this point.

Once the value bottoms out, if they haven’t sold yet, they remain cautious. They hope that the value will rise, but are not sure. They don’t have that initial optimism any longer.

To play the market knowing this requires a steady hand and the ability to think long term. Know what you want to achieve and how the current landscape is going to affect your plans.