Emotions are the devil: you shouldn't always be bearish at the bottom and bullish at the top

Original Title: “Why are people bearish at the bottom, but bullish at the top?”

Author: ROUTE 2 FI

Translated by: 深潮TechFlow

Hey, friends! Does anyone find human psychology fascinating?

When cryptocurrencies are falling, we spend a lot of time analyzing and trying to predict the exact bottom, always very cautious.

But when the market is rising, we become confident and buy in without much analysis. We click the green button as if tomorrow doesn’t exist.

Why do we behave this way?

Why are people bearish at the bottom, but bullish at the top?

Fear and greed seem to be the two emotions that drive most of our actions in the crypto market.

When fear takes over, everything feels apocalyptic. Twitter/X is filled with doomsday warnings of further crashes and cries of surrender.

“It’s over, goodbye everyone, it was nice to meet you.”

But when greed takes control, euphoria reigns. Suddenly, everyone becomes an expert, confidently predicting that new highs are just around the corner.

“If this coin goes up another 10,000%, I can retire. Let’s go LFG!”

So, why does this happen?

Why are we so cautious at the market bottom, yet throw caution to the wind at the top?

This is largely due to loss aversion; the pain we feel from losses is far greater than the pleasure we feel from gains.

We are also social creatures, and the fear of missing out (FOMO) is a powerful emotion. It’s hard to sit on the sidelines when everyone around us is getting rich quickly. The herd mentality takes over, and we jump into the market, often just in time to catch the peak. It’s hard to stay calm when we hear about others getting rich overnight every day.

On the other hand, when prices crash and everyone is fleeing, our instinct is to follow them. Holding on feels like fighting a losing battle. The prospect of further losses overshadows the potential for future gains in our minds.

Yes, for most people, predicting bottoms and tops is foolish.

When emotions reach extremes, the ship has usually already sailed. When your Twitter/X feed is bullish at the top or bearish at the bottom, it may already be too late.

Ironically, the best opportunities often lie in going against the tide.

Buy when others are overwhelmed by fear, and sell when greed and euphoria are rampant. Yes, I know, it’s easier said than done; going against the trend requires strong psychological resilience.

But as one of the greatest investors said, “When others are greedy, I am fearful; when others are fearful, I am greedy.”

So, if predicting tops and bottoms based on emotions is usually a failed strategy, what is a better approach?

One method is to focus on your own analysis and create a plan.

Instead of trying to find the perfect entry and exit points, consider gradually accumulating during downturns and taking profits during upswings.

Have a strategy and stick to it, regardless of what the herd is doing. Develop a theory based on fundamentals, technicals, or your assessment of market cycles, and let it guide your decisions.

You don’t know what the “predictions” of others are based on. Maybe that bull shouting on X about hitting $100,000 in a week is a 16-year-old who doesn’t even know what the funding rate is?

FOMO is a powerful force, and the temptation to abandon your plan to chase gains can be strong. That’s why discipline is important.

One big mistake I repeatedly make is how to justify holding onto losing coins in my portfolio.

Even when I know the smartest move is to cut losses and invest in something else, I still hold onto them, hoping to break even.

This is a prime example of human psychology.

No one can catch every opportunity.

I’ll say it again: no one can catch every opportunity.

There will always be that coin you didn’t buy that went up 100 times, or the coin you sold too early.

That’s the nature of the market. The key is not to let FOMO dictate your actions; be disciplined, stick to your strategy, and trust that there will always be new opportunities.

By making a plan, maintaining discipline, focusing on your own analysis rather than the herd’s views, and keeping a long-term perspective, you can strive to buy low and sell high, rather than the other way around.

It’s not easy, but this mindset separates the successful few from the failing majority.

Ultimately, the goal is to eliminate emotions as much as possible. Fear and greed may be inevitable human reactions, but we don’t have to let them control our every move in the market.

Let’s break it down:

• Professionalism means having a plan and sticking to it, even when emotions run high.

• Consistency means applying your strategy every day, not just when it’s easy.

• Discipline means resisting the urge to deviate from your plan when FOMO strikes or fear looms over the market.

• Repetition means putting in screen time and doing your homework, even when it feels tedious.

• Perhaps most importantly, the ability to overcome repeated failures and disappointments is essential, as no strategy is perfect, and losses are part of the game.

So, why do most traders struggle with this? Why do they still become bearish at the bottom and bullish at the top, even when they know more?

A large part of the reason is it’s hard to truly internalize these basic yet important principles. Understanding these concepts is one thing, but consistently applying them at critical moments is another.

That quote from Warren Buffett about being greedy when others are fearful rings true again.

But in practice, when the streets are running with blood and your portfolio is down 50%, buying is very difficult. Similarly, when euphoria reigns, we know we should be cautious, but the temptation to quickly profit when everyone around seems to be getting rich easily is powerful.

How can you sit still when you see headlines like “High School Student Earns $1,000,000 Overnight”?

That’s why it’s so important to make a plan and stick to it. If your plan is to accumulate during downturns, then buy when prices drop and emotions are bearish, regardless of how you feel.

If your plan is to take profits when targets are reached, then sell part of your holdings on the way up, even when it feels like the upward trend might last forever.

Accurately catching bottoms and tops may feel gratifying, but it’s not a reliable way to build long-term wealth. A better approach is to focus on executing your plan over and over again, even if it means missing some of the best days.

A slow and steady approach often wins in investing.

But even the best plans can’t completely eliminate the psychological impact on our trading. We are emotional beings, and we will make mistakes.

The key is to learn from those mistakes, regroup, and keep moving forward.

Every trader has bad days, bad weeks, and even bad months. Those who succeed in the long run are the ones who can bounce back from inevitable setbacks and disappointments. They are the ones who can continue to execute their strategies even in tough times, able to resist the temptations of FOMO and control their fears better than professional wrestlers.

So, the next time you find yourself overly bearish or irrationally optimistic, take a moment to calm down.

Remember, in extreme situations, the crowd is usually wrong.

Remember your plan and the effort you put into creating it.

Discipline is key to long-term success, and every setback is an opportunity to learn and improve.

Stay rational, and may you reap rich rewards!

Be fearful when others are greedy, and be greedy when others are fearful!

Take care.

That’s it for today, friends!