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Time in the market > Timing the market

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Timing the crypto market

Cryptocurrency is one of the most volatile asset classes in the world. How an investor navigates the market is one of the most important factors for whether they’ll achieve long-term financial success or not. In order for an investor to make prudent investment decisions, they need to be able to control their emotions and make investment decisions based on strong logical reasoning and not emotional responses. To be able to do this, one must understand the key motivators behind emotional investing and the potential for poor decision-making that emotional investing can lead to.

Investing based on emotions, primarily fear and greed, is one of the biggest reasons as to why so many investors fail to achieve long-term financial success. Studies have shown that fear and greed have the power to affect our brains in ways that forces us to put aside common logic and self-control. And when it comes to humans and money, fear and greed can be very powerful motivators.

Having an investment plan and sticking to it, even when your emotions tell you otherwise, is one of the most important investment practices that an individual can follow – especially in cryptocurrency, where the stakes are so high.

So in this article, we’re going to explore why emotional investing is, mostly, a recipe for disaster, as well as explain some of the best practices to combat emotional investing.

Time in the market > Timing the market

This is one of my favorite investment principles. Time after time we hear stories of people who attempt to trade the market and fail. No one can predict an asset’s future price. This is even more true in a speculative and highly volatile market. The fact of the matter is that in cryptocurrency, prices are unpredictable. All it takes is a new regulation or some bad press and the entire market can tank. While this presents amazing buying opportunities, for investors with long-term outlooks, for those who attempt to regularly trade the market, it can cause severe losses. 

The added possibility of short-term losses, in an already incredibly volatile market, will make investing an emotional rollercoaster. We already know that our emotions are key influencers in the decisions that we make. We should be attempting to do everything in our power to keep our emotions in check and attempting to predict short-term price movements definitely isn’t something that will do that. 

Dollar Cost Averaging

Dollar cost averaging is one of the easies approaches to investing that individuals can implement to make consistent decisions that are not driven by emotion. It’s a strategy where equal amounts of money are invested at regular intervals. This means that this strategy can be implemented during any market condition – both bullish and bearish.  

The traditional way to DCA is to buy at regular, predetermined periods. However in cryptocurrency, because the market is so volatile, investors can typically wait until market dips occur and use these events as buying opportunities. This way, an investor is not looking to time the market to make gains, but to time the market as buying opportunities. Buying at reduced prices and holding for long periods of time is a strategy that has been proven successful over generations. And now a new wave of investors are using this strategy in one of the most volatile and high potential markets of all time.

Evidence that unemotional investing can lead to immense success

As ridiculous as this sounds, we live in a time where a hamster is out-performing the Dow Jones, the S&P 500 and even Berkshire Hathaway. One crypto trader thought that it would be interesting to make cryptocurrency trades based on decisions made by their hamster, Mr.Goxx.  Essentially, MrGoxx runs on a wheel that selects a random cryptocurrency and then runs through either a tunnel labeled ‘buy’ or ‘sell’. While this may seem ludicrous, the hamster is actually up 19% as of September 27th. This shows that even random investment decisions can beat decisions made by human investors based on emotion. 

The first month for Mr.Goxx was rough. He started with just over $300 and after 96 trades he was down over 7%. If this was the case with a human investor, that was making decisions based on emotion, it’s likely that they would have succumbed to pressure and decided to make unwise investment decisions. But the hamster’s unknowing persistence and the removal of emotions from the situation has proven that even random investment decisions can outperform decisions strongly controlled by emotion.

Final thoughts

Investing without emotion is easier said than done. However, when it comes to all asset classes, keeping control of emotions is one of the most important things that an investor can do. This is especially true with extremely volatile assets, like cryptocurrencies. Over time, cryptocurrencies have proven to trend upwards. Of course, this is not guaranteed and we should expect many casualties, however keeping a long-term outlook and staying invested – even when times get tough – have been crucial factors as to why some crypto investors have achieved immense success. 

We live in an age where domestic pets can make better investment decisions than most experienced investors purely because they do not make decisions based on emotions. Although making random investment decisions is not wise and should never be advised, the Mr.Goxx example shows that even randomness can significantly outperform emotional investing in volatile markets.

Disclaimer: Nothing in this article is intended to be taken as financial or investment advice. This is for educational and informational purposes only. We recommend that individuals get professional guidance from investment professionals before choosing to part with their money.

Hi, I'm Jack. I'm a creative and technical writer in the cryptocurrency industry. I chose a career in blockchain because I believe that it is the technology that will have the biggest impact on and revolutionise the world as we know it. Being involved in that excites me. Although its easy to get caught up in the hype surrounding cryptocurrencies, I'm more excited to see blockchain realise its full potential and completely disrupt the legacy systems of the 21st Century. I've been in this industry for multiple years and I've worked for some of the biggest research and development companies as well as smaller, startup crypto projects.