When market information floods in at an explosive speed, project teams continuously release messages to encourage output and expand influence. It becomes challenging for us to distinguish between truth and falsehood and even more difficult to resist the onslaught of FOMO (Fear of Missing Out). The media's amplification, whether portraying the myth of "overnight riches" or magnifying market panic, invisibly stimulates our nerves, causing us to repeatedly teeter on the edge of trading. The aura-shrouded Key Opinion Leaders (KOLs), with each of their endorsements and advertisements, may become the final straw that crushes our rational defense line, pushing us into the abyss of emotional trading. These emotional trading behaviors ultimately result in phenomena such as "buying high and selling low," "overtrading," and "excessive speculation."

This guide is based on everyone's common trading psychology, combined with traditional financial empirical data and cryptocurrency industry data, to help everyone avoid irrational decisions and use strategies to restrain human weaknesses.

Be bold and check the boxes that apply to you!

“I Sold Again at the Peak, Should I Buy Back?”

“I sold again at the peak!” This might be the regretful sigh that every trader has uttered. When Bitcoin surged from $70,000 to a historic high of $100,000, and when Ethereum skyrocketed from $3,000 to $4,500, how many traders sold early as the market took off? Following closely is often a more dangerous thought: "Should I buy back immediately?" This intolerable FOMO (Fear of Missing Out) emotion is the primary culprit behind invalid trades and profit erosion.

Data Insights: This data is based on research on the trading frequency of individual investors in traditional finance, analyzing the performance and cost differences of users in different trading frequency ranges. The lowest 20% of users in trading frequency have an annualized return rate of up to 18.5%, outperforming all other groups and even surpassing the market benchmark of 16.9%. In contrast, the highest-frequency trading group, after incurring a transaction cost of up to 3.8%, ultimately achieved a return rate of only 11.4%, significantly underperforming the market.

Comparison of Returns and Cost Distribution at Different Trading Frequencies

In-Depth Analysis: Excessive trading frequency significantly reduces the overall return rate, primarily due to missing a few key uptrend days. Looking at the longer term, holding mainstream assets such as Bitcoin for many years often leads to substantial returns, while frequent trading may weaken profitability. This indicates that "selling at the peak" is more of a strategy error caused by psychological factors.

In this marathon of trading, less action often prevails over more action. We attempt to capture every tiny "wave" through frequent trading, only to miss out on the grand "tide" of asset value appreciation in the end. We mercilessly "donate" our rightful profits to the market's frictional costs.

Solution: Defeat impulsiveness with discipline. If you're worried about missing the peak but also fear the rollercoaster ride, you can use tools like grid trading to set incremental take-profit sell points.

Strategic Advice: When anticipating that an asset is in a range-bound uptrend, use a spot grid strategy to automatically execute buy low sell high within predetermined "gridlines." Through disciplined automated trading, gradually realize profits during the uptrend, continually lower your position's cost basis, and most importantly, always retain your base position to ensure you don't miss out on the potential next major uptrend. This fundamentally prevents the regret of "selling too early" due to hesitation or errors in manual operations. Grid trading turns "passively harvesting gains from waves" into a reality.

Establish a holding plan in advance. For example, define a strategy to respond to significant bearish news or only reduce positions when the target price is achieved. With data-driven strategies, overcome emotional impulses.

Should I Go All In?

"This opportunity is once in a lifetime. When others are fearful, I should be greedy. It's time to go all in!""Only by risking a little can you win big.""You have to go all in to turn things around." This excessive self-assurance that infinitely magnifies a single opportunity is the biggest risk factor leading to an account wipeout. The most crucial aspect of investment psychology lies in a reverence for risk.

Data Insights: This data is based on institutional long-term data synthesis results on the US stock market, analyzing the drawdown performance and trading win rates of different position sizing strategies in extreme market conditions. Although the "All In" strategy can achieve the highest returns in some extreme scenarios, its corresponding "maximum drawdown" histogram is also the highest, reaching -54%, with a historical win rate located at the bottom. When combined with dollar-cost averaging (DCA) strategies, the maximum drawdown is kept within a more acceptable range, and the win rate is more stable.

Position Sizing Strategy Performance Comparison Chart: Maximum Drawdown and Win Rate

In-Depth Analysis: The essence of going all in is to risk a very low win rate to achieve theoretically high returns once, but behind this lies a massive risk that traders cannot bear. As Warren Buffett said, the first rule of investment is "don't lose money." Any strategy that could potentially lead to a significant permanent loss of capital should not be present in a rational toolbox.

Solution: Mitigate the risk of a "gambler's mindset" using the art of "position management."

Strategy Recommendation: Utilize a dollar-cost averaging tool to systematically break down your trading plan. Invest a fixed amount at regular intervals. The OKX DCA feature allows users to set price ranges for each DCA pair, ensuring that DCA orders are only executed within the specified price range. By continuously averaging down your cost over the long market fluctuations, this approach forcibly extends your trading behavior over the entire time dimension. Leveraging the power of compounding over time smoothens out price volatility, making it the most robust way to build a "core position" and withstand the risk of going all-in.

Flexibly apply a hybrid strategy: Strategies are not always black and white. You can divide your planned trading funds into two parts, for instance, investing a portion in assets at the current reasonable price and DCAing the remainder on a weekly or monthly basis. When the market is bullish, you already have a certain position to benefit from the rise; in case of a short-term dip, you still have additional funds to buy the dip and lower your average cost.

Regardless of the approach taken, always set a maximum tolerable drawdown ratio for yourself. For example, do not fully invest all available trading assets at once; instead, reserve some funds as a backup. If a significant loss occurs after a lump sum investment, you can pause and switch to a DCA strategy to average down your cost, avoiding emotional trading decisions or stop losses.

"I just can't resist, can I enter now?"

When a token goes from a professional community to your casual chat group, recreational group, or when a three-month quiet chat suddenly becomes active again, and when the Google search index skyrockets, the strong FOMO emotion is enough to overpower all rationality. The thought of "Should I buy or not?" keeps recurring in your mind. However, historical data repeatedly proves that the peak of frenzy often marks the starting point of a crash.

Data Insights: This data analysis studied the correlation between cryptocurrency (using DOGE and TRUMP tokens as examples) Google search trends' heat and investors' 7-day/30-day returns after entry. Reviewing the past data of DOGE and TRUMP tokens, when their Google Trends heat reached a peak of 100, the subsequent 7-day and 30-day returns were without exception significantly negative. Public sentiment fuels asset prices, but when the fuel burns brightest, it also signals its imminent depletion. When all potential buyers have entered the market, the market loses its momentum to continue rising, leaving only profit-taking and panic selling.

$DOGE Google Trends Index and 7-Day/30-Day ROI Analysis

$TRUMP Google Trends Index and 7-Day/30-Day ROI Analysis

Solution: Mitigate FOMO Risk with a Strategic Approach

When assessing that the market trend is not yet over, the key question is how to enter the market, requiring a well-thought-out, scientifically backed, and risk-controlled plan for subsequent actions.

Strategy Recommendation: Establish an objective popularity index threshold: Traders can monitor Google Trends Index, Twitter discussion volume, and other data. When a coin's search index approaches a historical peak or when social media sentiment index is overly optimistic, exercise caution in chasing price highs.

Utilize dollar-cost averaging and take-profit/stop-loss strategies: If you determine that the interest is surging but the trend may not be over yet, you can employ a spot Martingale strategy to control risk — Martingale strategy offers more flexibility in cost management. Divide the planned chasing funds into several portions and buy in after a fixed percentage price drop occurs, with the core aim of averaging down the holding cost. Simultaneously, set tight trailing stop-loss or take-profit levels for the entered positions; once the appropriate selling point is reached or the desired profit ratio is achieved, the Martingale strategy will automatically execute the sell orders.

If your focus is not solely on the price but on the market opportunity brought by the hype, a more conservative "risk-neutral" strategy can be adopted. When a coin's popularity is extremely high, it typically signifies strong bullish sentiment, resulting in a substantial funding rate in the derivatives market. Through OKX's intelligent arbitrage, you can hedge the price volatility risk and specifically earn this "rent" paid by the market sentiment.

“Is this another all-time high?”

The dilemma after making a profit is no less painful than the agony of a loss. There is a fear of “locking in gains” and a greed of "missing out on a fortune." This human psychological game often leads us to miss the optimal selling point due to hesitation. In reality, human nature struggles to overcome the weakness of greed, and selling off all holdings in one go at the market peak is nearly an impossible task.

Data Insights: Based on behavioral finance research, this data analyzes and compares the relationship between the average drawdown over the next 30 days and the probability of profit giveback (exceeding 15%) in different floating profit ranges. When a portfolio's floating profit exceeds +50%, the average maximum drawdown over the next 30 days reaches 25%, while the probability of significant profit giveback (exceeding 15%) sharply rises to 54%. Classic behavioral finance studies also indicate that individual traders often sell too late due to "greed," leading to a significant profit erosion.

Future Returns and Reversion Risk Across Different Profit/Loss Ranges

Deep Dive: When the risk-reward ratio no longer favors you, disciplined partial profit-taking is the only way to turn "paper gains" into real wealth.

Solution: Let a robot "secure the bag" for you. Manual profit-taking is the ultimate test of human nature. A strategy tool can perfectly execute this discipline.

Strategy Recommendation: For the average trader, a more realistic and wise choice is to abandon the obsession of "selling at the top" and instead strive for "selling at a relatively high level within a price range" and, through automated strategy tools, gradually secure profits. Opposite to entry positions, when the price enters the "bubble zone" or reaches the profit target zone, a "reverse pyramid-style" selling strategy can be employed. This means that as the price continues to rise, the amount sold each time becomes larger and larger. For example, sell 10% at $100,000, 20% at $110,000, and 30% at $120,000. This method ensures that at the peak, the largest portion of the position is sold.

Should I "HODL until break-even" or cut my losses?

"Loss Aversion" is a psychological bias ingrained in human genes. We would rather endure the long-term pain of being trapped than accept the short-term agony of admitting failure through “cutting losses.” However, data tells us that for deeply underwater assets, time is often poison, not a cure. Traders tend to hold the losing position or lower their average cost during losses, rather than decisively stop loss, leading to the widespread phenomenon of continuously holding onto losing assets. This behavior is known as the Disposition Effect: traders often sell profitable positions too early but hold onto losing positions for a long time, hoping to break even someday.

Data Insight: This data is based on US stock and crypto market data, analyzing the correlation between trading behavior under different loss states and the number of days to break even. The deeper the unrealized loss of an asset, the lower the probability of historically successful break-even and the exponentially growing time required to break even. When the loss reaches -50%, to break even, the asset price needs to double, often taking more than 120 days. In the crypto market, this means waiting for the next bull market cycle, with significant time and opportunity costs. Additionally, under a loss state, the number of trades significantly increases, and emotional trading will amplify losses.

Correlation Between Trading Behavior in a Loss State and Breakeven Period

Deep Dive: Passive "HODLing" is essentially a decision paralysis. It locks valuable funds in inefficient or even "worthless" assets, causing us to miss out on other potential opportunities in the market. Active risk management and proactive position optimization are far more valuable than hopeless waiting.

Some traders become passively passive after a loss, almost ceasing any operation, hoping for a miraculous rebound; while others experience intensified trading impulses, engaging in frequent short-term trades attempting to "average down" or quickly recover losses. Both of these behaviors may be irrational. The former misses the opportunity cost of stop-loss rebalancing or dynamic adjustments, and the latter is prone to exacerbating losses through emotional trading.

Solution: Scientific "self-rescue," not passive "bag holding"

Strategic Advice: Establish clear stop-loss and dynamic adjustment principles: Plan for the worst-case scenario at the time of purchase; for example, set an unconditional exit when the price falls by a certain percentage or when certain negative fundamental changes occur. You can also employ a staggered stop-loss strategy: sell a portion on each rebound to a certain resistance level, or reduce a portion each time a new support level is broken to diversify risk. Quantifying discipline can prevent falling into subjective procrastination waiting for breakeven. After a stop-loss, maintain a cool-off period to prevent impulsively switching to other coins and repeating the mistake.

Minimize losses instead of fixating on breakeven: Shift your focus from "breaking even" to "how to minimize losses and regain profitability." Sometimes, acknowledging the loss and reinvesting the remaining funds in a more promising asset is more likely to recover losses. For example, instead of being deeply stuck in a meme coin for the long term, it's better to cut losses and buy into a more promising coin at a dip to recover losses more quickly in the next market cycle.

Disclaimer:

This article is for reference only. This article represents the author's views and not those of OKX. This article is not intended to provide (i) investment advice or investment recommendations; (ii) an offer or solicitation to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or utility of such information. Holding digital assets (including stablecoins and NFTs) involves high risk and may experience significant volatility. Historical performance does not guarantee future returns, and past performance does not represent future results. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For your specific situation, please consult with your legal/tax/investment professional. You are solely responsible for understanding and complying with relevant local laws and regulations.

This article is a contributed piece and does not represent the views of BlockBeats

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