Mastering Fear

[bassclef]

Fear is a powerful emotion. It is an evolutionary holdover from thousands of years ago when it was a necessary trait to survive. Have to run from a large cat? Yeah, that fear is going to get the adrenaline pumping and make you run faster and farther. Although technology has changed society, it hasn't changed humans very much. The same fears remain, sometimes brushed aside or ignored, but always there, waiting. Professional traders are well aware of this fact and through years of mastering and manipulating fear in others (and because of fierce competition within their own industry) have gained an edge over the non-educated investor. To understand how they do this will give you a greater understanding of how the markets generally work.

Fear of loss

During bear markets, there comes a point where investors can't stand the thought of further loss. This is fear. Fear of loss. Fear of being wrong. Fear of having to explain to your friends and family why the investment you made lost so much money. It results in a selling climax that accelerates and gains momentum. Soon panic selling ensues (usually near the bottom) then rebounds like a basketball. If the volume is great enough it can even change the trend from bear to bull. This happens every time, in every market throughout history. Why is that? Why doesn't the price continue to fall? The answer is that investors, having waited on the sidelines for attractive prices, stop the selling. If they didn't, the price would fall forever. The buyers of these climactic selloffs are obviously bullish on the price or they wouldn't be buying. They plan to sell back at higher prices.

Fear of missing out

The second fear is the cause of greed and jealousy. It is fear of missing out. Say your neighbor or friend got rich with a certain stock. Certainly this gives you a strong temptation to buy the same stock and profit for yourself as you are jealous and seek to improve your financial position. It's no different with Bitcoin. Having accumulated coins (or stock, it works the same way), the same investors who bought all the extra supply at wholesale prices are now holding. The selling is slowly stopped as those who are tempted to sell eventually give in and leveraged positions are covered. Once this happens, the price will have a fairly easy time going up (with a little help of course). Suddenly sentiment changes, prices soar upwards and good news abounds. Fortunes are being made. As the price shoots up, suddenly those on the sidelines begin to feel fear again: Fear of missing out. They buy back in. At some point, the fear of missing out on profit becomes too great and "the herd" panic buys, usually near the top at the point of greatest euphoria. This gives the investors a perfect opportunity to sell to "the herd" at higher prices. As the stock is distributed to the new buyers, supply floods the market in greater quantities and the price tanks. This is called a buying climax and works in opposite to a selling climax.

Having identified both fears, it's fairly easy to see how they are manipulated for profit. Bad news often accompanies bear markets for the same reason good news accompanies bull markets. They are often timed this way to maximize profits for investors. During bull markets, investors can call their friends at CNBC and unwittingly the anchors and news outlets become stock pumpers. They don't know any better, but the smart money does. Why did good news about the dollar come out recently? Because it's at the top of a bull run and those who accumulated months ago need plenty of buy orders to sell into. Good news almost always accompanies market tops to tempt "the herd" into buying through fear. Now do you understand, on this forum and others, why there are so many negative trolls during bear markets and positive trolls during bull markets? They are not there to be your friend, that's for sure!

To test this theory, look at stocks that are being "pumped" on mainstream news outlets. Note the price and return a few months later--likely it will be lower. A good example is the dollar which has been in a steady uptrend for quite some time. Check out recent news, like this gem: http://www.wsj.com/articles/dont-buck-the-dollar-trend-heard-on-the-street-1421189831. There is a chart with the words "Fly Like an Eagle." Are large investors stockpiling dollars at this price? Probably not, but they need someone to sell to, and they know the dumb-dumb public will fall for this. Understanding how this process works, again and again, and how the herd falls for it again and again, is key to understanding how markets operate.
 

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[poncho32]

Fear is a powerful emotion. It is an evolutionary holdover from thousands of years ago when it was necessary trait to survive. Have to run from a large cat? Yeah, that fear is going to get the adrenaline pumping and make you run faster and farther. Although technology has changed society, it hasn't changed humans very much. The same fears remain, sometimes brushed aside or ignored, but always there, waiting. Professional traders are well aware of this fact and through years of mastering and manipulating fear in others (and because of fierce competition within their own industry) have gained an edge over the non-educated investor. To understand how they do this will give you a greater understanding of how the markets generally work.

Fear of loss

During bear markets, there comes a point where investors can't stand the thought of further loss. This is fear. Fear of loss. Fear of being wrong. Fear of having to explain to your friends and family why the investment you made lost so much money. It results in a selling climax that accelerates and gains momentum. Soon panic selling ensues (usually near the bottom) then rebounds like a basketball. If the volume is great enough it can even change the trend from bear to bull. This happens every time, in every market throughout history. Why is that? Why doesn't the price continue to fall? The answer is that investors, having waited on the sidelines for attractive prices, stop the selling. If they didn't, the price would fall forever. The buyers of these climactic selloffs are obviously bullish on the price or they wouldn't be buying. They plan to sell back at higher prices.

Fear of missing out

The second fear that is the cause of greed and jealousy. It is fear of missing out. Say your neighbor or friend got rich with a certain stock. Certainly this gives you a strong temptation to buy the same stock and profit for yourself as you are jealous and seek to improve your financial position. It's no different with Bitcoin. Having accumulated coins (or stock, it works the same way), the same investors who bought all the extra supply at wholesale prices are now holding. The selling is slowly stopped as those who are tempted to sell eventually give in and leveraged positions are covered. Once this happens, the price will have a fairly easy time going up (with a little help of course). Suddenly sentiment changes, prices soar upwards and good news abounds. As the price shoots up, suddenly those on the sidelines begin to feel fear again: Fear of missing out. They buy back in. At some point, the fear of missing out on profit becomes too great and "the herd" panic buys, usually near the top. This gives the investors a perfect opportunity to sell to "the herd" at higher prices. As the stock is distributed to the new buyers, supply floods the market in greater quantities and the price tanks. This is called a buying climax and works in opposite to a selling climax.

Having identified both fears, it's fairly easy to see how they are manipulated for profit. Bad news often accompanies bear markets for the same reason good news accompanies bull markets. They are often timed this way to maximize profits for investors. During bull markets, investors can call their friends at CNBC and unwittingly the anchors and news outlets become stock pumpers. They don't know any better, but the smart money does. Why did good news about the dollar come out recently? Because it's at the top of a bull run and those who accumulated months ago need plenty of buy orders to sell into. Good news almost always accompanies market tops to tempt "the herd" into buying through fear. Now do you understand, on this forum and others, why there are so many negative trolls during bear markets and positive trolls during bull markets? They are not there to be your friend, that's for sure!

To test this theory, look at stocks that are being "pumped" on mainstream news outlets. Note the price and return a few months later--likely it will be lower. A good example is the dollar which has been in a steady uptrend for quite some time. Check out recent news, like this gem: http://www.wsj.com/articles/dont-buck-the-dollar-trend-heard-on-the-street-1421189831. There is a chart with the words "Fly Like an Eagle." Are large investors stockpiling dollars at this price? Probably not, but they need someone to sell to, and they know the dumb-dumb public will fall for this. Understanding how this process works, again and again, and how the herd falls for it again and again, is key to understanding how markets operate.
 

It's not often you read an honest post explaining how things work. Thanks for the explanation.

[Bit_Happy]

"again and again" really sums it up, how come the herd never learns to buy when prices are down 80 to 90%?
Oops, shhhhh... don't tell the noobs.

[Ultros]

Thanks for this post. A true gem in a sea of trolling/fud.

[RodeoX]

Thanks for posting this. Interesting thoughts. 

[ssmc2]

[smoothie]

Fear is a powerful emotion. It is an evolutionary holdover from thousands of years ago when it was a necessary trait to survive. Have to run from a large cat? Yeah, that fear is going to get the adrenaline pumping and make you run faster and farther. Although technology has changed society, it hasn't changed humans very much. The same fears remain, sometimes brushed aside or ignored, but always there, waiting. Professional traders are well aware of this fact and through years of mastering and manipulating fear in others (and because of fierce competition within their own industry) have gained an edge over the non-educated investor. To understand how they do this will give you a greater understanding of how the markets generally work.

Fear of loss

During bear markets, there comes a point where investors can't stand the thought of further loss. This is fear. Fear of loss. Fear of being wrong. Fear of having to explain to your friends and family why the investment you made lost so much money. It results in a selling climax that accelerates and gains momentum. Soon panic selling ensues (usually near the bottom) then rebounds like a basketball. If the volume is great enough it can even change the trend from bear to bull. This happens every time, in every market throughout history. Why is that? Why doesn't the price continue to fall? The answer is that investors, having waited on the sidelines for attractive prices, stop the selling. If they didn't, the price would fall forever. The buyers of these climactic selloffs are obviously bullish on the price or they wouldn't be buying. They plan to sell back at higher prices.

Fear of missing out

The second fear is the cause of greed and jealousy. It is fear of missing out. Say your neighbor or friend got rich with a certain stock. Certainly this gives you a strong temptation to buy the same stock and profit for yourself as you are jealous and seek to improve your financial position. It's no different with Bitcoin. Having accumulated coins (or stock, it works the same way), the same investors who bought all the extra supply at wholesale prices are now holding. The selling is slowly stopped as those who are tempted to sell eventually give in and leveraged positions are covered. Once this happens, the price will have a fairly easy time going up (with a little help of course). Suddenly sentiment changes, prices soar upwards and good news abounds. Fortunes are being made. As the price shoots up, suddenly those on the sidelines begin to feel fear again: Fear of missing out. They buy back in. At some point, the fear of missing out on profit becomes too great and "the herd" panic buys, usually near the top at the point of greatest euphoria. This gives the investors a perfect opportunity to sell to "the herd" at higher prices. As the stock is distributed to the new buyers, supply floods the market in greater quantities and the price tanks. This is called a buying climax and works in opposite to a selling climax.

Having identified both fears, it's fairly easy to see how they are manipulated for profit. Bad news often accompanies bear markets for the same reason good news accompanies bull markets. They are often timed this way to maximize profits for investors. During bull markets, investors can call their friends at CNBC and unwittingly the anchors and news outlets become stock pumpers. They don't know any better, but the smart money does. Why did good news about the dollar come out recently? Because it's at the top of a bull run and those who accumulated months ago need plenty of buy orders to sell into. Good news almost always accompanies market tops to tempt "the herd" into buying through fear. Now do you understand, on this forum and others, why there are so many negative trolls during bear markets and positive trolls during bull markets? They are not there to be your friend, that's for sure!

To test this theory, look at stocks that are being "pumped" on mainstream news outlets. Note the price and return a few months later--likely it will be lower. A good example is the dollar which has been in a steady uptrend for quite some time. Check out recent news, like this gem: http://www.wsj.com/articles/dont-buck-the-dollar-trend-heard-on-the-street-1421189831. There is a chart with the words "Fly Like an Eagle." Are large investors stockpiling dollars at this price? Probably not, but they need someone to sell to, and they know the dumb-dumb public will fall for this. Understanding how this process works, again and again, and how the herd falls for it again and again, is key to understanding how markets operate.
 

Thanks for this. Understanding how markets work is very important when you are trading in them.

[bassclef]

I'd also add, this is why the price has been going down on good news for months.

[knight22]

It's been a while since somebody posted something clever in this junkyard.

[bassclef]

I feel like the timing of this post was significant... When supply finally runs out and smart money is satisfied we have what is called a markup. Admittedly it's more fun than a markdown.

[Chef Ramsay]

This thread won't need policing as the trolls will be too scared to step in it. OP's case is air tight.

[bassclef]

This thread won't need policing as the trolls will be too scared to step in it. OP's case is air tight.

Don't worry, I've made it self-moderated just in case. And I've got most of them on ignore anyway so their posts won't last long.

[MoreFun]

Thanks for that, one good post in last 6 months.

[HarmonLi]

I'd also add, this is why the price has been going down on good news for months.

This has to change at some point. Interstingly not a single good news caused a significant rise. The price almost immediately went down again. Usually good news cause the price to go upwards (stock market), this will have to apply to Bitcoin at some point again, too.

[orpington]

Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.

 

[rampantparanoia]

awesome thread. reminds me of my own journey in trading. can't say i've mastered fear, but I've definitely conquered quite a bit of it.

cheers

[chriswilmer]

The one thing that I can't figure out, as a hodler, is what to do during the euphoric buying phase. It seems like a good time to sell, on the one hand, and yet Bitcoin is still so far from its full potential on the other.

[rampantparanoia]

The one thing that I can't figure out, as a hodler, is what to do during the euphoric buying phase. It seems like a good time to sell, on the one hand, and yet Bitcoin is still so far from its full potential on the other.

I've recognized euphoric buying phases and made mistakes in them. Here is what I learned:

1) Your chances of selling at the top are slim to none
2) The price will go higher right after you sell, which invoke FOMO (fear of missing out). This fucked me a few times.
3) Selling for profit > hodling for loss, but if you're already in loss don't let those bitcoins out of your hand.
4) Stick with your plan

With that in mind, a good plan is to slowly sell during the uptrend. Since you believe in BTC's potential, its best to have a plan to buy back cheaper - after the correction.

My tolerance for price swings has grown greatly since I started with bitcoin and I won't "leave" bitcoin until I can buy a private island with a few BTC.

[cbeast]

There's a lot more to fear and it's mastery than can be covered in a page or two. One important thing you left out was having a sense of humor. Dark humor helps in depressing times. Slave songs led to the blues as a music created to mock fear. Try to keep a good attitude.

[Melbustus]

The one thing that I can't figure out, as a hodler, is what to do during the euphoric buying phase. It seems like a good time to sell, on the one hand, and yet Bitcoin is still so far from its full potential on the other.

Likewise. The problem in bitcoin is not that if you sell during a bull-phase, you might miss the peak by 20 or 30%.....you might miss it by 300-400%.

I've never considered myself a trader, so the play for me has simply been to hold through the booms, and accumulate through the busts. Far from optimal compared to a truly skilled trader (of which maybe 1% of those who think they are actually are), but tailoring your investment approach to your personal skillset is very important.