I found out about Bitcoin many years ago when it was in prime time only to be associated with organized crime, scams, and money laundering. And that remained deep in my mind.
Since jail seemed a bad idea, I convinced myself that crypto it’s not for me.
As time went by, I didn’t see the good fortune because my mind was still relating Bitcoin to a dark area. Something kept me from buying and I didn’t know what.
As I was on the dark side, I am now thinking that the ones who listened to another side of the story, the winning side, greatly benefit from it.
Later I found out that psychologists have a name for my burden and it’s called Anchoring bias. It is described that first introduced knowledge on a subject has a great impact on our later decisions.
The first details I come upon Bitcoin unconsciously affected my judgment and kept me in a do not act state of mind and made me miss my chance.
That’s when I found some ways to improve my decision-making process and to look at data from another perspective, which I am going to share with you.
But first, let’s take a glimpse at anchoring bias, an error of our mind present in many aspects of our lives, which usually works against us.
Picture yourself in a shop on Black Friday. Would you buy an item for 150$ and how would that make you feel if you knew that it was discounted from 200$?
We tend to look at the price of 200$ as an anchor that quickly drives our behavior to a decision to act. Similar to adjustment bias, comparing the 200$ item now seems like a bargain.
The same thing happens in trading. How do we know whether a stock is overpriced or not? By comparing it with past quotations that act as an anchor.
Is BTC overpriced at 20k? We all would agree that in 2017 it was, but how about now?
These anchors make us act unwisely and take unconscious decisions with small returns. This could lead to unsatisfying results, frustration, or wipe our account over the long run.
Once you get better at identifying the anchoring bias, you can use it to your advantage. Think about what makes good and strong support & resistance. The perception is that a large number of investors credit that bid as a fair value for them.
So what should we do? To have a better understanding of what drives our choice it’s important to double-check our mindset, emotions, and the data that we encounter.
Does it help us or it could be a potentially harmful anchor? What is the context of the news? In the example above, could we consider solely that 150$ is a fair price, without the 200$ price before the discount?
Also, if you have a strong assumption about a subject, try to look at other points of view, not to change your mind but just to reinforce the reasons you already have.
Remember that the first step into overcoming a bias is to be aware of its presence and next just look inside you to find proof that drives your decisions.
So, let’s recap
Find context - Figure out if the price you set for your buy order is a fair one or if you find it good compared to the day before.
Find anchor - Do I want to invest in this company I have never heard of before just because my cousin thought it was a good idea?
Observe - Do I have doubts about this buy? Do I follow my plan or I am unconsciously driven to make this purchase
Review - Have I looked at other oppions?
Since jail seemed a bad idea, I convinced myself that crypto it’s not for me.
As time went by, I didn’t see the good fortune because my mind was still relating Bitcoin to a dark area. Something kept me from buying and I didn’t know what.
As I was on the dark side, I am now thinking that the ones who listened to another side of the story, the winning side, greatly benefit from it.
Later I found out that psychologists have a name for my burden and it’s called Anchoring bias. It is described that first introduced knowledge on a subject has a great impact on our later decisions.
The first details I come upon Bitcoin unconsciously affected my judgment and kept me in a do not act state of mind and made me miss my chance.
That’s when I found some ways to improve my decision-making process and to look at data from another perspective, which I am going to share with you.
But first, let’s take a glimpse at anchoring bias, an error of our mind present in many aspects of our lives, which usually works against us.
Picture yourself in a shop on Black Friday. Would you buy an item for 150$ and how would that make you feel if you knew that it was discounted from 200$?
We tend to look at the price of 200$ as an anchor that quickly drives our behavior to a decision to act. Similar to adjustment bias, comparing the 200$ item now seems like a bargain.
The same thing happens in trading. How do we know whether a stock is overpriced or not? By comparing it with past quotations that act as an anchor.
Is BTC overpriced at 20k? We all would agree that in 2017 it was, but how about now?
These anchors make us act unwisely and take unconscious decisions with small returns. This could lead to unsatisfying results, frustration, or wipe our account over the long run.
Once you get better at identifying the anchoring bias, you can use it to your advantage. Think about what makes good and strong support & resistance. The perception is that a large number of investors credit that bid as a fair value for them.
So what should we do? To have a better understanding of what drives our choice it’s important to double-check our mindset, emotions, and the data that we encounter.
Does it help us or it could be a potentially harmful anchor? What is the context of the news? In the example above, could we consider solely that 150$ is a fair price, without the 200$ price before the discount?
Also, if you have a strong assumption about a subject, try to look at other points of view, not to change your mind but just to reinforce the reasons you already have.
Remember that the first step into overcoming a bias is to be aware of its presence and next just look inside you to find proof that drives your decisions.
So, let’s recap
Find context - Figure out if the price you set for your buy order is a fair one or if you find it good compared to the day before.
Find anchor - Do I want to invest in this company I have never heard of before just because my cousin thought it was a good idea?
Observe - Do I have doubts about this buy? Do I follow my plan or I am unconsciously driven to make this purchase
Review - Have I looked at other oppions?