This is a mistake that most gamblers investors make on a habitual basis. Never gamble with your rent money. Don't gamble with the money you need to buy food with. Bills don't pay themselves! This should be obvious for a multitude of reasons, but it's clearly easier said in theory than accomplished in practice.
At the end of the day being financially over-extended is an easy mistake to make. In crypto, this is the standard. We see projects left and right making triple digit percentage gains and we think: "Yeah but if I bet everything on this I'd make even more!"
Slippery slope, friend!
This is why DeFi farming is actually a nice chance of pace. Every DeFi farm has a nice pair to a stable coin. This makes it a much safer gamble. Half of the total value will always be measured in stable coin and we can cash that side out whenever we need to.
Impermanent loss is irrelevant
Why's that? Because let's be honest: there was no way in hell you were going to hold 50% of your assets in stable coins right from the start. You'd of just went all in like everyone else. That's the entire reason you got into this mess in the first place. Remember?
With yield farming, we're essentially FORCED to hold 50% of our assets in something else. A stable coin is the best choice if we are prone to becoming financially overextended.
The worst part of being financially overextended is the fact that we won't be able to pay our bills when shit hits the fan, right?
Wrong!
The worst thing about being overextended is having an extreme emotional attachment to the money. We NEED that money to perform! THIS HAS TO WORK! That is the mindset of someone on tilt, and tilt will get you wrecked real quick.
When you're on tilt you'll make foolish decisions constantly. You see another token rise in price and try to chase those gains, oops that coin just crashed you lost money. You'll refuse to take losses while thinking, "The price has to recover soon; it just has to!" It doesn't: the price crashed again, you lost money. Right when you do sell the market seems to have our number and will spike a day later. Every time these things happen they will make us more emotional and more prone to making stupid mistakes.
How do we fix this?
- We should always have a position in stable coins.
DeFi Farming makes this easy. - We should never gamble with more than we are comfortable with.
Light the money on fire in your mind.
You don't care about it.
This is all a fun game: even if we lose. - Be careful about winner's-tilt.
Some people are even more prone to stupid mistakes after they win. If you squander your winnings during a luck-streak you'll lose everything after your luck temporarily flips. - DCA DCA DCA
Always dollar cost average.
Stop making huge decisions and then moving all in.
There's no reason to leverage trade or increase risk here.
These are the most volatile markets in the world already.
A 5%-10% move in the stock market is huge.
A 30% move in crypto is standard (in both directions).
Conclusion
The emotional aspect of investing is a tough nut to crack. It's easy to get trapped in a dark headspace of our own design. However, the market doesn't care about our feelings. It is a wild untamed beast, and we may fall off during the ride. All we can do is pick ourselves back up and try again. Perhaps we play it safer the next time around. Or perhaps we learn nothing and double-down trying to recapture those losses. Who knows?
Statistics and probabilities are unmoved by past events. If you lose 5 times in a row there isn't suddenly a better chance to win on the 6th try. Each gamble is a totally independent event, and if you try and convince yourself you made a bad play when you actually just got unlucky, the next time you're faced with that decision you probably will make the other bad move instead of playing the odds correctly.
When it really comes down to it we don't need to bet the farm on crypto. This is abundance technology: except this time around the technology is money itself. There's going to be money everywhere. It's only a matter of time before we capture a nice chunk for ourselves, no matter how much collateral we put into the system to start. Better to play safe then sorry in crypto. Fact.