FEAR AND GREED.
In Crypto (and the financial markets in general) the two strongest emotional drivers of price movement and investor behaviour is fear and greed.
What is fear?
Fear sets in when there is an expectation of loss or uncertainty.
This is usually caused by bad news (regulations, crackdowns, hacks, scams, exchange collapses, bearish markets, and global crisis.
This is usually succeeded by investors panic selling (dumping assets quickly, often at a loss), avoiding entry into the market even when prices are low and others start moving funds into stablecoins and fiat as "safety".
Because of this, prices fall, volatility spike downwards and liquidity may even dry up.
What is greed?
This emotion makes traders pursue higher returns and expect prices to keep rising.
This is usually stirred by bullish news (ETF approvals, adoption announcements, halving events and FOMO).
This leads to investors buying aggressively at higher prices(FOMO), overleveraging and ignoring risks(focusing only on gains).
Price pumps during this time and volatility spikes upward.
Fear & Greed Index
In the crypto space, there is a popular tool called the Crypto Fear & Greed Index that measures overall market sentiment on a scale from 0 (extreme fear) to 100 (extreme greed).
Extreme fear often signals undervalued prices → possible buying opportunities.
Extreme greed often signals overvalued prices → risk of correction.
Why fear?
As a trader, I can boldly say fear is one of the biggest determiners of how we trade, what we trade, when we trade, how much profit we make and how much loses we take.
We are either entering a trade too late or coming out too early. Below is a history of my personal trades on a particular pair this past week
This is a common experience, especially for Day-traders. If you look carefully you'd notice good buy positions with rushed sell positions. We enter at a good low price but because of fear we quickly run out not allowing our analysis run its full course.
Buying at a low price and selling off at little profits just to see it do higher numbers always leaves the trader weary.
Why do we traders analyse trades, enter those trades based on analysis but yet become too scared to patiently wait it through? The answer is simple.....Hedging.
When there's no hedge for any trade it will always leave the trader on an edge(,at least that's how I like to put it.. Lol). Proper hedging will always breed patience.
This is possible via proper risk management. Fear in real time trading is strengthened by lack of proper risk management. Risk management provides a hedge for every trader against possible drawdowns. This brings me to the flex of my post, that fear is greed.
Fear is greed
For spot and futures trading especially, the urge to Panic will simply not exist if risk management is in place. And traders ignore proper risk management because of the gambling tendencies of pursuing fast gains,greed!
This is why I believe that it's not actually fear Vs greed. Greed in the first place is what results in fear. If greed is handled, proper hedging and management will be put in place, giving the trader more confidence.
Patience
Multiple entries, over leveraging and over trading comes from this fear- greed sentiment. This will always burn out the trader. Below is a different trade taken with confidence, instead of various entries not sponsored by analysis but by fear and greed.
With a good analysis, I don't need always run on and off the market in a bid to secure premature profits. I will rather be peaceful knowing my hedge is in place.
The native direction of the market is up and down. It's fluctuating. To be able to master the charts and the market, you must learn to maintain a position. You can not be running after the market, you must maintain a position and allow it come to you.
See another trade history below, what you might see is probably many trades, but seeing the TF(time frame) you'd know it's just inpatience in picture.
Fear and greed simply describes the behaviour of investors in response to price action and that's what you see as the charts, you need to stand out of that box to have an advantage.
Greed breeds fear, fear comes because of greed. Risk management is the biggest part of every trader's journey, and many traders believe it more than 90% of trading and trading itself less than 10%.
So it's not FEAR Vs GREED, it's actually YOU Vs YOUR EMOTIONS. WIN!!!
ALL PICTURES ARE SCREENSHOTS OF MY PERSONAL TRADING HISTORY.