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Nov 16, 2023
Bitcoin, Bias, and the Art of Being Wrong: A Trader’s Guide to Hindsight Humility
by Orderly Network

Recognizing Your Crypto Investment Bias

Do you often find yourself kicking yourself for missing a trade that you were so sure of?

Let’s take Bitcoin, for example. We were told that there was most likely going to be a spot ETF announced. However, you didn’t take the trade.

You got sidelined. Then, you saw Bitcoin absolutely melt faces, rising from $25k to $37k in just a few days. You watched Twitter the whole year and still missed the trade.

It was so obvious that the pump would happen, right?


That’s what we call hindsight bias.

Hindsight bias is when we believe we could have predicted an event, like a market move, before it happened.

It’s a mental trap.

The trade wasn’t actually as obvious as some would have you believe. Let’s be honest, the world isn’t in a great spot. The global economy is struggling with inflation. Interest rates are remaining higher for longer. There is a ton of uncertainty.

What can you do to improve your trading, knowing that you may be suffering from hindsight bias?

An old man once told me “it takes 10 years to get 10 years of experience”. Don’t be too hard on yourself”. There’s barely anyone with 10 years of crypto experience besides a few OG’s who are sitting in their yachts right now.

A word of advice. Start journaling. There isn’t a single good trader out there who didn’t get to where they are without journaling. Next time you see an obvious trade, but something in your gut isn’t so sure, write down your reasons for the trade. Don’t actually take the trade, but then record how it did. Repeat this until you are in control of your bias.

You will now be able to take higher conviction bets. This is by no means foolproof, though. A bias is a bias. It’s a hard psychological barrier. Don’t be so hard on yourself, learn. The market is heating up, and a lot of cash is on the sidelines; there will likely be many more opportunities.

Once you’ve managed to get a handle on that bias, it’s time to turn your attention to tackling a few other common biases

Confirmation Bias: Favoring information that aligns with existing beliefs, leading to overconfidence based on selective data.

Anchoring Bias: Over-relying on initial information (the ‘anchor’) and making subsequent decisions based on it, regardless of new, relevant data.

Overconfidence Bias: Overestimating one’s own trading skills and prediction accuracy, often leading to excessive risk-taking.

Loss Aversion Bias: Being more sensitive to losses than gains, leading to holding losing positions too long or selling winning ones too early.

Herd Mentality: Following market trends or the majority without independent analysis, potentially causing bubbles or crashes.

Disposition Effect: Tendency to sell winning assets quickly and hold onto losing ones, influenced by fear of losses and desire to secure gains.

Recency Bias: Giving more importance to recent events over historical data, leading to overreactions to short-term market changes.

Sounds simple enough, right?

Happy Trading! Remember, the journey to mastering the markets is continuous, and when you’re ready to take the next step, consider trading on a DEX powered by Orderly — the permissionless liquidity layer for Web3 trading.

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