The Biggest Battle Of The Bear Market: Controlling Your Emotions
The bear market has a way of taking crypto newbies and veterans through the wringer. During the bear market of 2018, there were many investors that fell victim to the negative volatility and allowed themselves to be chewed up and spit out into the abyss of rekt gains. No matter how much money you make during the bull market, the emotions of seeing your portfolio take a dive always seems to matter much more. The technical definition for this feeling would be Loss Aversion.
During the tough times, it’s very easy to succumb to the Bear Market Blues and give in to your emotions. This usually never works out in one’s favor.Those that have participated in any market cycle through the bull and bear phases understand that the emotions of market participants can be quite predictable. In fact, these emotions are so predictable that there is a famous “cheat sheet” that circulates around the financial industry titled, Wall St. Cheat Sheet: Psychology Of A Market Cycle.
When the stakes are this high, not controlling your emotions can cost you more than you can afford to lose. Luckily, there are ways to avoid becoming another bear market statistic. Let’s discuss a few important things to keep in mind.
Getting Over The Initial Shock
At the height of the bull market, everyone's a genius. The gains are enormous and the proverbial cheese and wine flows in abundance. Investors start to experience market euphoria, and the good times start to look like they will continue uninterrupted and indefinitely.
Sooner or later the music suddenly stops and everything dissolves into dust. The downturn can happen so fast that few people have time to react – almost no one is ever able to proact if they haven’t already been following some profit taking best practices.
The first mental phase that most people experience is a cascade of denial (aka “that didn’t happen”). You continuously tell yourself that you aren’t experiencing a bear market, and it’s just an obvious glitch in the system.
As things start to get worse, that denial slowly starts to transform into a state of shock.
How well you respond to the initial shock of a dramatic downturn will make all of the difference in your financial outcome. At this moment it is important to take a step back and assess the change that has occurred. Doing this will give you time to plan and strategize.
Take A Breath - Don't React Too Quickly - Reflect & Learn
It is very common for newbies to rush to abandon ship at the first sounding of the bear alarm. In their minds, it is better to quickly liquidate all of their crypto assets while they can still get a little capital before everything goes to zero – because we all know that this experiment we call cryptocurrency will eventually implode and completely evaporate, right?
While nothing is impossible, complete market destruction is highly unlikely. It is safe to say that the industry has received enough institutional, retail, and government (in some countries) support to keep it around for the foreseeable future.
This means that capitulating to a downtrend and leaving crypto for good while panic selling, is one of the best ways to ensure that you suffer a permanent loss.
While you should never act too quickly, you should also avoid the Sunk Cost Fallacy.
You are not obligated to remain invested in projects that have no clear upside just because you initially believed in the vision. There are many cases where founders and teams abandon their own projects before the community does.
As circumstances change, so should your strategy. Sometimes data trumps our convictions. The goal is to properly identify when it is truly the data influencing your decision and not premature panic.
Planning For The Future
A great way to overcome your emotions is to focus on planning for the long term. This is because constructing a thoughtful and concise strategy requires that you put your emotions aside and focus on the pertinent facts and data.
The best plans are conceived during the bear market. You actually have a chance to gather all of your thoughts in a slowed environment. Not to mention this is also a prime opportunity to thoroughly research the space and find the true builders.
The most simple way to outlast a bear market is to develop a long term thesis and stick to it (we will discuss this in further detail).
Maintain Your Mental Health
This cannot be emphasized enough. Please take time to tend to your mental health. Your health takes precedence over all other aspects of your life.
Mental stress and anguish are huge some of the biggest drivers of health complications. Here are some disturbing stats about stress according to the American Institute Of Stress:
One of the most common causes of stress is Financial Problems. It goes without being said that a bear market is a huge catalyst of financial problems.
Stress numbers are also rising due to all of the factors that have affected the market.
One helpful activity would be to change our outlook on how we view bear cycles. Instead of perceiving this as a time of doom and gloom, we should look at it as an opportunity for self improvement.
It is also important to understand that this is a temporary period. It is unknown when this particular bear cycle will end. However, one thing we can say with 100% certainty is that it will eventually come to an end. Your mission is to hold the line until the bulls return.
Take some time to decompress, spend time with loved ones, enjoy the outside, and when all else fails, zoom out. There are plenty of things to be grateful for outside of crypto.
Dust Yourself Off And Stick To The Mission
The truth of the matter is that you are not alone in taking a loss in the bear market. Actually, this is the case for most investors.
Adversity is to be expected. As the cliché saying goes, “it’s not about how many times you get knocked down. It’s about how many times you get back up and move forward.”
It is important to realize that when it comes to past prices and great entries when things were cheap, bear markets are the closest things we have to a time machine. Bull markets make you feel good, but bear markets make you rich.
Fear, anger, panic, and doubt are all emotions that are meant to be mastered. The tough times are designed to shake you at your core and test your convictions. Those who manage to pass the test are usually met with great rewards.
So, be encouraged and take comfort in the fact that you are experiencing and participating in one of the most pivotal technological innovations since the inception of the internet. This industry will not only reshape our approach to technology and finance, it will also reshape history.
Here are some key takeaways to remember:
Make a plan, stick to it, & trust the process.
This is a prime opportunity for self improvement.
Remember, no matter what emotions you feel in the moment, every experience in every cycle is an opportunity to improve your analysis.
May the odds be in the favor of those that have the strength to endure.