How to Profit More from Bitcoin?
10 Psychological Methods Every Investor Needs to Know
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10 Psychological Methods Every Investor Needs to Know
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Cryptocurrencies have gained huge popularity among people around the world.
But in spite of their popularity and undeniable charm, there’s still not enough knowledge about them among individuals.
But in spite of their popularity and undeniable charm, there’s still not enough knowledge about them among individuals.
First of all, if you're interested in crypto investment but haven't started yet:
Here's a complete guide you can have access to anything that matters about this new generation of currencies with straightforward definitions and tips:
gumroad.com/a/420418675/Oa…
Here's a complete guide you can have access to anything that matters about this new generation of currencies with straightforward definitions and tips:
gumroad.com/a/420418675/Oa…
If you're a trader, there are tools to profit more from bitcoin, and Mental Models are one big toolbox with some useful models to help you simplify the complexities.
Mental Models are how we understand the world. They shape what we think and how we connect the dots in everything around us.
So investing in something as complex as Bitcoin would be better done using Them.
So investing in something as complex as Bitcoin would be better done using Them.
Here are 10 important mental models you need to profit more from Bitcoin:
1. Emergence
“The result is not a matter of simple addition.”
• e.g. Individual stock traders combine and emerge into the stock market which is way more complex.
Bitcoin rules are simple, but from these simple rules emerge complex systems and behaviors.
“The result is not a matter of simple addition.”
• e.g. Individual stock traders combine and emerge into the stock market which is way more complex.
Bitcoin rules are simple, but from these simple rules emerge complex systems and behaviors.
2. Bayes theorem
“When facts change, I change my mind. What do you do, sir?”
As we gain more information, we should refine our beliefs and behaviors.
This is not just about Crypto. All investors in all markets need to consider it.
“When facts change, I change my mind. What do you do, sir?”
As we gain more information, we should refine our beliefs and behaviors.
This is not just about Crypto. All investors in all markets need to consider it.
People who ignore Bayesian thinking make two mistakes:
1) They tend to get influenced by a single piece of evidence.
2) They underestimate the strength of new evidence.
Both will lead to erroneous judgment.
1) They tend to get influenced by a single piece of evidence.
2) They underestimate the strength of new evidence.
Both will lead to erroneous judgment.
3. Pareto Principle
“Most results aren't distributed equally.”
Known as the 80/20 rule.
• e.g 20% of your time produces 80% of your results
- Bitcoin is the largest and most successful Cryptocurrency.
- Altcoins have less share in the market (20% or less).
“Most results aren't distributed equally.”
Known as the 80/20 rule.
• e.g 20% of your time produces 80% of your results
- Bitcoin is the largest and most successful Cryptocurrency.
- Altcoins have less share in the market (20% or less).
4. Occam’s razor
“Among competing hypotheses, the one with the fewest assumptions should be selected.”
Is this altcoin going to replace Bitcoin? Or is it just a scam?
The simplest explanation is preferable to one that is more complex.
“Among competing hypotheses, the one with the fewest assumptions should be selected.”
Is this altcoin going to replace Bitcoin? Or is it just a scam?
The simplest explanation is preferable to one that is more complex.
5. The black swan
“An event that is completely unexpected and extremely difficult to predict, yet these events do occur.”
• e.g., 9/11; nobody imagined it before it happened.
“An event that is completely unexpected and extremely difficult to predict, yet these events do occur.”
• e.g., 9/11; nobody imagined it before it happened.
Bitcoin itself was a black swan.
Also, you should consider that randomness can’t always be predicted. It is important for people to always assume a black swan event is a possibility, whatever it may be, and plan accordingly.
Also, you should consider that randomness can’t always be predicted. It is important for people to always assume a black swan event is a possibility, whatever it may be, and plan accordingly.
6. Hindsight bias
“After an event, people often believe that they knew the outcome of the event before it actually happened.”
Bitcoin’s recent increases provide similar situations for many.
This mental model tricks you into thinking you could’ve made a better decision.
“After an event, people often believe that they knew the outcome of the event before it actually happened.”
Bitcoin’s recent increases provide similar situations for many.
This mental model tricks you into thinking you could’ve made a better decision.
“Gosh, I wish I had bought a couple of Bitcoins back then!”
Hindsight is a parasite; focus on what system can give you from the data you have now, and don’t be obsessed with regrets.
Hindsight is a parasite; focus on what system can give you from the data you have now, and don’t be obsessed with regrets.
7. Margin of safety
“Investors only purchase securities when their market price is significantly below their intrinsic value.”
Higher the Margin of Safety, lower the risk of making loss whereas lower the Margin of Safety, greater the risk of doing business.
“Investors only purchase securities when their market price is significantly below their intrinsic value.”
Higher the Margin of Safety, lower the risk of making loss whereas lower the Margin of Safety, greater the risk of doing business.
Every investor (including crypto investors) needs to consider this before making any new investment to lower their risks.
8. Fooled by randomness
“True data has to be verified over a large enough sample size to be meaningful.”
By looking at small timeframes of Bitcoin’s price and small data you’ll confuse noise with signals.
“True data has to be verified over a large enough sample size to be meaningful.”
By looking at small timeframes of Bitcoin’s price and small data you’ll confuse noise with signals.
There’s a danger of seeing patterns where there’s only random noise, the danger of confusing luck with skill.
The ability to manage randomness is one of the greatest skills a trader can possess.
The ability to manage randomness is one of the greatest skills a trader can possess.
9. Scale
“One of the most important principles of systems is that they are sensitive to scale. Properties (or behaviors) tend to change when you scale them up or down.”
Bitcoin will show different behaviors as it grows in size.
“One of the most important principles of systems is that they are sensitive to scale. Properties (or behaviors) tend to change when you scale them up or down.”
Bitcoin will show different behaviors as it grows in size.
The behaviors can’t be predicted thoroughly, we must always be quantifying the scale at which we are observing and analyzing.
10. Network effect
“The value of a system depends on the number of users.”
The more people that come into bitcoin the more valuable it becomes.
“The value of a system depends on the number of users.”
The more people that come into bitcoin the more valuable it becomes.
The 10 mental models mentioned in this thread:
1. Emergence
2. Bayes theorem
3. Pareto Principle
4. Occam’s razor
5. The black swan
6. Hindsight bias
7. Margin of safety
8. Fooled by randomness
9. Scale
10. Network effect
1. Emergence
2. Bayes theorem
3. Pareto Principle
4. Occam’s razor
5. The black swan
6. Hindsight bias
7. Margin of safety
8. Fooled by randomness
9. Scale
10. Network effect
There are more models you can use to lower your risk and profit more from your investments.
Start reading "100 mental models"
With the help of books, cards, maps, quotes, audiobook,... will internalize mental models in your head in a way that you will use them automatically
Get your copy, be a pioneer:
gumroad.com/a/485553267/Ax…
With the help of books, cards, maps, quotes, audiobook,... will internalize mental models in your head in a way that you will use them automatically
Get your copy, be a pioneer:
gumroad.com/a/485553267/Ax…
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