Why are people reluctant to give up? What is the root cause of losing money?

Source: Talking about Li and Talking about the Outside

Although ETH has seen a good price increase recently, if you entered the market only in the past year, looking back at the overall situation of your holdings over the past year, you might find that many times the ETH you hold could rival stablecoins, especially when watching some other coins continuously rise and break new highs, while the value of your ETH position seems like "a stagnant pool" with no movement at all.

In investing, it seems there are two extremes: one is giving up too early, and the other is unwilling to give up.

A few days ago, I happened to see a friend complaining that he invested $20,000 to buy ETH last year, and after a year, although ETH has risen again, his account still remains at $20,000, which means he wasted a year; he wishes he had just bought BTC instead.

In fact, regarding this friend's investment philosophy, I think there is nothing wrong with it because he bought the king of altcoins, ETH, rather than various junk projects or meme coins. However, this does not seem to change the fact that buying ETH has been a relatively poor investment experience for him over the past year.

From last year to now, ETH has experienced four waves of increases, as shown in the figure below. This means that over the past year, this friend theoretically had at least three opportunities to withdraw funds from ETH and invest in other projects with better prospects. Zoom image will be displayed

But why didn't he do that?

I believe this can be psychologically attributed to a manifestation of the sunk cost fallacy or cognitive dissonance.

The sunk cost fallacy refers to the tendency for people to be less willing to give up when they have already invested time, money, or energy into something, leading to the mentality of "I've already invested so much, why should I give up now?" Cognitive dissonance refers to the discomfort that arises when a person's internal thoughts conflict with their actual behavior, often leading them to stubbornly maintain a certain behavior or belief, such as knowing an investment is failing but unwilling to admit their mistake and seek better opportunities.

This mentality can simply be summarized in plain language as "unwilling to give up."

Continuing with the example of the friend mentioned above, he has been holding onto ETH despite having at least three opportunities to withdraw without loss. However, due to his "unwillingness to give up" and fear of missing out, he would rather watch his money (position value) stagnate for over a year than admit he was "wrong" and seek better opportunities.

This situation is somewhat similar to an office worker who fears giving up their job because they worry about "what if I don't have this job in the future," thus enduring low pay and overtime without daring to resign or change positions.

So, how can one overcome this mindset? From an investment perspective, one of the better solutions is: reasonable goal planning and strict position management.

Reasonable goal planning simply means trying to use long-term planning to counter short-term temptations. For example, if your investment goal is to reach $10,000 for ETH in the next five years, then being temporarily stuck at $3,800 is something you shouldn't worry too much about.

If you don't want to bet 100% on a single goal for five years and also want to seize other short-term opportunities, then you need to further plan your position management. For instance, as suggested in our earlier articles, you could consider dividing your position into a 5:3:2 ratio, where 50% of your position is allocated to long-term investments in ETH (or BTC, or any project you believe has long-term industry development potential), 30% can be used to trade a few blue-chip coins you are optimistic about (and a small portion can even be allocated to gamble on meme coins), while the remaining 20% should remain in cash (USDT) for liquidity.

However, for many people, some strategies that seem reasonable may appear ineffective or meaningless to them. For example, the 5:3:2 position management plan we mentioned earlier was frequently discussed in our 2022 articles, but so far, it seems not many people actually follow this advice (of course, I haven't followed it either; based on my personal risk preferences and goals, I currently use an 8:1:1 position plan, which I have shared in previous articles).

One core issue here may also be the "amount of capital" involved.

For instance, someone who enters this field with only $1,000 may prefer to gamble on meme coins to achieve high returns quickly, rather than devising some 5:3:2 position plan.

Conversely, for someone entering the field with $1 million, this should not be a problem because, given their capital size, they will certainly know how to act in a relatively safe and reasonable manner, and they wouldn't directly gamble $1 million on an altcoin (unless that $1 million came from a windfall).

Therefore, for those who like to gamble, there are essentially two outcomes: one is to achieve overnight wealth, and the other is to go to zero. Every gambler entering the market believes they can become rich overnight, but over 99.9% of them ultimately end up with nothing. This is the stark reality, yet many still choose to ignore it, especially those who have just stepped into the casino.

Position management is not simply about dividing funds or selecting targets for purchase. In trading operations, "buying" is relatively easy; as long as there is a reasonable goal plan and execution strategy, it is quite easy to buy at relatively low levels. However, "selling" seems to be a dilemma many face. I often see people complain: "I sold too early, I regret it." "I sold too late, I regret it."

For example, imagine this scenario:

Zhang San buys a certain token, and the token rises by 50%. He sells the token because he believes that if he doesn't sell, the gains might be lost. However, after Zhang San sells, the token continues to rise by 500%, leaving him deeply regretting his early sale.

Li Si, seeing the token's good performance, jumps in and quickly gains a 200% profit. However, Li Si thinks that if he continues to hold the token, he could achieve 10x, 20x, or even more returns. He believes the opportunity to change his fortune has finally arrived, and the 200% profit is no longer satisfying. As a result, he watches the token quickly drop from its high while still clinging to the hope of becoming rich, only to lose half of his principal. Thus, Li Si also falls into deep regret, blaming himself for selling too late. He feels reluctant to cut losses and sell, yet he can only watch other tokens soar with envy and frustration.

The experiences of Zhang San and Li Si may reflect many people's situations, and the main reason for these outcomes may stem from the "unwillingness to give up" mentality we mentioned earlier.

The market is difficult to predict, and I don't want to engage in any thankless tasks. Regarding the current issues of buying and selling, we won't provide specific targets; that is, we won't tell you which coin to buy to get rich, nor will we tell you at what price to sell a corresponding coin.

What we can do is, at most, share in some articles what we currently favor, what we have bought, and how much we sold at what positions. At the same time, we will also provide some methodological suggestions, such as those mentioned in previous articles: a long-term trading plan, suggesting that operations can be conducted in batches. The simplest strategy is to keep buying during a bear market and sell during a bull market; or, you can consider using weekly (K-line) indicators for right-side operations, such as operating based on the EMA21 and EMA55 indicators (when EMA21 crosses above EMA55 from below, it can be seen as a bullish signal; when Bitcoin's price touches above EMA21, it is a good entry point). For mid- to short-term strategies, it is recommended to directly combine the project's fundamentals, K-lines, or market sentiment and capital flow to buy in batches + sell in batches, while also having a profit-taking/loss-cutting plan to control your greed (i.e., establish strict trading discipline).

Making money has no upper limit; there will always be endless money and various new opportunities to earn in the market. However, losing money does have an upper limit; your capital size is your limit, and your principal is your ticket to participate in the market. A significant loss could mean you lose the chance to return to the market forever.

Just like we believe that in this bull market, Bitcoin could still reach $130,000, $150,000, or even higher, we still decide to start selling in batches from $100,000 to take necessary profits. We won't regret selling too early, nor will we regret selling too late; we are simply executing our trading discipline and trading plan strictly according to our risk preferences.

"First protect your life, then make money" is a great investment philosophy. The market will never lack new opportunities, but whether your principal and mindset can wait for that opportunity is the key question you should consider.

Often, when a person becomes obsessed with making every trade perfect, it usually leads to a decrease in "good trades" overall and may even result in a kind of revenge trading. Therefore, we do not pursue so-called perfect decisions (always buying at the lowest point and selling at the highest point), nor do we chase absolute returns on individual trades; we place more importance on the overall position size under risk management.

In summary, always make clear decisions about your funds and strive to be able to attack when possible and defend when necessary. Whether you are a diamond hand or a paper hand, there is no need to engage in meaningless comparisons with others; as long as your position allows you to feel comfortable most of the time, that is sufficient.

Everyone has a different understanding of money. The reason people lose money is not fundamentally due to market makers or whales, but rather due to their own "unwillingness to give up" mentality.

The market is ruthless, yet full of opportunities. It often rewards those who are disciplined, patient, and possess long-term strategic thinking while punishing those who are greedy, emotional, and lack any strategy. So, which category do you belong to?