Why you always chase the top and sell the bottom

Let me admit one thing first: I've chased highs and panic-sold no less than anyone else.

In the second half of 2021, I watched a few people around me flaunt returns, each one more outrageous than the last. I held out for about two weeks, then one weekend I finally couldn't resist and dumped the money I'd prepared in all at once — buying at a very high point of that run. Then the 2022 drop came, my account got cut in half, and I cut off a large portion at a very low point. I bought at the most expensive and sold at the cheapest — I hit both ends perfectly.

I've turned it over again and again since: it wasn't that I didn't know "chasing highs is risky" — I understood that perfectly well. So why did I do it anyway? Figuring that out is worth more than reading a hundred more candlestick tutorials. This piece is what I figured out.

The two times I did it with my own hand

Pulling those two times apart, they were really two different mistakes, behind which were two different emotions.

The first was chasing the top. My reasoning at the time sounded airtight: everyone was making money, the news was reporting it daily, get on board now or it's too late. But looking back, what actually pushed my hand wasn't any analysis — it was a restless unease, a fear that I alone would be left behind.

The second was panic-selling. As it fell further, opening my account each day felt like taking a punch. One day I couldn't take that daily bleeding any longer and cleared out most of it, and I actually felt a little relief inside. A few months later, it began to climb back. What I'd stopped wasn't the loss — it was my own discomfort.

Behind those two times sit three things almost no one escapes. Let me go through them one by one.

FOMO: fear of missing out beats fear of losing

FOMO is fear of missing out, and in plain terms it means "afraid of being left out." In crypto, its damage is far greater than "afraid of losing money."

The reason isn't hard to grasp. The pain of losing money is vague and in the future; but watching others make money while you hold nothing — that sourness is concrete and present. The human brain reacts far more strongly to "present discomfort" than to "future risk." So the more the market rises and the more screenshots appear, the more you can't sit still — which is precisely when the price is most expensive and the risk highest.

Worse, FOMO finds its own justifications. It makes some piece of good news suddenly feel especially convincing, makes you feel "this time it really is different." Those reasons are the result, not the cause: you wanted to buy first, and your brain went back to assemble the arguments for you. By the time you realize it, the money is already out the door.

Loss aversion: the pain of a loss is double the joy of a gain

There's a repeatedly confirmed phenomenon in behavioral economics called loss aversion: for the same amount of money, the pain of losing it is about twice the pleasure of gaining it. This finding comes from Kahneman and Tversky's prospect theory work, which later won the Nobel Prize in economics.

This rule explains the psychology of my panic-sell exactly.

As the unrealized loss in my account grew larger, that pain was doubly magnified, big enough that I was willing to trade "selling it off" for a release — even though reason knew it might be the bottom. What you cut isn't the position; it's the discomfort of being pinned to the ground and ground down.

Loss aversion has another face, hidden in the gains. When you're up, you don't dare sell, because if you sell and the price climbs again, you'll feel "the part I missed out on" is also a loss, and that regret hurts just as much. So you drag your feet and ride the profit all the way back down. Reluctant to leave when it rises, reluctant to admit it when it falls — at heart it's the same thing tormenting you from both ends. I wrote a whole piece on selling: When to leave: taking profit and cutting loss.

Herding: a thing a crowd does together seems like it can't be wrong

The third is herding. Humans are social animals, and as long as enough people are doing something, we instinctively feel it's safe and correct. In ancient times this could save your life — when everyone runs one way, there's usually danger. But in markets, it often leads you to the edge of a cliff.

Herding in crypto is especially dense. A screen full of bullishness in the chats, KOLs all saying the same thing, everyone around you flaunting returns — these signals stack into an illusion that "the whole world is making money and only you haven't moved." Staying calm alone in that atmosphere takes not intelligence but an almost awkward thick-skinned numbness.

And herding has a cruel time lag: by the time a thing is universally known, when even people who don't trade come asking you "what should I buy," it's usually already late-stage. The moment a crowd is at its loudest is often not the beginning but near the end.

Why "holding your hand" is harder than "reading it right"

By now you can probably see it: FOMO, loss aversion, herding — not one of them is a question of "can you read the market right." They're all questions of "can you hold your hand."

This is exactly where beginners get it backwards. Everyone pours all their energy into "judgment" — reading charts, devouring news, studying indicators — believing that reading accurately enough means you won't lose. But the reality is that many people read the direction right and still lose money, because they enter at the wrong moment and exit at the wrong moment. Judgment correct, execution broken, same result.

Why is execution so hard? Because the one making the judgment is the calm you, while the one doing the executing is the you with emotions flaring. They're two different people. The calm you knows to wait for a pullback to buy and to leave when the target's hit; but when the moment actually comes, the one taking over your body is another fellow possessed by fear or greed, who doesn't listen to the calm you at all.

So relying on "next time I'll definitely be more disciplined" doesn't work. You're not short on discipline; you've overestimated how much discipline you have left when emotion is flaring. Admitting that is, in fact, where the solution begins.

The fix isn't more discipline; it's rules set in advance

The method I eventually worked out is, when laid bare, dead simple: while your head is clear, set the rules in stone, and then on the scene, just execute — don't make decisions over again.

This is the calm you writing instructions ahead of time for the emotion-flaring you. That emotional fellow is a master at inventing reasons on the spot, but he can't haggle with a rule already set in black and white — provided you don't give him the chance to reopen the debate. A few I use often:

• Set the cap before you get in. How much to invest, work it out when you're calm and even-keeled, and never add on impulse when the market is frenzied. How to work it out, I wrote in How much should you put into crypto.
• Buy in batches, don't go all in at once. Split the money into several parts and feed it in by time or by how far it falls. That way, whether it rises or falls, you still hold cards and aren't hijacked by the emotion of a single moment.
• Write your sell conditions before you buy. What to do if it rises to a level, what to do if it falls to a level — decide while you haven't bought yet and have no feelings attached. See Taking profit and cutting loss.
• Don't act during a crash. Set yourself a hard rule of "make no decisions on a big-drop day," and sleep on it first. My dumb way of surviving crashes, I wrote in Getting through the crash days.

The entire point of rules is to move decision-making from "winging it on the scene" to "calmly computing it beforehand." They don't make you smarter; they just keep you from making the worst decision at the worst moment.

Recap

Chasing highs and selling bottoms isn't your personal flaw; it's the human brain's standard kit. FOMO makes you charge in at the most expensive moment, loss aversion makes you cut out at the cheapest, and herding makes both look perfectly reasonable. None of them is a judgment problem; they're execution problems — which is why holding your hand will always be harder than reading it right.

Don't count on in-the-moment willpower to beat them. You won't win. The way to win is to set your rules while you're clear-headed, then honestly follow them. Next time I want to talk about the hottest moment of a market — in a bull run where everyone around you is saying "it can still go up," which signals should make you start trimming by the rules.