The Psychology Behind Dealing with a Bear Market - Grounding

If you have invested in crypto in the past 12 months, or have gone through a bear market before, you know how stressful, anxiety-provoking and restless the market can be. 

Investing and trading in markets is heavily linked to psychology, in fact, "Based on behavioral finance, investment is 80% psychology." (Meta, R. 2015)

Our decisions about when to buy, sell, hold or take risks in investment is more often than not, influenced by what we 'feel' rather than what we "know". Of course, it is mostly a mixture of both - rather than just one or the other, but how can we mediate between the two to make better financial decisions in the market?

Here's what someone who tried to Dollar-Cost-Average into the current bear market probably felt ( me included!) 

So, how can we use psychology to help us make better-investing decisions? Well, as simple as it may sound - Grounding. 

That's right, learning how to apply grounding techniques to your investing approach can be more applicable than you might think. 

What IS Grounding?

"Grounding is a self-soothing skill to use when you are having a bad day or dealing with a lot of stress, overwhelming feelings, and/or intense anxiety. Grounding is a technique that helps keep you in the present and helps reorient you to the here-and-now and to reality."

The point of grounding is to get yourself to focus on your breathing, get in touch with the here-and-now and focus on your body/thoughts. Whether you do this to calm yourself down, get yourself focused, reduce your anxiety, or any other reason you can think of - grounding ends up finding its way in most areas of psychology and psychotherapy, and is something that almost any client that goes to therapy has heard about MANY times. 

So how can we apply this to investing? 

Have you ever had a bad week? Where you can almost not understand how it is even possible that so many bad things happened in the same week? Being in a wrong state of mind leads us to make repetitive bad decisions, which leads to consequences that create a cycle of frustration and restlessness. 

Well now, let's take the image above as an example. In hindsight, does this look like a set of rational decisions? Or repetitive bad decisions ? 

Of course, it's much easier to say this in hindsight AFTER things occured, but that's not what I'm going for here. Let's rather focus on the state of mind of the investor's approach in this bear market. 

We can speculate that

- the first 3 buys were purely made out of Denial - This is just a dip like the summer lull - the bull market is still here!

- The following 2 buys were based on Anger - This flash crash is just a BlackSwan Event!...How stupid of me to have acted so quickly - let me buy again to make up for the bad mistake!

- The following 2 buys were based on Bargaining - Ok this MUST be bottom, I can live off some noodles for a while to make some cash to buy more!

- The last 2 buys can be categorized as Depression - I'm out of cash - Would LOVE to buy at this prices but I just can't...

- The NEXT future 2 buys? Probably based on Acceptance - I have made a series of bad decisions - I am going to reassess the situation and come up with a plan to find my way back in this market.

The 5 stages you have seen above - are the 5 stages of Grief. We struggle to deal with our decisions the same way that we process with grief - but it's hard to let go of the trading strategy that we believe in, it's hard to let go of our bias.

How much better would our trading decision be, if we learned to control our biases and make better rational decisions? 

The Grounding Technique

Here's a grounding technique that I came up with as a crypto investor & Gestalt psychotherapist to hopefully help investors take a step back, breathe and include this in their practice !

• Step 1 - Remove the clutter - Turn off your monitor, position yourself comfortably on the floor/chair or whatever feels more comfortable and get rid of any unnecessary lights. 
• Step 2 - Close your eyes, Take deep breathes and start focusing on your breathing. 
• Step 3 - Actively try to stop thinking, just for a moment. Ignore any thoughts, stop thinking about the chart or the time-pressure, get yourself to feel blank, as much as possible. 
• Step 4 - Bring to front the investment decision you are going to make - Visualise yourself making that decision ( as if you were a fly in the room) and notice if you are currently experiencing any changes to your body, your posture, your heart rate, or your breathing. Stay with that feeling. Describe it to yourself, and verbalize what your body is trying to tell you. 
• Step 5 - Once you feel satisfied with understanding what your body is trying to communicate to you, focus on your breathing and posture once again. Count yourself down from a number you feel comfortable with to close off this grounding session - 5....4....3....2....1....Open your eyes

Congratulations! You have completed the Grounding technique! But now what? Ask yourself these questions

• Do you feel any different than you did before?
• Do you still feel the same way you did about your investment opportunity?
• Or do you feel like you need to explore this further, like take a step back and reassess your decision?
• Are you missing something that is supporting you to move forward?
• What WOULD support you to move forward? More research? A different approach? A discussion with some peers?

Ask yourself the questions that are needed to make sense of what you are feeling and thinking and find ways to link those to your investment decision.

You now have more information that needs to be considered before taking the decision, and you have put yourself in a more focused state of mind to do so. Of course, this does not change any odds of how successful your trade/buy/sell decision will be - BUT it changes the odds of how irrational your investment decision could have been. And even if it turns out to be a bad choice - you can still feel that the decision you made in that moment, felt right in your body , your thoughts and your strategy, and you don't need to blame yourself for that. 

Please let me know if you found this useful in anyway, as a Psychotherapist who has a mild interest in investing and is faily new to the field, I am trying to find ways how to merge both worlds as I think there are quite a lot of interesting links that can be made between them! Do not hesitate to write your feedback or questions in the comments as they might inspire future articles! :) 

Thank you for tuning in, and happy investing!

#Crypto #Trading #Psychology #Psychotherapy #GestaltTherapy #Grounding