Market Psychology May Stop Many Traders From Buying Bitcoin

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Technical analysis has evolved over time as more and more people have access to computers. Online trading and the power of computers have made it possible to examine markets more quickly and to make decisions more easily.

But technical analysis (and any type of market analysis, for that matter) has a powerful enemy in market psychology. It is said that the execution of a plan is more important than the plan itself because the psychological factor of trading concerns us all.

Think of Bitcoin, for example. We’re not even at the end of January and the major cryptocurrency is up 36% year-to-date.

Sure enough, those who bought in the $16,000 area are overjoyed. But how many have ventured to buy a falling market like Bitcoin did in 2022?

The same is valid in the other direction. In an uptrend, most are afraid to buy new highs lest they end up buying the high.

As such, the plan is to buy the dip – any dip.

It is only when the drop finally comes that traders get scared and run away. Planning to buy a dip and actually buying it is another story.

This brings us to today’s story – should you buy Bitcoin after earning so much in less than a month of trading? Or is it just another bear market rally?

Bitcoin generated positive returns after a negative year

History supports the bullish case for Bitcoin. Bitcoin has a short history, as it was born relatively recently compared to other markets.

Nevertheless, a quick look at Bitcoin’s returns over the past twelve years tells us something interesting. Simply put, Bitcoin generated positive annual returns in the first year after negative returns.

In 2014, the price of Bitcoin fell 58% against the dollar. But in the year that followed, he gained 35%.

Also, in 2018, Bitcoin fell -73%, another big drop. But again, in 2019, it won 95%.

In other words, buying the dip after negative annual performance has worked well so far. Why would this time be any different?

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