The token has been cut in half from its previous high, and many traders’ first reaction is to calculate its rebound potential, assuming that a deep drop means it’s cheap.
There is no such thing as absolutely cheap in the market. Price only reflects current supply and demand, and past highs carry no obligation to guarantee future performance.
Tversky and Kahneman called this the anchoring effect: the brain tends to treat historical highs as reference points, mistaking a steep discount for a margin of safety. But mathematical downside risk doesn’t depend on historical prices. If an asset falls from $100 to $20, that’s an 80% drop [ (100 - 20) / 100 = 80% ]. If you invest $5,000 at $20 to buy the dip, and the price continues falling to $4, that new position is still down 80% [ (20 - 4) / 20 = 80% ], leaving you with just $1,000. An asset that has already been cut in half can still fall another 80%, with exactly the same destructive impact on your capital.
Rules for overcoming anchoring bias:
1. Erase memories of historical highs: Focus only on current trading volume and whether the chart is showing signs of bottoming out.
2. Work out position size based on structural breaks: Cap the risk on any single trade at 1.5% of total capital. For example, if you enter at $20 and set a stop-loss at $18 (a 10% distance), your position should be no more than 15% of your total capital. Never add to it just because it feels cheap.
3. Never average down on the left side of a downtrend: Until the price forms a higher high, every breakdown means sellers are in control. Buying more as the price falls will only deplete your funds faster.
U.S. stocks opened late Monday night, and price action was weak. According to Binance spot data, ETH is currently around $2,117, down about 5.43% in 24 hours; BTC is currently around $74,558. During a weak consolidation, don’t let the high prices you remember anchor you—blindly trying to catch a falling knife often leaves you exposed to a liquidity-driven sell-off.
Before a trend reversal, the market has only one job: to clear liquidity. It pays no attention to anyone’s psychological anchors.
Personal views and information summary, not investment advice. DYOR.
$ETH $BTC
There is no such thing as absolutely cheap in the market. Price only reflects current supply and demand, and past highs carry no obligation to guarantee future performance.
Tversky and Kahneman called this the anchoring effect: the brain tends to treat historical highs as reference points, mistaking a steep discount for a margin of safety. But mathematical downside risk doesn’t depend on historical prices. If an asset falls from $100 to $20, that’s an 80% drop [ (100 - 20) / 100 = 80% ]. If you invest $5,000 at $20 to buy the dip, and the price continues falling to $4, that new position is still down 80% [ (20 - 4) / 20 = 80% ], leaving you with just $1,000. An asset that has already been cut in half can still fall another 80%, with exactly the same destructive impact on your capital.
Rules for overcoming anchoring bias:
1. Erase memories of historical highs: Focus only on current trading volume and whether the chart is showing signs of bottoming out.
2. Work out position size based on structural breaks: Cap the risk on any single trade at 1.5% of total capital. For example, if you enter at $20 and set a stop-loss at $18 (a 10% distance), your position should be no more than 15% of your total capital. Never add to it just because it feels cheap.
3. Never average down on the left side of a downtrend: Until the price forms a higher high, every breakdown means sellers are in control. Buying more as the price falls will only deplete your funds faster.
U.S. stocks opened late Monday night, and price action was weak. According to Binance spot data, ETH is currently around $2,117, down about 5.43% in 24 hours; BTC is currently around $74,558. During a weak consolidation, don’t let the high prices you remember anchor you—blindly trying to catch a falling knife often leaves you exposed to a liquidity-driven sell-off.
Before a trend reversal, the market has only one job: to clear liquidity. It pays no attention to anyone’s psychological anchors.
Personal views and information summary, not investment advice. DYOR.
$ETH $BTC
