The "So-Called" Psychology of a Market Cycle!
Greetings Dear Investors and Traders, today CryptoQueens, an educational post regarding the so-called Psychology of a Market Cycle.
When making investment decisions, investors have a wide variety of tools at their disposal. While these tools can form the basis of a sound investment thesis, their effectiveness is limited by one’s emotions. Allowing emotions to dictate decisions is a common mistake made by many investors, yet they may not even realize it. People experience different emotions during these market cycles ranging from fear to greed. Below we will analyze, as well as you will find attached in the chart image the different emotions experienced by investors during market cycles which overwhelms the majority of the traders:
Disbelief:
This phase happens after the bottom has been hit. There is a sense of disbelief among investors about the rally. They believe just like it happened in the past few months, the markets will fall again. Their fear of making another mistake causes them to miss the optimal window to re-enter the market.
Optimism:
During this phase, the realization dawns on most of the investors that the rally is real. Investing during this phase if stocks are chosen well can give good returns.
Enthusiasm:
This is the time when the majority of investors are convinced about the market rally, therefore market demand rise. They believe that now is the time to be fully invested. Some naysayers still don’t believe in the market rally and advise caution.
Euphoria:
This is the phase where there is irrational exuberance in the markets. Investors share a collective dopamine as they think that they are genius because they made a fortune. It is advisable to stay cautious during this phase.
Overconfidence/Greed:
Investors continue to increase their positions despite high volatility.
If you buy during this phase, you are sure to lose money, whatever you buy.
Anxiety:
Fear sets in, as losses begin to mount.
Investors believe that the dip is taking more time than expected. This is the the moment when people are notified with margin calls due to the recent market fall. Anxiety kicks in.
Denial:
The herd ignores the market signs as market demand weakens. They believe that since their investments are in great companies, they will bounce back.
Panic:
Herd mentality takes over and market participants rushes to sell leading to widespread selling even at losses. This is a good time to buy extremely selectively for the long term as it may be very difficult to know even for well-informed investors whether we are in the denial phase, panic phase or capitulation phase.
Capitulation:
Market Participants accepts their losses and completely exit the market. They are selling close to the bottom of the cycle.
Agony/Anger:
Steep losses take a psychological factor in many investors and they start to blame the government, or anything correlated, perceiving it as market manipulation.
Depression:
This is the period when investors believe that their retirement savings are gone and their financial security is affected. They even start blaming themselves for investing. However, markets inevitably starts to recover.
Conclusion:
As an investor, you need to recognize these signals and never lose sight of the bigger picture. It is like Warren Buffett once mentioned. Be scared when others are greedy and greedy when others are afraid. Therefore, keep an eye on the fundamentals and behavioral factors that influence the market and always remain ahead of the game. Make sure you include this in your trading plan before to take action on it.
If you liked it, make sure to support with a like, follow and a comment!
Best Regards, CryptoQueens.
When making investment decisions, investors have a wide variety of tools at their disposal. While these tools can form the basis of a sound investment thesis, their effectiveness is limited by one’s emotions. Allowing emotions to dictate decisions is a common mistake made by many investors, yet they may not even realize it. People experience different emotions during these market cycles ranging from fear to greed. Below we will analyze, as well as you will find attached in the chart image the different emotions experienced by investors during market cycles which overwhelms the majority of the traders:
Disbelief:
This phase happens after the bottom has been hit. There is a sense of disbelief among investors about the rally. They believe just like it happened in the past few months, the markets will fall again. Their fear of making another mistake causes them to miss the optimal window to re-enter the market.
Optimism:
During this phase, the realization dawns on most of the investors that the rally is real. Investing during this phase if stocks are chosen well can give good returns.
Enthusiasm:
This is the time when the majority of investors are convinced about the market rally, therefore market demand rise. They believe that now is the time to be fully invested. Some naysayers still don’t believe in the market rally and advise caution.
Euphoria:
This is the phase where there is irrational exuberance in the markets. Investors share a collective dopamine as they think that they are genius because they made a fortune. It is advisable to stay cautious during this phase.
Overconfidence/Greed:
Investors continue to increase their positions despite high volatility.
If you buy during this phase, you are sure to lose money, whatever you buy.
Anxiety:
Fear sets in, as losses begin to mount.
Investors believe that the dip is taking more time than expected. This is the the moment when people are notified with margin calls due to the recent market fall. Anxiety kicks in.
Denial:
The herd ignores the market signs as market demand weakens. They believe that since their investments are in great companies, they will bounce back.
Panic:
Herd mentality takes over and market participants rushes to sell leading to widespread selling even at losses. This is a good time to buy extremely selectively for the long term as it may be very difficult to know even for well-informed investors whether we are in the denial phase, panic phase or capitulation phase.
Capitulation:
Market Participants accepts their losses and completely exit the market. They are selling close to the bottom of the cycle.
Agony/Anger:
Steep losses take a psychological factor in many investors and they start to blame the government, or anything correlated, perceiving it as market manipulation.
Depression:
This is the period when investors believe that their retirement savings are gone and their financial security is affected. They even start blaming themselves for investing. However, markets inevitably starts to recover.
Conclusion:
As an investor, you need to recognize these signals and never lose sight of the bigger picture. It is like Warren Buffett once mentioned. Be scared when others are greedy and greedy when others are afraid. Therefore, keep an eye on the fundamentals and behavioral factors that influence the market and always remain ahead of the game. Make sure you include this in your trading plan before to take action on it.
If you liked it, make sure to support with a like, follow and a comment!
Best Regards, CryptoQueens.
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