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From the first coins made in ancient Lydia to today’s cryptocurrencies, money is used to buy and sell things. And the basic rules of supply and demand haven’t changed since the first deal. But now we know a bit more about how people’s minds work and how they make decisions.
In cryptocurrency assets, they are potent forces that affect your decisions and the decisions of billions and billions of other traders. The Superorder team understands how important it can be to understand how markets work. Because of this, we want to speak more about our feelings, what they mean, and how we can control them. Let’s go!
What is trading psychology?
Trading psychology studies how a trader makes money and deals with losses. It shows how well they can deal with risks and stay on track with their trading plan. When you invest, your emotions will try to control every transaction you make, and your ability to control your emotions is a part of your trading psychology.
It is illegal to sell without feeling anything, but that shouldn’t even be the goal. Instead, traders should learn how certain prejudices or emotions can affect their buying and selling and use this knowledge to their advantage. Every trader is distinct, and there is no simple set of rules that everyone should follow.
Market Cycles and Emotions
Experts in behavioral economics think that the way traders think affects all price changes, no matter what the market is. So, feelings become the most important thing. When people’s feelings and expectations are added together, they make up the market sentiment, which is the average of all the feelings at a given time.
For example, the mood is good when most people think that interest rates will go up. This is what traders call a bull market or an uptrend. On the other hand, when investors think the target asset will go down, a bear phase or a downtrend begins. These moves are linked because they come one after the other.
Bull Market
This market phase is good because people are buying a lot. Investors think prices will keep going up, so they buy more assets. Here, the most important feelings are:
- Euphoria
- Greed
- Optimism
- Trust
Often, uptrends are driven by things that happened in the past. Say traders feel better about the market when they see prices increase. Prices go up because of this bullish pattern and go up even more as bulls get stronger. But if demand is pushed too far, a strong upward trend could cause a bubble. Traders get too greedy for their good. Because of this, a local price high is made, which is the riskiest position.
Bear Market
The fact that trading is cyclical means that downtrends will happen anyway. As rates start to go down, people tend to feel like they are going through the five stages of grief described by Kubler-Ross. At first, traders don’t think there is a bear market, so they keep their assets. Later, you might feel anger, bargaining, or sadness.
Lastly, the market mood turns bad when most people agree with the new rules and start selling funds. It’s called giving in to the market. Sadly, many traders don’t want to sell their coins at the best time, so they get rid of them close to the local lows. The market then settles down and gets ready for the next rise. Also, rises may come after stages of building up with horizontal moves.
During a bear trend, people feel the following:
- Anxiety
- Denial
- Fear
- Panic.
FA and TA help you understand the psychology
If we accept that global psychology affects markets, it might be easier to understand them. First, all traders need to know how to do fundamental analysis. Remember the golden rule: buy when others are scared and sell when others are hungry. Try to figure out how the market feels right now so you can make the best deals.
It would help if you tried to catch the highs and lows of the local area. Want to know? Please read our article to learn more about fear and greed. The second thing that can help is technical analysis. You can learn how psychological patterns work by looking at how the market has changed in the past.
In 2017, the most well-known example was the BTC/USD pair. Bitcoin went from being worth $900 in January to $20,000 in December because people were optimistic. But then it went down. Technical indicators like MACD and RSI can help you understand cycles. There is also a guide just for these tools!
Get Control!
Even though it’s not a hypothesis, most investors agree that there is something called “market psychology” and that it greatly impacts how people trade. Still, even if you understand emotions, fighting their power is not easy. Even professional traders have trouble dealing with their emotions, let alone market cycles and the world’s mood.
People can get over their emotions with the help of automated trading. When a plan is set up to run independently, it’s harder to make decisions on the spot. Superorder has these kinds of tools. Don’t forget that we have plans, bots, and even an extension for Chrome. Also, if the guide helped you, don’t forget to clap and share.
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