Euphoria and Anxiety, Fear and Greed
Market Cycle Psychology
Any trader is under the influence of changing market cycles. In favorable times, investors feel joy and are overwhelmed with self-confidence. On dark days, the investor falls into despair and experiences anxiety attacks.
The only way not to succumb to such emotional influence is to follow the clear rules of a correctly compiled system. Unfortunately, most traders have no plan and no strategy. In order not to become a victim of emotions, a trader must have an idea of the emotional stages of the market cycle.
Psychological stages of trading
An uptrend is a trader’s emotions.
When the market is growing, the trader sees an opportunity to earn and invests money. The economy is growing, the price is going up, profits are growing. At such a time, the trader feels confident, he begins to open new positions after each retracement, which eventually turns into a kind of instinct. At this stage, the trader begins to forget about the risks.
Enthusiasm and Abundance
The market is starting to pick up speed. Traders experience pleasant feelings of joy and enthusiasm. The trader begins to lose his mind, confidence overwhelms him.
After that comes the last leg of the uptrend: Euphoria. Money comes too easily, trader is overwhelmed with confidence in their shares and decides to open positions using leverage. At some point, the trader begins to think that he is a professional analyst, and he is not the one who is following the market, but the market is following him. This stage in the market helps large investors discount their shares to confident traders who buy everything in one row , believing in the continuation of the upward trend. In fact, this phase is the riskiest, after which the trend reverses.
Emotional stages of a downtrend in the market
The price is starting to decline, there are fewer and fewer sellers, the bears are gaining momentum. For a trader blinded by luck, this phase looks like another fix. But the market can no longer create new highs and lows, forming new lows. Such a fall creates anxiety in the soul of the trader, the easy profits begin to melt away.
Denial and Fear
Fear fills the market, traders are afraid of being wrong, because they recently ruled the market. At this stage, the trader denies that he is wrong and tries in every way to justify holding unprofitable positions. Like any beginner, a trader believes that sooner or later the price will not only return, but also go beyond the maximum. Denial leads the trader to a state of helplessness and inaction, due to the misinterpretation of the situation in the market. The trader gets lost, not knowing what to do and waits not knowing what, without closing unprofitable positions.
Desperation and Panic
The price continues to fall, and the trader falls into despair, because the confidence in holding a losing position is already starting to fade. Is phase it is the most painful, because the gravity of the losses puts too much pressure on keeping calm.
Position unprofitability is increasing, traders can no longer tolerate this pain. In this phase , merchants have to capitulate just to stop these torments. Traders are beginning to close positions and this is where the big companies come in, for whom this moment provides a new opportunity for big profits. Asset buying begins, because a reversal is possible soon.
Despondency and Confusion
As is often the case, as soon as a trader has closed a position, the market begins to grow. It seems the law of evil. Is phase it drives the trader to discouragement, because the position was closed a moment before the rise. It is here that newcomers start to think if it is worth investing more.
The market is beginning to revive. The price shows new highs and the investor is hopeful. It seems that here it is, a new opportunity. The trader begins to enter the market, forgetting about the past, without drawing any conclusions. A trader enters the market when the price has already accelerated, at points where the risk is again close to a critical value, the cycle begins again.
Traders need to be aware of this cycle. Those emotional roller coasters can ruin anyone. A well-designed strategy can help avoid these painful bumps.
Remember the risks, remember the cycles, work on the mistakes, and victory will not be long in coming.
Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I’ll be glad ??