When participating in the investment market in general and the cryptocurrency market in particular, one of the very important factors that players need to consider before deciding to invest is to analyze and evaluate the market psychology at that time. Understanding market psychology and how to apply it in investing is essential. Let's find out with Allinstation through the article below!
Market sentiment chart
Karen Bennett from cheatsheet.com created a market psychology chart that describes the 13 emotional stages that investors typically go through. These stages include: Hope, Optimism, Belief, Thrill, Euphoria, Complacency, Anxiety, Denial, Panic, Capitulation, Anger, Depression, and Disbelief.
10 emotional stages in a cycle
Phase 1: Hope
After a period of crisis of confidence, the market began to show signs of recovery. However, investors remained cautious and only invested small amounts of money in the market.
Stage 2: Optimism
Prices continue to rise and new Capital is poured into the market. The market must maintain an uptrend for several months to move into this phase. Many investors feel comfortable entering the market during this phase.
Stage 3: Belief
Optimism turns into confidence as the market enters the Confidence phase. This is the first sign of a bull market, as investors look for new opportunities.
Stage 4: Thrill
Investors start to believe that the market is in a bullish trend. They easily get caught up in the excitement and invest randomly. It is important not to get too excited, as this can affect investment decisions.
Stage 5: Euphoria
The market enters the Euphoria phase, investors lose control of their emotions. They believe that the market can only go up. New and “stupid” investors will enter the market, and “smart money” will take profits.
Stage 6: Complacency
Growth began to show signs of stagnation and people's expectations were not met. Investors were complacent and unprepared for the upcoming reversal.
Stage 7: Anxiety
The investor realizes that the uptrend cannot continue. The market reverses and the investor becomes anxious and hesitates to exit the market, leading to heavier losses.
Stage 8: Denial
Investors refuse to sell and hope that the price will correct and rise again. They convince themselves that their investment is wise and that this is just a challenge of the market.
Stage 9: Panic
The market continues to fall and investors fear losing everything. They are desperate to sell to cut their losses. A major sell-off ensues.
Stage 10: Depression
Investors lose hope and the market Dip out. This is where stability begins and catalyzes a new rally. This phase can last a very long time.
Where are we in the current cycle stage?
No one can pinpoint the exact position in the market cycle, but currently, July 2024, when Bitcoin has been growing for more than a year, BTC has had a correction from the $74,000 area back to the $54,000 mark and is recovering to the $64,000 area, the market sentiment in the communities and social platforms seems to be very depressed, everything seems to be slowing down, preparing and expecting a recovery and late 2024 and early 2025, which means we are in the hope phase of this cycle.
Let’s compare the Altcoin market Capital movements to the classic market sentiment cycles. The sentiment phases that correspond to the price path have been quite evident over the past two years. The sideways market Capital behavior around $500 billion over the past year further suggests that the market is entering a period of opportunity.
Putting Altcoin Capital fluctuations and psychological cycle model fluctuations in parallel, it can be predicted that Altcoin is entering the Hope phase after Depression after going through a long process from Panic, Capitulation, Anger to Depression in late 2022 to the growth phase in doubt from 2023 to now, and now expecting a growth spurt in 2025.
Conclude
Market cycles are a natural phenomenon that every investor should accept. Understanding the cycles and eliminating emotions is the key to successful investing. Market cycles help analysts make better decisions and optimize profits. In the financial markets, especially cryptocurrencies, understanding the right timing and market sentiment is the decisive factor.
