What is Market Psychology? How Investors Can Control Their Psychology and Emotions

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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.

Biểu đồ tâm lý thị trường
Market sentiment chart

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.

Chúng ta đang ở đâu trong chu kỳ này
Where are we in 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.

Chu kỳ tâm lý của Altcoin khớp với chu kỳ tâm lý
Altcoin Cycles Match Psychological Cycles

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.

Source
Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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