In this second week of the cryptoacademy, professor @asaj shares an interesting class on commercial psychology and market psychology, where he shows us once again that emotions greatly influence the decision-making of any human being, specifically in the area of ​​cryptocurrencies.

We have all been Jane sometimes, and that is why we must analyze and investigate thoroughly before letting ourselves be carried away by the different commercial biases and emotions that lead us to make rash decisions. Without further ado, here I share my homework for the week.

_{image of my property made in canva}

Part A (case study)

• The case study presented is an example of what kind of psychology? Explain the reason for your answer.

---

The example that the professor presented to us in his class is about commercial psychology, since this type of psychology deals with the emotions and feelings that an individual investor takes (In the case of crypto assets), that is why we can see how Jane makes decisions based on her irrationality and on the behaviors that the market experiences, of course, being guided also by statistics and alleged recommendations in a telegram group.

Jane could have done an in-depth study on said crypto asset before investing in it thanks to alleged recommendations in a group, however, she let herself be guided by that, and did not decide to do her own analysis of the market to see whether or not it would suit her to invest. in that cryptoasset.

As we can see, Jane was guided a lot by emotions depending on the state of the market for said asset, at one moment she seemed to be happy, and at the other moment she seems to be sad, reaching a point where her emotions depended on the trend in which the asset was found, I understand it perfectly since I was also Jane at some point.

Inadvertently, Jane experienced different business biases in the decision-making she made, leading her to near panic and fear of losing her entire investment, however, she could have avoided it if she had done her own analysis before making her investment, and not letting ourselves be carried away by third-party recommendations, this is where we can realize that we have all experienced this type of commercial psychology at some point.

source

• Using the case study above, list and explain at least 5 biases that influenced Jane's business behavior with examples of how she affected her behavior.

---

As the teacher explained to us in his class, we have all made mistakes that have led us to make bad decisions and experience different commercial biases, in Jane's case we can see how this happened, and that is why I will explain what I think she had:

• Anchoring bias: As its name implies, this Bias makes the individual anchor to certain information for decision-making in future investments, as we could see Jane was undoubtedly anchored to the information she obtained in his telegram group, and from there he was guided to make his investment in that cryptoactive.

She did not carry out her own analysis, nor did she look for other sources that would really provide her with real information about the movement of a certain asset, which led her to a loss, because she did not know that this currency had a downtrend, since it was only carried away by one specific information, and did not seek other sources.

• Herd mentality bias: We have all sometimes been carried away by the same actions that other people take, and this is normal since human behavior follows many patterns. Herd Mentality Bias is about people being guided by the same actions that others take, regardless of whether that will lead to a good decision.

When we do not have any knowledge about the cryptocurrency market, about trends, and about other factors that imply gains or losses in the market, it is normal for us to get carried away by news, comments, rumors and actions that other people take, it is here where Jane came in, as she got carried away by decisions being taught in a group and did not conduct her own research analysis, following people like a sheep in a herd.

• Emotional bias: This bias is one of the most common that can occur to us, since human beings by nature tend to get carried away a lot by emotions and feelings, and this is where decision-making influences in our future investments or negotiations.

When we make decisions based on our feelings and emotions, they may in many cases have no meaning or guidance, since they usually do not lack reasoning or reliability.

In Jane's case we can see how feelings and emotions affect each of the decisions she decides to make about her investments, blaming a great tool (Stop loss) for the loss of her investment, and emotions arising in her like fear and hope.

• Limited rationality bias: In the financial and economic area, we usually act rationally, however when we usually obtain results that we do not want, we do not usually make good decisions and our rationality may be limited.

Jane, not gaining enough knowledge about the investment she made, and seeing that she was not obtaining the desired results, her rationality became limited and led her to make decisions that did not favor her.

• Disposition bias: We have all had errors and losses in our investments at some time, and this can be due to many factors, however, we must accept when we have lost and seek a prompt solution.

Jane in this case, did not want to admit her mistake and carelessness that she had by not reporting well, leading her to lose a large part of her investment, and blaming the Stop loss she placed for not serving, and what she did was try to average her position buying more assets while prices continued to fall, but this position resulted in a greater focus on avoiding losses, and did not focus on profits.

• List and explain how each bias you mentioned can be avoided.

---

It is true that we can perform certain actions and parameters to avoid falling into the aforementioned commercial biases, that is why here I share my opinion of what we could do to try to avoid it:

• Anchoring bias: We all know that the world of crypto assets is very volatile, so when making a possible investment we must thoroughly investigate and carry out our own fundamental analysis of the market for a certain crypto asset .

We should not settle for the first thing they recommend to us, we must analyze, investigate and study the market ourselves (which can take time), in order to be able to reach a decision that benefits us, and not anchor ourselves to something specific.

If Jane had not been satisfied with the information she obtained in her telegram group, and she had sought other more reliable sources, perhaps her investment would have been better.

• Herd mentality bias: When we decide to make an investment we must take into account many factors, and one of them is NOT to let ourselves be carried away by the same actions and decisions that others take, already We know that the news greatly influences the crypto-asset market, and many times we are influenced by certain rumors or comments that are said, affecting our possible investment.

We must do our own analysis and put into practice the implementation of certain indicators or theories that help us make reasonable decisions for our future investment, as well as analyze the project of said currency and what is behind it. Let's not get carried away by massive or third-party comments, it is always good to draw our own conclusions and investigate on our own.

• Emotional bias: This bias is one of the most difficult to avoid, since emotions and feelings lead us to make non-feasible decisions, however, we can try to avoid it by controlling our emotions, thinking and analyzing before making a decision that may affect our investment, being very cautious and analytical, in order to be able to think very clearly about the actions we are going to take in the face of future losses.

• Bounded rationality bias: We must learn to make good decisions and be reasonable when we do not obtain the results that we do not want in our investments or businesses, since as we know we do not always do things reasonably, without However, I believe that we can avoid it, trying to find alternative sources that help us see our investment from another perspective, in order to make a logical and reasonable decision.

• Disposition bias: When our investments do not go as we wish, we must accept our mistakes and look for what we failed and what we lacked to do, of course, the world of cryptocurrencies is very volatile, and science Certainly we will not be able to predict what may happen, that is why we must focus on looking for a prompt solution that provides us and not that we continue to subtract

Part B (Research and analysis)

• What type of analysis can be used to monitor market psychology and trading psychology, and why? Identify the differences between business psychology and market psychology.

---

I believe that technical analysis can help us to monitor both psychologists (market and commercial) since with the help of graphs and theories we can predict and calculate certain movements that may occur in the market.

Once I did a previous analysis on the Elliot wave theories , and I was able to come to the conclusion that this theory is based on the technique of studying certain patterns or waves, which are considered impulsive and corrective measures, both directed in the opposite direction, based on the psychological part that shows us that we, the users or investors, can predict or analyze a certain graph in the financial market, and calculate the upward or downward trends of any asset, and this is through of 5 waves that we must study and analyze.

It is a very important technique that indicates the entry and exit points in the prices of any currency, which will help us to know when is the precise moment to operate, showing us once more that if certain movements and patterns of any type can be calculated. currency, and this is through the upward and downward trends that we have always known, since they have waves with sequences that will help us understand the trend of the market that we are analyzing.

Another technical indicator that I believe can be completed is the indicator called "Ichimoku-Kinko-hyo" , an indicator that tells us about balance and human behavior, since as we humans know Sometimes we tend to act abnormally, however after a while everything returns to normal and in its perfect balance, and this is what this indicator wants to express, which helps us analyze and predict future movements in the market, so that we can act at the right and precise moment.

Another method or technique that can help us is the well-known method called "The composite man" or "The Wyckoff method" , which shows us and indicates that we can analyze and study price trends in the market that are intentionally caused by large investors who will later benefit from it, analyzing different movements that the composite man makes for his profit strategy in the market, and if we know how to apply this method we can know when the value of an asset will rise or fall , along with the trends that may be approached in the market.

And another of the most used and important is the technical indicator (RSI) , which will help us to know the strength and variation that a currency may have in the market, through ranges from 0 to 100 the indicator will indicate the trend of the asset in the market. For example, if the indicator alerts us that it passes 70, it means that a corrective wave is approaching, and if it alerts us that it is below 30, it would indicate that an uptrend is approaching, since it is oversold.

Differences between business psychology and market psychology:

As we know, the decisions we make to make a future investment or negotiation go hand in hand with two psychological ones (Commercial and market), and here I show you the differences of both:

We are currently in a very, very volatile market in the world of cryptocurrencies, so most users or investors have collective feelings that vary or change constantly, this is where the psychology of the market comes in, which deals with the behavior that They have many users in the market but in a general way, acting in many cases through their feelings and emotions, and as we already know, acting through them will not always have the logic and reasoning of what is done.

This type of psychology undoubtedly influences the movements and prices that an asset may have in the market, since having a collective sentiment, that currency may be overbought, or otherwise oversold.

Now if we go to the type of commercial psychology, it tells us about the feeling and individual reasoning of a person who decides to make decisions regarding an asset, normally this type of commercial psychology is carried away or influenced by news, comments, rumors, and information provided by social networks, as in the case of Jane, who was carried away by alleged recommendations from a telegram group

• How can market psychology be measured using a crypto chart? Select 5 trading biases and explain with screenshots of any cryptocurrency chart how biases can cause a coin to be oversold and overbought.

---

In this case I used the TradingView platform to draw my chart of the Cardano (ADA) coin with USTD $, and I was able to observe some trading biases, such as:

1) Emotional bias: As we can see, in our first line we see how the asset price began a process of accumulation in the market, resulting in investors falling into an emotional bias, since we can see how the The price of the asset rose and fell, making users or investors believe that an upward trend would soon come due to the accumulation process that the asset was having. However, here feelings and emotions were involved, since many thought of selling and buying at the same time, feeling fear about what could happen to the price of the currency.

2) Herd mentality bias: In our line 2 we can see how effectively the accumulation process made the asset shoot towards an uptrend, however, we can see that it also had a small correction, but then it came back to go up.

Here we can see how most of the users saw that many people or large investors were buying the currency, and decided to buy as well, without knowing what was coming or what could happen, they only decided to do the same as others having a mentality of flock.

However, a distribution point was approaching, which is where large investors reached their stipulated price and began to sell little by little, resulting in a downward trend, but without alarming others.

3) Confirmation bias: In our line 3 we can see how the price fell, confirming the theory that many speculated, however, others thought that it was only a corrective trend that will only make the market rise again, and effectively it did make a small correction, but then it fell again, this is where many investors do not know what to do, and we can see how they start to buy and sell again.

4) Disposition bias: In our line 4, we can see how many investors have lost in their investments and do not realize that they made a mistake, however, they try to remedy it by performing a position average and buying more assets at a low price, but you still do not decide to abandon your position.

5) Anchor bias: In our line 5 we can see how many users do not decide to abandon their position and remain anchored to a mentality that the price will rise again, however, this can only cause losses, since it does not They decide to look for another option, this results in the market going up and down constantly but without great variations

• In your own words, define the term efficient market hypothesis (emh). List and explain the advantages and disadvantages of the efficient market hypothesis (emh).

---

The efficient market hypothesis is a theory that tells us about the different factors and tools that make it affect the market value, without including technical or value analysis, since it is considered unnecessary, since undoubtedly any previous analysis that is made of the market, it will be changed. This theory also tells us about speculative investments and obtaining greater profits through them, however, we know that this type of investment is a great risk, risks that in many cases can be fruitful.

There are several factors that apply to the efficient market hypothesis to act in a more satisfactory way, such as the number of participants that the market may have, since the more investors and volume they have, the greater the benefits that can be obtained. . Another factor that applies to the efficiency of a market is the information available to the investor or user, since the information is extremely important to obtain prior knowledge of what we are doing, the more informed we are, the greater the benefits that we can get.

The efficient market hypothesis works with three types, such as:

• Weak efficiency: It occurs through public and private information that an asset has, therefore, technical and value analysis will not serve to predict the prices of an asset, based on the hypothesis of the financial market only in the prices and the volume that the coin has had over time.

• Semi-strong efficiency: In this case, investors take advantage of the public information that the market may have, thus achieving greater profitability, excluding fundamental analysis, since it also depends on public information.

• Strong efficiency: This is when investors have all the information advantages: Historical, public, private, achieving a stronger and safer efficiency in the market, if in any case the investor decides to provide extra information to through fundamental analysis, there would be no profit from that information and the price would adjust very quickly.

source

• Advantages and disadvantages:

• One of the advantages of the efficient market hypothesis is that it is not based on technical or value analysis, therefore it saves the time of searching and analyzing information to obtain results, this theory tells us about the information of prices and volumes that an asset has, (either public or private information).

• Benefits can be obtained in the efficient market hypothesis, through a simple and transparent way, since the information is based on the asset prices, and this information is available to all users who wish to see it.

• It is an easy and simple theory to analyze, since it has no complications to calculate prices in a market, we only need to obtain relevant information about the price of an asset, to be able to predict the trend that said asset will have

• One of the disadvantages that it has is that there is a lot of speculation about this theory, since it is not based on technical analysis, so people distrust whether this theory is effective or not.

• Technical analyzes attract more the attention of users or investors, since for sure if they produce more notable and safe beneficiaries, instead this theory is only based on the prices of an asset, and the information they have about them .

• Significant losses can be made if you do not have the necessary information on asset prices.

• Conclution

---

We have been able to see how psychology affects the area of ​​cryptocurrencies and our finances, and it is that all of us have ever gone through the situation in which Jane went, and we have also experienced these two types of psychologies (Commercial and market), We have been carried away by our emotions and feelings and we have not acted in the best way to make an adequate and rational decision.

Each of the commercial biases that exist affected us (or affect) in the decisions of our finances, however, now we can try to avoid them with the recommendations explained, that is why we must analyze ourselves and try to regulate our feelings and emotions, already that we can see that they can undoubtedly include in our finances.

We have been able to see how the different emotions of human beings play a fundamental role in our financial area, that is why we must try to be more analytical and try to think very well about the steps we are going to take before making a decision that we will later take. may affect.

I thank the teacher @asaj for the incredible class this week, where I learned a lot about this important and interesting topic, I really enjoyed doing his class, thanks for the knowledge acquired