Crypto Academy Season 3 Week 5 | Homework Post for Professor @allbert | Psychology and Market Cycle
Introduction
Good day everyone, and I welcome you to the week 5, season 3 of the cryptoAcademy class. It is another time to engage in Steemit CryptoAcademy Community. I am Taiwo Micheal with username @msquaretk here on steemit. I am happy to be writing my homework post for Prof. @allbert who has done justice to the topic "Psychology and Market Cycle." . He really explained the concepts of the said topic in an understandable manner. Thank you, Prof. @allbert.
1-Explain in your own words what FOMO is, wherein the cycle it occurs, and why. (crypto chart screenshot explanations needed)
What is FOMO?
FOMO is an acronym formed from the phrase Fear of Missing Out. This word is used in almost all the sectors. But we are particular about finance trading or financial market, and I am going to give detail explanation of this Word in this homework.
FOMO (Fear of Missing Out) can be defined as the fear a trader or investor has from missing out of an asset or commodity that is appreciating, and which is considered to be profitable for other traders or investors. This fear is as a result of significant increase in price of an asset or commodity within a short time interval. Consequently, this often lead to a quick decision to join the wining train based on the emotion of the trader as a result of the current market position without making confirmation as to why to join the move.
Additionally, this feeling may make a trader to neglect his trading strategy and join bullish market even at the premium level, which is a dangerous place to buy an asset or commodity. Traders are desperate to buy at this level as the price of an asset continue to increase as a result of volatility in market.
The Cycle FOMO occur
Market moves in cycle and this cycle forms the psychology of market. Let's see the screenshot below.
The screenshot above shows market cycle for a bullish trend experienced by BTC/USD from around March 2020 to ending of March, 2021. As seen in the screenshot, FOMO occur at a belief cycle. After FOMO traders might have gotten information from other traders who have been riding the trend and are profitable, they would want to make quick decision at this stage. They would say it is time to invest in any asset or commodity that is appreciating. FOMO traders tend to act base on the information gotten from those who have joined the trend at the previous emotional phase like Hope and Optimism stage.
Why It Occurs
FOMO does start to occur at the belief stage because of unwillingness of the traders to wait for perfect opportunity. They want to be profitable. They don't want to miss out of the current trend. Another reason is greed. Some traders want to get rich quick and this is why some join trend why it is almost at the euphoria.
2-Explain in your own words what FUD is, wherein the cycle it occurs, and why. (crypto chart screenshot explanations needed)
What is FUD?
FUD stands for Fear, Uncertainty and Doubt. This is the opposite of FOMO. while FOMO oocurs in the bullish trend, FUD occurs in the bearish trend. This is the fear or uncertainty a trader has when he's trading and the trade is not going as he thought it would. This may be inform of negative market sentiment either from the news or what is happening in the market. This causes traders to leave the market. In an ideal sense, sell order should be taken at the premium level, that is, at the highest price possible. But FUD can make a trader to sell and an asset or commodity at the bottom of a bearish trend, that is, at the discount level.
Let's quickly check the cycle where FUD occurs.
Cycle FUD Occurs
FUD occurs immediately after complacent stage of the cycle. FUD start at the anxiety stage. The fear and doubt make trader to withdraw from the ongoing trend in this stage. Then the trend keep on going and pass through the denial stage and panic stage. At this point if the trader that has already withdrawn from the ongoing trend see that the trend still continue bearish, he might want to sell again, but at this time, the trend is about to end. He then sell angrily to join the trend that is about to finish. That stage is called anger stage. Selling at the bottom of a bearish trend will then be a lost to such trader.
Why FUD Occurs
FUD occurs because of fear and and uncertainty of the traders. It occurs as result of fear of losing more fund in the bearish trend. Another reason may be lack of experience in financial market or overconfidence of some traders. More over, the doubt that the market may not continue in its trend make it to occur.
3- Choose two crypto-asset and through screenshots explain in which emotional phase of the cycle it is and why. Must be different phases
In this question I will be using BNB/BTC and XRPUP/USDT to explain the current emotional phase of the market cycle. Let's begin with BNB/BTC first.
BNB/BTC
The chart above is the BNB/BTC crypto asset. It is a Day Timeframe of market cycle of BNB/BTC from around the end of December, 2020 till now.
The bullish uptrend started around January this year and made the Euphoria, that is, the highest high of this cycle around may. Early this years, traders and investors were not sure whether to buy or to invest in this asset. The hope to buy and to invest rose in February, and many people bought and invested in this asset.
Before the end of Feb. the number of buyers and investors increased as a result of Optimism phase at that period. Then the Belief phase occured around May. at this place there was intense Fear of Missing Out (FOMO) of the current profitable trade. The price later moved from this phase and created another high which gave the thrill phase. The market made the highest high of this cycle, i.e Euphoria phase towards the end of May and at this place, many buyers and investors started to leave the market.
From this place, the price of this asset fell significantly and made another push up called the complacency phase. At this phase, some buyers and investors that are riding the previous bullish trend thought there would be another rally upward. Later on, the market fall and broke structures downward and the cycle is seen to be at the anxiety phase. The market cycle since the middle of July 2021, has been in the anxiety emotional phase and the cycle is still on this phase currently. I expect the price to break the low that made the high of complacency phase before we can have another phase.
Why BNBBTC is in this Phase Currently
BNBBTC is in this phase because the previous bullish trend could not continue with it movement as a result of many orders being withdrawn from the market. Hence, that caused complacency phase of the market. This phase could not break the high made by the euphoria phase and this in turns led to anxiety phase where the cycle is as we speak. This phase is as a result of fear, doubt and uncertainty of the bearish trend.
Let's quickly explain another asset and the current emotional cycle it is.
XRPUP/USDT
The above chart is 8hours Timeframe of XRPUP/USDT chart. This asset is seen to be in Disbelief phase toward the end of January, 2021. The asset increased a little in the following month and people started investing in the Hope stage of the cycle. Then before the end of April, many investors showed up and the price of XRPUPUSDT increase greatly making it Optimism phase.
Afterwards, more buyers and investors pumped fund into this asset. Around early April, FOMO traders are feeling the fear of missing out of the profit being made in the current market and this is the result of the Belief phase. The asset continued it bullish trend and made thrill phase where many buyers and investors had the feeling of buying more asset. The Euphoria phase was made around the mid of April, 2021. The price moved very fast between belief and Euphoria phase.
Toward the end of Euphoria phase, many buyers and investors started withdrawing from the bullish trend and reversal of the trend began due to maximum withdrawal of funds. Then the market fall greatly and made the complacency phase. This phase happened around early May, 2021. At that phase some buyers were still thinking of continuation of the bullish trend. But guess what? Reverse is the case.
The Price of XRPUPUSDT fell greatly from this phase and broke the low that created the Complacency phase and the cycle created anxiety phase. As a result of the increase of the sell, denial and panic phase were created shortly after anxiety phase. In this phase, some traders that are still holding then realised people are selling and they want to get out, they could not keep on losing. Then the asset kept dripping till the anger phase was formed around the end of June, 2021. The market is at the depression phase and we might have a push up very soon.
Why XRPUPUSDT is in this Phase Currently
From the screenshot above, XRPUPUSDT is in depression phase. this is simply due to fear as a result of continuous falling of the price of this asset. This is the lowest possible low before bullish trend in the market cycle. This phase will later be follow by disbelief phase before another bullish trend can start again.
4- Based on the analysis done in question 3, and the principles learned in class, make the purchase of 1 cryptocurrency in the correct market cycle. The minimum amount of 5USD (mandatory), add screenshots of the operation and the validated account.
Based on the analysis done in question 3 above, I believe XRPUP/USDT asset is in depression phase and bullish trend will begin very soon. So it is advisable to buy an asset at the discount level, that is, at the bottom of a bearish trend. Therefore, I will be purchasing XRPUP/USDT asset.
Let's see the process I used to buy XRPUP/USDT asset below.
Step 1
I logged in to my binance account. Let's the screenshot of my verified binance account below
Step 2
Then I switched to home page and from the home page, I clicked trade.
Step 3
Then binance trade page was displayed for me. The asset I saw here is BTC/USD, so I had to click on it to change it to XRPUP/USDT. So I searched for XRPUP/USDT, clicked it. Let's see the screenshot of this step below
Step 4
Immediately I changed the asset to XRPUP/USDT. I was told to watch a video before I can start trading binance leverage token. I clicked View now and watched the video, did the quiz and agreed to the term. After that I placed instant execution of buy order at market price $2.83. Let's see the two screenshot of this step below
Step 5
The order was successful. I then went to chech the order history. 10 USDT was exchaged for 3.52 XRPUP at a market price of $2.83. The order was executed on 30th of July, 2021 at exactly 10:51am Nigeria time. The screenshot of the order history is uploaded below.
Conclusion
Market cycle and its psychology is of high importance in financial market. Understanding of it will make traders or investors to know market sentiment at any point in time and thereby helps them in positioning themselves for perfect opportunity to take good decision. From the lecture presented by prof @allbert and from my findings in the homework given, I was able to execute a successful trade on binance for the first time. Thank you prof. @allbert.
Thank you all for reading.
Written by: @msquaretk
Cc:- @allbert