Understanding Market Psychology and Trading Psychology

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It's normal by traders to be scared of the volatility of the crypto market. This volatility has made many feel that crypto is a scam. There's this psychology that makes traders make wrong decisions on the Crypto market.

Market psychology refers to the sentiment behaviour and emotional state of traders in the crypto market at the specified time. This aggregate behaviour of traders in the crypto market isn't ideal as they can make hasty decisions based on their feelings which could defy all reasons. Mindset of all crypto Traders are always changing due to many factors that influence the state of their mind. This makes it difficult to predict the outcomes of the future in crypto. Let's take a case study

Fred had a successful buy order. Although the value of trade crypto asset has rising to $30 after a few days of buying, he doesn't seem pleased with his trip because he feels he could have had more money if he bought the crypto assets last month when it was trading at $9. So Fred decides to hold his coin and wait for the market to move, causing an increase in prices.

After a while, the market reverses and the price start reducing. Fred seems happy because he will have the chance to purchase the coin at a lower rate than the initial $9. As the price continues to go down, termed in crypto Averaging down the position. It is a very dangerous game to buy more crypto assets as price falls.

In anticipation of an increase in price, most traders average down a position with the aim of increasing their profits. Fred starts becoming uncomfortable as he bought the Crypto asset in large quantities and the price has refused to increase. It gets to a point that Fred starts becoming worried that it affects his mood.

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He starts developing the habit of checking his wallet from time to time. By doing so, he has invested his emotions as well as his finance. Upon waking up one morning, Fred decides to check the price to see If there's an increase. The price of the coin crashed last night and his stop loss of $5 was triggered. All je had noe is a huge hole in his wallet which makes Fred engage into too much thoughts.

He promises himself not to get involved with crypto anymore. He sold his assets immediately before it goes down more than before. For weeks, he hasn't checked crypto prices as he lost a lot in his investments. After a long bearish trend, the market starts experiencing an increase. Fred is watching. The market starts undergoing instability in prices. It will go up and down.

Fred becomes tensed when it goes up and relieved when it comes down. Remember, he sold all his assets at a lower rate and didn't want to invest in it again. The crypto price breaks the resistance and exceeds the $10 mark. Fred starts regretting selling his coins. He blames stop loss for it. Bow he believes traders should stick to their crypto assets no matter what happens.

He believes good companies would always make good investment decisions that would boost the prices of their assets. Like Fred, we may have similar feelings towards crypto market especially during a bearish trend. This case study sums up to the market psychology.

The price of a crypto-assets gives us an idea of how people feel and react about a particular asset. With this in mind, when there is a continuous increase in prices of assets in the crypto market, it implies that the market psychology is positive which means people are hopeful about the crypto market and express this positivity by acquiring more positions which in turn drives the prices of crypto assets awkward and can cause an overbought of that asset.

On the contrary, When there is a decrease in price of an asset consistently, it tells us that the market psychology is negative which means people are anxious of the crypto market. This negativity can cause many to sell off their crypto assets due to fear which causes an oversold in an asset.

The periodic change in the mindset of traders in the market square to the instability in this market. Any technical indicator that reflects the overbought and oversold margins can be effectively used to measure psychology in the market as it can help in predicting the rise and fall in the value of a crypto asset.

In conclusion, we've come to an understanding of what the crypto market really is and how it can really affect a trader's decision. The example of Fred is very much practical and explains this best. Learning how to control psychology in the market will help us market informed decisions and using crypto strategies will help us visualise or predict future price movements of some Crypto Assets. In my next post, I'll deliberate on psychology in Trading.

Disclaimer :Any financial and crypto market information provided in this post was written for informational purposes only and does not constitute 100% investment advice. It's just basic knowledge every crypto trader or investor should have