Mini Crypto Program Part 2 || "How Psychology Influences Market Cycles", by @kingmyke. 10% payout to @steem.education

Good day Everyone.
I am @kingmyke.
I amd grateful to @liasteem for this wonderful opportunity to learn about cryptocurrency via the Mini Crypto Program. I have gone through the lecture material and in this post , I will be answering the questions the the Part 2 of the program. I hope you find it educative and fun.

###Enjoy!

NO.1: FOMO

Visit the website CoinMarket , and explain what FOMO is!

source

FOMO is short for Fear Of Missing Out. It can simply be described as a situation in which a person is afraid of missing out of all the fun and excitement all around him/her.
In the markets, FOMO is the fear of missing out on opportunities to make money in a current market condition. This sis especially evident in a bullish market run when there is a lot of "good news" all over the place, in the news, on papers etc. It is in a situation where the markets are very bullish and you see and hear that a lot of people are getting rich from the current bullish run. This then causes a person to develop FOMO as he/she does not want to miss out on such a great opportunity.

In a situation such as this, the persons judgement is completely clouded as he/she does not make sound investment decisions based on a combination of fundamental or technical analysis. Instead, the person just rushes into the market and buys into the hype.

There are 3 emotions that, when felt and combined, leads to FOMO. They are:

HERD MENTALITY:

This is an act of following the herd, that is, the general public to do what they are doing It is simply doing something because everyone is doing it without thinking it through.

REGRET:

This is the feeling that comes with not doing something or grabbing and opportunity in the past that would have resulted in some form of reward and so you feel bad about it.

FEAR:

This is the feeling where one is scared of a future possibility of missing out on an opportunity and so decides to hop on the hype.

FUD stands for Fear, Uncertainty and Doubt. It is a situation where a the markets are in an uncertain period and due to a combination of emotional and psychological factors such as fear, lack of patience, over growing losses and little to no knowledge of market cycles, a person who has been watching the value ff his assets depreciate finally decides to sell them off at losses.

FUD often happens in a bear market.

NO. 3

Explain where FOMO occur! (Need screenshots)

FOMO usually happens during a bullish run and a bullish run is characterized by 4 major emotions:

optimism, belief, thrill, euphoria.

OPTIMISM:

This comes right before the bullish run. It is the period when everyone, including the unexperienced investor, tells themselves that the rally must be real and is the next big thing.

BELIEF:

This comes right after optimism and is the time when there are so many factors that are showing both in different forms of analysis of the market that spurs up belief in the bullish run. Thus makes the investor have more reason to believe in the market's move.

THRILL:

Coming right after belief, thrill is the moment where there is making of profits as more and more and more investors hop into the market to take part of the run. This is the scenerio where the market trends on news and papers and everyone is telling everyone else to join the ride or forever hold their peace.

EUPHORIA:

Described by many market psychologists as the most dangerous feeling one can ever have in the market, euphoria is a situation where an investor feels unstoppable and godlike; where he/she feel like a genius and can never go wrong in the market. Here the market is overbought, characterized by excessive greed and leverage and is in what is called a massive "bubble". This is the point just before the burst of the bubble and the market crash.

See an example of FOMO.

This is the chart of BTC/USD bullish run of 2017.

NO. 4

Explain where FUD occur! (Need screenshots)

FUD occurs at the middle of a bear market/ during a market crash. It occurs due to the fact that the investor has seen large depreciation of his assets and therefore decides to sell off those assets at large losses. This arises from the following emotions.

anxiety, denial, panic, capitulation

ANXIETY:

This comes after the feeling of complacency (where, during a market crash/ bearish move, the market appears to want to be slightly bullish). Here the market starts going bearish again and the invest is afraid that the market does not want to return to its previous highs. Fear begins to befall the investor.

DENIAL:

A very dangerous stage, denial is when, despite all the red flags and bearish nature of the market, the investor refuses to sell off because he/she has made themselves believe that the market will return to its previous high. A person exhibiting this is said to be in a state of denial.

PANIC:

Here the investor sees that the market doesn't have any plans whatsoever of even being bullish so he/she begins to take losses and sell off their assets. This is done out of fear that the value of the asset could drop to virtually nothing.

CAPITULATION:

This is known in the markets as "giving up". Here they panic sell even more and shed off any remaining assets they have been holding. Here they have completely given up on the market from recovering because the market prices just continue dropping.

See an example of FUD.

BCH/USD

Choose the 2 cryptocurrencies you want, then use the graph of the 2 cryptocurrencies to explain where FOMO and FUD occur! (Need screenshots)

NO. 5:

I Will be using two cryptocurrencies to show where FOMO and FUD occurred in each of them

BCH/USD

As you can see from the chart, from 26th April, 2021 up to 12 May 2021, there was a massive bullish run. Here we can see all the signs of FOMO mentioned, OPTIMISM, BELIEF, THRILL AND EUPHORIA. Euphoria peaked at about 12th May. This was the height of the market.

Then form 13th may till 20th Une, we can see all the signs of FUD as the market fell massively.

BTC/USD

In the area colored yellow, you will see signs of FOMO displayed. This occurred from the period of 2nd April 2017 to 17 December, 2017. The market rally was enormous and very strong back in the year 2017 and you will see a similar market rally across other cryptocurrencies as well during that period. This similar rally is due to the correlation of other cryptocurrencies to the price action of Bitcoin. However, with the development of cryptocurrencies, this correlation has only slightly reduced.

We can still see today that factors that affect Bitcoin generally affects the entire cryptocurrency space.

Then from 17th December 2017 to 23rd December 2018 ( a full year) we can see a full market dump and crash with the investors at that time falling into FUD.

CONCLUSION

The market is a very powerful place where emotions tend to run extremely rampant. Time and time again the markets shows us these signs simply because these are psychological, emotional reactions of investors in the market. This explains why every bull market is followed by a bear market and vice versa.

No financial market is exempted from this: the NASDAQ index, the S&P 500, The Dow Jones Industrial Average and even the cryptocurrency market all display these characteristic signs of the markets.

Intelligent investors, however, do not fall prey to this emotional traps. They do the following before investing their money in cryptocurrency (or any financial instrument):

1. Get to to as much about the asset as possible
2. Get to know factors that tend to affect the perceived value of the assets
3. Learn the financial history and performance of the asset over the previous years
4. Compare the volatility of the assets with those of other financial instruments in order to create a well-balanced and diversified portfolio that can weather financial crises without tremendous drawdowns
   etc.

I close with the wise words of Warren Buffett, arguably the most successful investor of all times, "Be greedy when others are fearful and be fearful when others are greedy".

Shalom