Business activity: market psycholgy
Introduction
Hello everyone it's me again, trust we all had a very good week and are now looking forward to the weekend to unwind and cool down.
Today on my blog I will be talking about something that affects every one of us in one way or another and this is market phycology.
What is market psychology
The term market pyschology is gotten from two words which means two different market but when brought together gives us a different meaning.
Market
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This the meeting point whereby buyer and seller meet for the exchange of goods and services for a particular price and quantity.
This meeting point is not limited to only physical location but rather it could be digital as well.
Psychology
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This is the study of the way human beings reason and act under various conditions, the study of psychology is necessary as it enables us to have a better understanding of why human beings do certains things they do, pyschology makes us understand that every human being would act a given way due to certain conditions and that no human behaviour is alien.
Market psychology
This is a term in the business environment which encompasses how buyers and sellers would interact amongst them selves when they come in contact.
Market pyschology studies how the mass of individuals would react to various business opportunity when presented to them.
It states that all individuals in general act in a certain pattern which goes through five stages from ignorant to hopefully and this five stages are what gives the market its shape in the long run.
Origin of market psycholgy
The principle of market pyschology was first talked about by Ralph Nelson Elliott a mathematician while observing stock chart patterns in the 1930s he observed a reoccuring pattern when looking at his stock prices.
This pattern gave birth to what is known as Elliott wave which states that price moves in pulses of 5 waves and after each five waves has been completed come a huge correctional wave before a new wave can start.
Price of telsa from trading view
Looking at the image above we can see that the price of Tesla stick didn't just jump from $99 to $1000+ it went through stages of 5 movements.
This 5 movements are what is known as market psychology and it ahows the presence of buyers and sellers interaction in the Market, at any point in the market vthet are always sellers who wish the price to go down and they are buyers who wish to the price to go up.
Through to Ralph Nelson Elliott wave after the 5 waves we are now seeing a huge correctional wave coming in after this correctional wave a new Elliot wave would be formed and the process of market pyschology would happen all over again.
Note :
Elliott wave is the truest way in which we can interpret price action
By understanding the principles of Elliott waves every trader would be profitable as they would be able to control Thier greed and fear
Elliot wave plays out on all time frames and it is a continuous pattern.
How Elliott waves interact with market psychology
Market pyschology goes through a similar 5 stages just as Elliott wave those, this stages are in synchronisation with the pulses on the Elliott wave, it stage of the market psychology is a testament of the general mood of the investor in the market, the summation of this 5 stages gives chart Thier pattern.
Stage 1 ignorance
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At this stage many traders are just joining the market and pushing resources into a particular stock which they feel have potential, take for example in 2020 everyone was hearing of Tesla and many with little knowledge felt okay this stuff might go up so they bought into the market, many individuals didn't buy into the stocks at this price probably cause of doubts and fear.
Stage 2 doubtful
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The price of Tesla quickly rose up and many were surprised that they were correct in predicting the direction, others quickly join the market and those who bought early on were making money.
But then doubt comes in and they start to take profit and exist the market hence the price of Tesla starts to fall, those who entered late were losing money and cut loses thus making the price falls further as many have existed the market.
Stage 3 acceptance
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At this stage more investors see that the price has dropped and they decide this is a good time to buy back into the market.
Stage 3 only happens when the price drop of stage 2 but doesn't go below the starting point of stage 1 hence,
At this point all those who felt they missed out earier ondecide to key in and invest.
This causes the price to rise astronomical and sets a new trend upward the price goes way higher than it went in stage 1, many investors are happy with the money they made.
Stage 4 panic and greed
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Around this stage the price has been going up for a while now and investors are now skeptical of such price increase they start to panic and sell off assets in fear that the price fall might happen anytime soon.
Many start to sell of their assets and the price starts to fall, slowly at first then rapidly as more investors pannic those from stage one with now experience know this and with greed keep buying as the price drops to average up on Thier position
Eventually wave 4 ends with the price droping but not below the start of wave 3.
Stage 5 hopefully
This is the final and last stage of the cycle at this stage all those who missed getting in at stage 1 and stage 3 gear up at one last effort to make profit and this causes the price to go up above the previous high set by stage 3.
But wave 5 is a weak wave not as strong as wave 3 or as bullish as wave 1 it shows clear signs of weakness as early investors have now made alot of money and are quickly existing Thier positions
Stage 5 doesn't last too long and is the worst time for any investor or invest in stock except it's only for a short term.
Correction stage
After stage 5 the market trend changes quickly as all those who had positions earlier on now exist Thier position, What follows is a huge correction stage that sees price drop for a long period of time possible to wave 4 ending.
After the correction stage comes comes stage 1 and the pattern repeats it's selfs again and again and again, this could be seen in time frames and accross all businesses.
Note :
For better understanding of the market psychology I related my explanation to stock patterns though it would be related to any form of business other than investing in stocks
Reasons why the market phycology works
They are two reasons why the market psychology works everytime and this is fear and greed, they are two characters all individuals in a crowd posses and when investing this two triats are visible.
Fear
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Individuals during downtrend always pannic that they may lose all Thier money hence they are willing to cut Thier loses and lose assets in hope that they don't lose it all, all the while while doing this they fail to pay attention to the voice of reason within Thier heads which tells them to be patient.
Greed
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In anything we as humans engage in their is a tendency that we would like to make all the money in the world hence we are quick to look for new business opportunities which we feel would give us money.
This is the prime reasons why individuals are quick to invest money when we see certain stocks are going up and why we greedily fail to accept the realisation that such price increase might only be temporarily.
Conclusion
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No matter what we are looking at whether it is a business or a stock they all follow the market pyschology this is so because we all have Thier fear and greedy with us causing us to react in certain ways.
The crypto market if anything have shown us that how individuals react in times uptrend and downtrend and how greed and fear fear plays a significant roles in the market psychology.
Right now the crypto market has seen been on a downward trend we are seeing many traders switch from very greedy to hear fearful especially with what recently happened with Luna.
In investing we should always try to look at the bigger picture and determine at what stage the market is currently at before making any investment decisions this would help us become better traders.
| Business: | The Business Activitiy : Market psychology |
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| Username: | @victoh78 |
| Owner's name: | victoh |
| location: | gwarimpa, abuja, Nigeria. |
| About Us: | link |
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What a marvelous post you have here, you've explained thoroughly market psychology. Keep up the good work⭐
Note: You must enter the tag #fintech among the first 4 tags for your post to be reviewed.
A quite interesting and important topic to pay the necessary attention, specific and key points in the psychology of the market, emphasizing the different stages and these in relation to the upward and downward trend, recklessness, the one who accepts, and in the meantime what is due do, knowing that everything has whys in doing things.
Of Interests:
@victoh78
Greetings.
Thank you for the correction
Hello @victoh78 Thank you for your excellent material on market psychology.
It's true as an entrepreneur or manager of a business downs and downs often occur so we feel wary of taking some action but all the solutions have been explained and this is really awesome.
Thank you for all the information you share anyway optimistic, confident, improve and focus our attention on what we want to achieve, may luck always be on our side.
Greetings!
This is a great article explaining psychology, the origin and stages.
Thank you for sharing, it was a good read
Seriously marketing phycology can never be over emphasize. It is a reality that life must pass through as people often say that this life is not balance, so as markets.
Market pyschology one of the most important knowledge that would set us all free and make us better traders or business men
Very true my friend, but the buyer and the seller needs this phycology to excel.
You have really done well in your explainations. You used the Elliot wave pattern to explain the market psychology which is correct and I believe this article below will add a little more to the Elliot wave pattern.
https://steemit.com/hive-108451/@pocoloco01/basics-to-trade-cryptocurrencies-correctly-part-1-crypto-academy-s6w1-homework-post-for-professor-nane15