Understanding market cycles and psychology and what makes people tick is an invaluable tool to have. It can help you in relationships, at work or even in business.
Where it can especially help these days is in the market. Market cycles are really linked to human behavior. If you can understand why people make the decisions that they make, then you can probably understand when a trend is going to happen that affects the stock or cryptocurrency market.
Often, as soon as a trend is identified by the masses in a market cycle, then it is pretty much too late to take advantage. If you can be ahead of the curve, you can usually see better results than if you hadn’t learned about the psychology of the market.
In this article, I will go over several of the ways you can understand market cycles for both stocks and Bitcoin.
1 – Stages of a market cycle
Optimism is usually the first stage of a cycle. In the case of cryptocurrency, people are hearing about the incredible gains of a certain coin which leads to people taking a look at the numbers. They search out the best BTC wallet and then buy in. their only regret is not getting in on the action sooner as they see immediate gains on their investment. They feel invincible.
The next stage is inevitable as the gains start to slow down or even drop. But, arrogance takes the place of euphoria as they believe that it is temporary and if they want it to bounce back it will.
Anxiety starts to set in as their prayers are going unanswered. Now they begin to wonder if they should have sold their coins earlier.
Which leads to panic. Now emotions are really taking over and good decisions are harder to make. They wonder if the market has crashed and if it will ever recover. They usually end up selling at this point and take a loss.
Knowing all of this, the wise Bitcoin trader will keep a level head and either ride out the dip, or would have sold when the value was at or near its peak.
2 – Take advantage of the psychology
If you understand the psychology and emotion behind how people trade, then you would have seen the trend before it happens. In other words, you would wait until the panic mode sets in for most traders and investors as this is when they are going to be dumping their coins And it means the value is low enough for you to make a profit. Buy low, sell high is the motto.
It’s simply a matter of waiting for it to happen as it is as close to inevitable as it gets. Then you have to remove emotions to either sell when it is high, or be confident enough to ride out a dip. Even the crash in 2018 has rebounded and the value of Bitcoin is back where it was before. It takes nerves of steel to tamp down the emotions and trade.
*This article has been contributed on behalf of Paxful. However, the information provided herein is not and is not intended to be, investment, financial, or other advice.