OANDA:XAUUSD Gold Spot / U.S. Dollar
The market is driven by people.
The crowds are always behind strong market rallies.
What the majority fails to recognize is the fact, that being chaotics in its nature, the markets are always trading in predictable patterns.
Believe it or now, but the market participants are driven by the same emotional impulses. It does not really depend on how wealthy is the person.
With the core motive being to make a ton of money with a little risk possible, we can derive a universal archetype.
Every asset, every financial instrument has an element of a "potential value". Being 100% subjective, an attempt to calculate the future value drives the market.
Depending on the current expectation of the crowd and its emotions it is necessary for a professional trader to learn to play with its behavior.
With many years of constant observations, the cyclic psychological curve was derived to explain the relationships between our emotions and market cycles.
On the chart, I have drawn 9 main stages of trader's psychology:
😶INDIFFERENCE - No opportunities are spotted, searching for the right pick.
🙂OPTIMISM – Positive outlook leading us to buy a certain asset
😃EXCITEMENT – Being initially right in our pick, we feel excited as bulls push the market to the new highs
The moment of happiness and feeling of being "a true investor"
🤑GREED – Being thrilled we start to ignore warning signs and add more and more cash to the market believing that the market will never stop.
😕ANXIETY – The market starts taking our gains back. Being biased and nihilistic we keep holding the position, thinking that it is just a pullback.
😩PANIC – Tremor. We are frozen. Emotions are draining our power. We are clueless and helpless. We totally lose the sense of control.
😭DEPRESSION – Position is closed. Money is lost. Considering trading & investment industry to be a scam.
🤔HOPE – The dawn. The market returns back to its normal state. Aspiration & desire to start again.
😆RELIEF – Again we start to believe in our strength. We return and the cycle repeats.
Do you recognize yourself in these stages?
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