Market Psychology
Understanding market psychology is the key to understanding market cycles. In essence, market psychology is the study of collective investor sentiment and behavior. It answers why prices rise and fall beyond the fundamental or technical aspects of the assets involved.
Fear and Greed: These two emotions often drive market cycles. Greed pushes prices up, while fear drives them down. Smart investors keep these emotions in check.
Herd Mentality: Most investors follow the crowd. This group behavior often leads to bubbles and subsequent crashes. It's why many end up buying at the peak and selling at the bottom.
Contrarian Investing: This is an investment strategy where you go against prevailing market trends. Contrarians buy when everyone else is selling and sell when everyone else is buying.
