Understand the Psychology of Market Cycles.
Understand the relationship between market sentiment and asset price movements.
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Market sentiment is the general feeling of investors and traders regarding the price movements of an asset. When market sentiment is positive and prices increase continuously, it is said that the market has a bullish trend (commonly known as a bull market). The opposite of a bull market is a bear market, which is when prices continuously decline.
Therefore, sentiment is made up of the personal views and feelings of all traders and investors in the financial markets. Another way to look at market sentiment is the average level of overall sentiment among market participants.
But, as with all groups, there is no majority opinion. Based on the theory of market psychology, the price of an asset tends to change continuously to reflect the general sentiment of the market - which is also always volatile. Otherwise, successful trading will be much more difficult.
In fact, when the market goes up, it may be because traders' attitudes and beliefs improve. Positive market sentiment will cause demand to increase and supply to decrease. As a result, increased demand could lead to further positive sentiment. Similarly, strong downtrends often create negative sentiment, reducing demand and increasing existing supply.
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