Hello everyone, hope you all are doing good? I'm back with the Part 2 and the Final Part of this amazing series, Understanding Market Psychology And Trading Psychology. If you haven't read the Part 1, I strongly suggest you that by clicking here. In today's article, we would understanding how we can measure market psychology using a crypto chart, as well as listing and explaining 5 bias trading behaviors that can cause a coin to be oversold and overbought.
We can measure the market psychology by using the crypto chart quite easily. When see the uptrend or bullish movement, it simply indicates that people are buying more of the coin. The psychology of us, humans, is quite funny, when we see an upward movement, we try to buy. So, whenever you see an upward movement or see that a resistance level on the crypto chart has been surpassed, it is the psychology for us to buy more of such coin. And you will be able to see that from the image which I screenshotted and edited on Illustrator.
Also, if price of a coin starts falling, and breaks the support level, it is the psychology for people to sell, in order not to incur any loss or further loss. For example, when BTC broke it's 50k support level, it was a bloodbath in the crypto world, as everyone began selling their BTC and alts coins, which resulted to a bearish market we are currently facing.
Here are the 5 bias trading behaviors which can cause a coin to be oversold and overbought.
- Herd Mentality Bias
- Trending Chasing
- Emotional Bias
- Bounded Rationality Bias
- Confirmation Bias
- Herd Mentality Bias: This kind of bias can cause a coin to be oversold and overbought quite easily, because as soon as there is a positive news about the coin and it pumps up a bit, people will just start buying and buying, resulting to the coin been overbought. Similarly, as soon as there is a negative news about the coin and it dumps a bit, people will start selling, which will result to the coin been oversold. This reminded me of my case with Sushi in 2020, when the news came in, that the creator of the coin, have taken off with huge amount of the coin, from $10, it dumped to $0.5.
- Trend Chasing Bias: This kind of bias can easily cause a coin to be overbought. Majority of the people who made lots of money during the bull run in early 2021, fell under this category. As soon as they get an information of trending coins, they buy and since majority of people are doing this, the coin will begin to pump, which will make more and more people to join the fun, hence, the coin will be overbought.
- Emotional Bias: This kind of bias can also cause a coin to be overbought and oversold. As greedy and hopeful people will be buying the trendy coins, which the hope and greedy to get more than 10 times their initial investment, which will result to the coin been overbought. Also, fear of losing their money when a small market correction occurs, can result to mighty dump of the coin, as their emotion of fear will cloud their judgement, which will result to the coin been oversold.
- Bounded Rationality Bias: This kind of bias can also cause a coin to be overbought and oversold, because people who fall under this category, don't do thorough research they rush in making their decisions, which may result to them buying more or selling all their coins which will result to the coin been either overbought or oversold.
- Confirmation Bias: People who fall under this category, always tend to buy back the coin they sold awhile back and were still tracking it. So, if there's a small positive market correction of the coin, people under this category, will buy more and more of the coin because deep down they believe in the future of the coin, and this will result to the coin been overbought.
I hope you all found the article interesting and exciting. Do well to share your thoughts about the article in the comment section below. Thanks.
thank you sir got to know very much about market and mindset.