I’ve identified why investing in crypto now is the right time. There is so much evidence, yet people are scared. They are worried about their investments. When people are afraid, that is when to buy. But, what is the psychology behind this? How can you have confidence in your investment decisions?
Market psychology is the idea that the movements of a market reflect the emotional state of its participants. It is one of the main topics of behavioral economics that investigates the factors that precede economic decisions.
Psychology has an impact on market prices and cycles. It’s fascinating. Most investors and traders fail to recognize that markets are cyclical or forget to expect the end of the current market phase. They rise, peak, dip and then bottom out. Always.
It is about understanding these movements in the market and your psyche to get ahead of the game and invest at the right time to maximize your returns.
There is a feeling of optimism, belief, and greed during a bull market. These are the primary emotions that lead to a vigorous buying activity. The sentiment gets more positive as prices rise, which has a knock-on effect, driving the market even higher.
This strong sense of greed can result in investors becoming irrational, buying more assets because they believe the market will continue to rise. They get excited by the hope of driving profit, but the market then becomes overhyped and the price overextended - the ultimate point of financial risk.
This is what happened in 2017, during the Bitcoin bull market. From January to December, Bitcoin rose from $900 to its all-time high of $20,000. During this period, sentiment increased and thousands of investors came on board, caught up in the excitement, yet many late joiners were left holding the bag as the trend reversed.
When the market starts to enter a bear market, the mood can almost immediately turn to complacency as traders refuse to believe that the bull market is over. Prices begin to decline, and so does the market sentiment. This brings out feelings of anxiety, denial, and panic.
As the prices drop, the wave of selling gets stronger and can end in market capitulation (when holders give up and sell their assets close to the bottom). Eventually, this downtrend stops, and the market stabilizes.
Predicting what might happen in the future is a challenge. We can only use facts and knowledge to anticipate where the market will go. Find the trends. Discover the opportunities.
Understanding market psychology can give an investor the upper hand in knowing when to invest and sell at favorable times. Ideally, investors would use this information to buy when there is panic (lower prices) and sell when there is greed (higher prices). The moment of highest financial opportunity for a buyer is when most people are hopeless, and the market is low.
Warren Buffet, the most significant investor in the world, says, “buy when others are fearful, and sell when others are greedy.” He is not wrong.
Stay one step ahead of what is going to happen. When others are fearful it is an incredible entry point for those who don’t own crypto yet or those of you who don’t have enough.