Financial markets, including crypto, go up and down, but these changes are not random. A big reason for these movements is human emotions, which play a key role in shaping crypto market cycles. The “Wall St. Cheat Sheet: Psychology of a Market Cycle” explains how feelings, like fear and excitement, affect the way prices change over time. This pattern happens again and again in financial markets.
Source | thebirbnest
The Emotional Journey of a Market Cycle
A market cycle shows how the price of something, like stocks or crypto, rises and falls. This cycle matches how people feel during those times. There are four main stages in a market cycle: hope and excitement, euphoria, fear and sadness, and recovery. If we understand these stages, we can avoid making decisions based only on emotions.
Stage 1: Doubt and Hope – The Start
The cycle begins when prices are very low, and people feel doubtful. They think, “This market will fail like the others.” As prices start to rise, a little hope appears. People begin to think, “Maybe things will get better.” Slowly, this leads to optimism as the market improves and confidence grows.
Stage 2: Optimism to Euphoria – The Top
As prices keep rising, people become more confident and think the market will never fall. Excitement turns into euphoria, where people believe they can’t lose. At this stage, they might say, “We’re all going to be rich!” Many people start buying more than they should, even borrowing money to invest. But this is the riskiest time because prices are way too high, and a fall is near.
Stage 3: Complacency to Panic – The Big Drop
After prices reach the top, they start to fall. At first, people feel complacent, meaning they think the drop is small and normal. They believe prices will go back up soon. But as prices drop more, anxiety sets in, and they start to worry. Some people ignore the problem, feeling denial and thinking, “It will recover.” When prices drop even further, panic takes over, and many people sell everything out of fear. This ends with capitulation, where almost everyone gives up and takes big losses.
Stage 4: Anger to Doubt – After the Fall
Once most people have sold and prices stop falling, the market begins to calm down. But the pain is still fresh. People feel angry, blaming others for their losses, like the government or market manipulators. Later, this turns into sadness as they regret their decisions and wonder what went wrong. Finally, as prices begin to rise again, people feel doubt, thinking, “This recovery won’t last,” even when the market starts improving.
What We Can Learn
The “Wall St. Cheat Sheet” teaches us to control our emotions when investing. Here are some tips:
- Don’t buy when everyone is excited, and don’t sell when everyone is scared. These are the riskiest and safest times, respectively.
- Think long-term. Short-term emotions can lead to bad choices.
- Follow a plan. Having a strategy, like investing the same amount regularly, can help you stay calm.
In the end, markets rise and fall, but human feelings often make the ups and downs even bigger. Knowing these patterns can help you make smarter decisions and avoid being caught off guard.
This article is not financial advice. Always do your own research (DYOR) before making any investment decisions. For more insights, you can DYOR on blog.millionero.com. And when you’ve mastered your psychology, start trading spot and perpetual contracts on Millionero.