Commonly used by financial media and analysts to understand market movements
These changes in market behavior are often referred to as "animal spirits" taking hold. The time period changed into coined through John Maynard Keynes in his 1936 book, "The General Theory of Employment, Interest and Money. Writing after the Great Depression of the early 20th century, he described animal spirits as a "spontaneous urge to action rather than inaction.
Traditional economic theory, particularly the Efficient Market Hypothesis (EMH), is criticized for not accounting smart mining crypto in market psychology enough. It describes a world where all players in the market act rationally and fails to account for the emotional aspect of the market.
However, market psychology can lead to unexpected outcomes that cannot be predicted by focusing on fundamentals. In other words, theories of market psychology contradict the belief that markets are rational. While fundamentals drive stock performance, market psychology can override the fundamentals and push a stock's price in an unexpected direction.
Market psychology is considered a powerful force and can be validated by certain fundamentals or events. For example, if investors suddenly lose confidence in the stability of the economy and decide to withdraw from buying stocks, the indexes that track overall market prices will fall. The expenses of person shares will fall in conjunction with them, irrespective of the economic overall performance of the organizations in the back of the ones shares. Greed, fear, expectations, and excitement are factors that contribute to the overall market psychology. Predicting market psychology is a difficult task.
There are two prevailing methods of stock-picking used by analysts, and only one of them pays much attention to market psychology. Fundamental analysis seeks to pick winning stocks by analyzing the company's financials within the context of its industry. Technical analysis, on the other hand, seeks to identify trends and patterns in stock prices and trading volume.
Based on the idea that market psychology is predictable and patterns can be identified and exploited. In conclusion, market psychology is a crucial factor in understanding the behavior of financial markets. It is a powerful force that can override fundamentals and push stock prices in unexpected directions. Theories of market psychology contradict the belief that markets are rational, and traditional economic theory is criticized for not accounting for market psychology enough.
Predicting market psychology is a difficult task, but it is essential for investors to understand the prevailing sentiment of the market to make informed decisions.
