Crypto Academy / Season 3 / Week 5 - Homework Post for [@allbert] Psychology and Market Cycle

Hello Professor @allbert, I'm happy to once again partake in your lecture. Here's my homework post I hope you like it.

FOMO means Fear of Missing Out. It is only natural that when we notice something promising, we try to partake to avoid regrets in the future. The problem is that many a time we are blinded by what we see and hear and decide to participate without analyzing whether the decision we're making is right or wrong just so we don't miss that slight opportunity.

I've been a victim of FOMO before. This is how it happened. I had just gotten to know about crypto trading in a day after seeing a friend take over $300 profits for holding a coin he bought at $6. The coin had risen massively within the week. I had seen with my own eyes him taking profits.

There and then I asked how to purchase and make profits. I bought $10 thinking I could also make huge profits. Two days later, the coin stopped rising. At first, I thought it was just a small pause and that it would continue going up. The value of the coins I held was now $8. I still had hope. I was also thinking about selling but I hated the idea that I'd make a loss and so I decided to hold.

Later on the amount I held decreased to $3. I regretted not withdrawing when I noticed the coin had stopped rising with the momentum it was rising with. I didn't sell the coin though, till now I'm still holding till it rises before I sell to avoid a permanent loss. I learnt my lesson then to never buy an asset when it's already in an uptrend without any analysis to confirm whether my entry at a particular time wouldn't lead to regrets.

FOMO basically lets you take quick decisions based on the thought of success you can achieve when you take a particular decision. You wouldn't want to miss this chance of success and so your reaction is focused on how to make sure you take that chance of success. It usually occurs in bull markets where people notice an asset rising significantly and wouldn't want to miss out because they think it is a good chance to make a profit.

Where in the market cycle of emotions FOMO occurs and why.

Let's briefly take a look at what the market cycle of emotions is. As some people might say, there's nothing new under this sun, things occur repeatedly in a continuous cycle. The same applies to trading. The study of the Psychology of a Market cycle shows that the market cycle repeats generating the same emotions of panic, hope, anger, optimism, denial etc in each phase.

FOMO mainly occurs between the Optimism and Euphoria phases in the cycle. The strength of FOMO develops from the optimism phase to the euphoria phase. At the Euphoria phase, people are like, "if I don't buy now when else can I buy?" and force their way to get involved after watching people make a lot from the bottom to the top. By that time too, there's a lot of buzzes everywhere about the tremendous increase in the value of the asset. This is all part of the plans of whales to harvest the funds of the ignorant and those controlled by FOMO. To avoid missing out on the success of others people get into trades at the wrong time and reap losses instead of profits.

FUD means Fear, Uncertainty and Doubt. Unlike FOMO, this feeling occurs in the bearish phase or downtrend of a market. These are emotions developed as one holds a coin and the price starts to decline. Our minds function in such a way that upon noticing something bad is about to happen we begin to experience fear. With trading, we all know how unpredictable price movement can be and so uncertainty is a very formidable factor. We begin to doubt and think all is lost in the end when things seem impossible, especially in the case where the asset has declined in price beyond your expectations. This is basically what FUD is. It is a set of emotions triggered by our mind as the market trend goes against our hopes and beliefs.

Where in the market cycle of emotions FUD occurs and why.

FUD occurs after the euphoria phase when the whales have started taking their profits and the price of the asset has started to decline. Some trading experts also follow suit in selling after gaining profits from the bullish run and so the price keeps declining until it reaches a new support level. The main phases FUD can really be felt is between the Anxiety and Capitulation phases.

During the complacency phase, there's a faint feeling of fear because the price hasn't declined that much. When the price goes down further anxiety sets in along with uncertainty which causes one to hold and get to the panic phase. By this time there's complete doubt the price is going to increase and people start to exit the market at the capitulation phase.

I'm going to explain the emotional phases BTC and DOGE are in currently. I chose these two because they are of much interest to many traders because of their popularity.

DOGE

As you can see DOGE is currently in the Disbelief phase. After the Euphoria which the whales and other traders began to exit the market, traders that entered the markets due to FOMO began to experience FUD. As you can see on the chat, the momentum of the market is at its lowest currently just like at the beginning of the chart. This shows that people are experiencing disbelief. As you can see from the chart, there was a disbelief phase before the euphoria phase. This is a perfect opportunity to trade against the cycle and buy and hold the asset to gain profits when the whales take action to cause an increase in the price of the asset.

BTC

BTC is currently in the hope phase. After the Euphoria led to depression after a massive dip, most people experienced disbelief in it going up above the $41k mark (resistance level). You can see the support and resistance levels drawn on the chart. As you can see it has currently broken resistance and so many traders are beginning to experience hope. This could lead to another euphoria. At this point, I'd suggest if you didn't buy during the disbelief phase make sure to confirm the trend has reversed before you buy. This is because this could be a false breakout which would lead to incurring losses if you buy.

From my Psychological and emotional analysis of DOGE, I suggested it was a good time to buy and so I'm going to make a purchase of some DOGE coins and hold till it reaches the Euphoria phase.

The screenshot below is my verified Binance account. Having STEEM earnings I'm going to illustrate how to purchase DOGE with STEEM earnings.

How to Purchase DOGE with STEEM Earnings on Binance

• Before you purchase an asset you first have to find out the trade pairs available. On Binance, after searching and selecting the asset you'd be provided with the trade pairs available for the asset. It's important to possess any of the other assets paired to the asset if you want to perform a trade.

• As you can see from the screenshot below, I possess STEEM in a larger amount and so since STEEM isn't listed as parts of the trade pairs for DOGE I'd have to trade STEEM for an asset listed. Click STEEM.

• BTC is among the listed trade pairs for DOGE and so I selected STEEM/BTC to buy BTC with STEEM.

• Now, click Sell STEEM after you've entered the amount to sell.

• Now you have BTC now and so you can make your DOGE purchase.

• Go to your Spot wallet and search for DOGE. In my case, I had some amount of DOGE and so it could be easily located without having to search. Click on DOGE after your search.

• Since I have BTC, I select DOGE/BTC.

• Enter the amount of DOGE you want to purchase and click on Buy DOGE

• Purchase successful as you can see.

Self-control against psychology and the market cycle isn't easy to attain. Most often we find ourselves in trading situations where we know it's not right to take certain decisions but we do so because of FOMO and hope that things would go in our favour. We have to be realistic with trading and not let our emotions and hopes take control of our decisions.

Note that FUD doesn't only occur in bearish markets. Some traders after several massive losses turn to experience FUD at the beginning of the market cycle. This makes them lose trading opportunities due to a lack of control of their emotions. Bearish candles tend to cause fear to them and they exit trades just before the euphoria phase.

It is important to know that trading is very risky before getting involved. Expect losses, expect profits and make sure your losses never exceed your profits. Keep this in mind and you'd be okay when you make losses. The market is available every time also. Wait when you have to and don't make hasty decisions till you have confirmations.

Would like to thank @allbert for this important topic.