Hello professor @asaj, it's nice to have your class for the week and also to partake in your homework task for the week.
I will be giving a detail explanation on each of the question you have asked in the homework task .
Part 1
The case study given is an example of what type of psychology? Explain the reason for your answer.
After reading all of Professor asaj's case studies, I came to the conclusion that these case studies are a feature of business psychology. Jane not only made mistakes and had problems with business psychology, but I personally experienced it. Why did Jane invest her money in the currency when the currency is in a downtrend? Jane's main reason for doing this, of course, is to expect price increases and also strive for big profits.
However, along the way, Jane couldn't control her emotions, and panic ensued. Jane sold all her coins and expected a greater loss, which is the so-called panic selling.
The reason for the increase or decrease is because of Jane's interpretation of business psychology as Jane's self-actualization without first paying attention to market conditions. He lost his mind and could not control his emotions, so he made a hasty decision without consulting others.
Using the case study above, list and explain at least 5 biases that influenced Jane's trading behaviour with examples of how it affected her behaviour?
It is difficult for me to determine the five biases in Jane’s case, but I decided to pick out the following five biases:
- Confirmation bias:Our tendency to look for evidence to prove our decisions and beliefs while ignoring opposing facts and evidence. For example, Jane decides to continue buying chips when the price is falling and in a downtrend, and if the currency price does not rise, Jane sells all the tokens to avoid further losses.
Jane opened the telegram group and learned that the banner price had been declining. Jane was thankful that her decision was correct and she also got the reason for her decision in the telegram group. However, Jane ignores the fact that almost all signs will experience a downward trend and then an upward trend, although this sometimes takes a long time.
2.Hard mentality bias:This is also called a bedwagon effect, it is a person's state of mind when performing an action, as well as defending an action because others are doing it. Psychological biases in the public, such as buying or selling. As for Jane, despite her lack of understanding and sensitivity to tokens, she still bought some tokens according to the instructions of the telegram group, and Jane continued to buy tokens at a low price, so she got impatient and started selling again.
3.Emotional Bias:Because of too much hope and greed, Jane invested with her own feelings and miscalculations. When the price of coins did not rise, Jane was scared to sell out, but when the price started to rise, Jane began to regret the decision too soon.
4.Bounded Rationality Bias:This is a decision-making process, we only try to find something good enough, not optimization (the best decision), as in Jane's case study. It is a good decision for Jane to sell her tokens so that she will not be stressed anymore and her emotions will be more stable, but it is not the best decision, because the price rises again and Jane can benefit from it.
5.Self-Attribution Bias:It is the individual's tendency to attribute success to his abilities without interference from others and to attribute failure to factors beyond his control. In Jane's case, if Jane could control her emotions by holding the tag longer and then selling it at a high profit, she would puff up her chest because she made huge profits through her ability to invest. But in reality, Jane's investment fails and she gets an excuse to blame her for the failure. In Jane's case, she blamed the market and even the stop loss she set.
List and explain how each bias you have mentioned can be avoided?
1.Jane ca avoid confirmation bias by:Jane does not have to prove that the tokens she sold are reasonable, but Jane should not ignore the fact that the tokens were bought when the price fell. Jane should be able to avoid excessive bidding of tokens and waiting for the level of token support.
2.Jane can avoid herd mentality bias by:
Jane can also avoid losses. If you don't participate in tokens that you don't really understand, Jane should develop a strategy and try to implement it without getting involved. Sometimes we have to follow others, sometimes we have to decide for ourselves.
3.Jane can avoid emotional bias by:
With good analysis and strategies, Jane should also be able to control her emotions during negotiations. In short, as long as she can increase her self-control and emotion through the strategy she initially followed, she can make a profit, so Jane should be able to execute her strategy in an orderly manner. No matter how cool we are, no matter how smart we are, we still lose bad emotional control.
4.Jane can avoid bounded rationality bias by:It's not good to just analyze and try to find the best decision. Jane must follow the development of the constellation, not rush into a decision, and then make the best decision after getting enough information through technical or fundamental analysis, not just to please herself.
5.Jane can avoid self-attribution bias by:If Jane doesn't believe too much and doesn't understand the ins and outs of the signs, she can avoid losing her investment. Jane shouldn’t blame the market or the brand, but she should be able to better control her emotions and first be able to solicit opinions from others or read articles about tokens.
Part B
What type of analysis can be used to monitor market psychology and trading psychology, and why? Identify the differences between trading psychology and market psychology.
To determine market psychology, we can use technical analysis. Technical analysis can provide a better view of market trends than fundamental analysis. Through technical analysis, we can use many indicators to predict cryptocurrency prices and markets, including the Relative Strength Index (RSI), Moving Average (MA), Moving Average Convergence Divergence (MACD) and Stochastic RSI (StochRSI). Bands. (BB).
Similar to business psychology, we can also explore the technical analysis of industrial psychology. Some people sell or buy tokens when they are in a downward trend. We can see how many buyers there are among sellers. If there are more sellers than buyers,
it means that oversold or oversold people are involved in psychology, and you cannot control your emotions well to make quick decisions and vice versa.
Trading psychology is the personal behavior of a trader who acts without first seeing the direction of the market and also makes rash decisions that will not affect the market.
Although market psychology is caused by the actions of all individual traders, the price of tokens may change at any time based on the overall mood of the trader. If the general behavior of buying and selling tokens continues, it will lead to market instability.
How can you measure market psychology using a crypto chart? Select 5 trading biases and explain with screenshots of any cryptocurrency chart how the biases can cause a coin to be oversold and overbought. (Add watermark of your username)
We can show the psychology of the market by looking at the cryptocurrency chart, which is very clear to me. If we look at the chart above, we can see that the market is slowly rising from stability, reaching a peak and then falling back to the lower price or related prices.
SIDEWAY
There is no sudden fluctuation in market conditions, or there is only a small difference in price fluctuations, which indicates that buyers and sellers are very stable, and buyers or sellers are not affected by hasty decisions or other things.
UPTREND
The reason for the token valuation is the effect of market psychology, and traders expect the price to continue to rise and not miss the opportunity to buy and resell tokens when they are purchased.
BULLISH
Token buyers have more control than sellers, so the price is higher due to increased market demand. Here we can see that market psychology really wants to resell prizes at higher prices or other reasons.
BEARISH
When the seller's condition is more dominant than the buyer's, causing the price to fall, on the other hand, people start to panic and think that the price will not return to the original level, and choose to sell to reduce future losses.
This the are 5 biases that can cause a coin to be oversold and overbought, including
EMOTIONAL BIAS
High expectations and greed can also cause people to buy a lot if the price drops; If the brand deteriorates, people start to panic and sell a lot.
CONFIRMATION BIAS
Excessive decisions and beliefs made by ignoring unfavorable facts can lead to over-buying or over-selling.
SELF-ATTRIBUTION BIAS
Overconfident investment can lead to failure. People with self-attribution bias usually rely heavily on self-skills and self-confidence before investing. If the market does not meet expectations, overbought and oversold may also occur.
BOUNDED RATIONAL
When people are affected by the bounded rationality bias, they appear to be overbought or oversold, because most people are doing good things for their investments rather than trying their best to buy or sell too much.
HARD MENTALITY BIAS
Being involved in investments can cause many people to buy or sell because they follow what others are doing in the market without having a clear plan and strategy.
In your own words, define the term efficient market hypothesis (emh). List and explain the advantages and disadvantages of efficient market hypothesis (emh)
This theory believes that there will be profit competition in the free market, and information such as knowledge and forecasts will be accurately reflected in the set market price.
Effective market hypothesis has many applications that focus on fundamental analysis and technical analysis to predict the new market trends that the market will witness. Even if a company sells a new currency for $1, the currency's original value is not known or has no value. When the currency enters the official exchange rate, the company's initial sales price will change. An effective market hypothesis will focus on assessing market risks and trends to ensure that the tokens receive a large number of investors or, in other words, have a high level of investment.
THE ADVANTAGES
- Higher financial returns
- Larger profits can be maximized
THE DISADVANTAGES
- It requires high skills and understanding
- Venture capital
CONCLUSION
Market psychology and transaction psychology are two different things that will influence market trends. If business psychology cannot be controlled, it will become our dangerous weapon.
We need to understand and combat many preconceptions so as not to fall into a trap like Jane.
THANKS FOR READING.
Hi @grace-p, thanks for performing the above task in the second week of Steemit Crypto Academy Season 3. The time and effort put into this work is appreciated. Hence, you have scored 4.5 out of 10. Here are the details:
Remarks:
Commendable effort but fair performance. While you did considerably well in the Part A, you answers to Part B questions lacked some depth to it. Also, you did not explain how biases can lead to overbought and oversold conditions.
That said, you did not provide new information to this course. Most of the points you stated have already been mentioned by other participants.
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