Hi Professor @asaj, I am @ononiwujoel one of your students in Crypto Academy and a member of the steemit platform. This is my homework submission post from your lecture Market Psychology and Trading Psychology

Introduction

There are some very important topics that are sometimes overlooked by many when learning how to trade in finance and crypto market and this makes them to return to learn about them after they might have made some avoidable costly mistakes while making decisions during trade and hence losing lots of valuables. Market & Trading Psychology is one of such topics.

Psychology as a word simply refers to the study of the mindset and behaviour of humans or particular subject of interest. So from this we can deduce Market Psychology to be the study of the collective mindset and behaviour of the population that makes up the market at a given period of time.

Having a good understanding of Market Psychology and Trading Psychology can go a long way in helping a crypto trader or enthusiast make good and logical decisions in buying or selling assets and in so doing make more profits instead of avoidable loses. And it also makes a trader more focused and confident, not being swayed about by every opinion that comes his way but doing his business with good technical analysis and strategies.

Part A

The case study given is an example of what type of psychology? Explain the reason for your answer.

The case study in the lecture about Jane can be best described as Trading Psychology because it is centered about an individual (Jane) and how her mindset and behaviour affected her decisions in trading and its outcome.
Jane is probably a newbie to the crypto market and failed to understand the movement of the market before investing with hope of getting profit from price movement but not too long after her she invested, the price of her assets started moving in an opposite direction to what she anticipated, at this point she decided to invest more believing prices will rise soon, judging from the bullish trend before she invested but yet the Bearish trend continued and then she finally pulled out and gave up on her dreams of making profit from another bullish trend. But yet, after her pulling out there was another bullish trend which made her to start regretting her decisions again.

Now this is actually a good illustration of Trading Psychology of many investors, I once had a similar experience when I withdrew my coins and two weeks later there was a bullish trend.

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?

From the Jane's story, five biases that should be considered as reasons for her trading behaviour includes;

Trend-chasing Bias

Trend chasing bias refers to individuals that make decisions in trading based on the current trend in prices of assets. They are in a hurry to buy assets when they discover the price is rising believing that the bullish trend will continue. This behaviour is common among inexperienced investors, infact majority of crypto traders today were once victims of Trend-chasing Bias.

We can see this how this bias also influenced Jane because she actually bought the asset because she noticed the price have risen from $9 to 15$ within a month so she felt the price will continue to increase but alas, she was wrong and it made her discouraged.
My take on this is, Jane don't understand market movements to know that there will always be bullish and Bearish too.

Herd Mentality Bias

Herd mentality bias is a scenerio where people make decisions in trading because other people are making same decisions. For example, buying an asset because many people are buying it at the time with little or no personal research or analysis about the asset and its price movement

This behaviour is very common and many people do this without even knowing they're doing it. People are often moved by the excitement and popular opinions in the market and may start feeling their own strategy and research maybe inferior compared to that others have done especially when many people are doing same investment at same time. This assumption then compels them to follow the popular opinion and most times these opinions are not logical or strategic.

In Jane's story this behaviour also came into play when she opted to buy the asset without even knowing the price movement of it but because it was introduced in a group and of course people were investing so she invested as well and that was why the Bearish trend affected her so badly especially emotionally.

Emotional Bias

Like the name hints, emotional bias happens when people make decisions in trading based on their feelings and emotions. These have nothing to do technical analysis or logics but just what they feel. This type of bias is common with newbies although some professionals also fall victim at times too.

There are many components of emotional bias and sometimes people tend to fall into this bias. Jane in our story had experienced emotional bias when she first invested in the asset with hope of it rising. After that the desire for making more profits in her dream bullish trend made her to continue buying assets even when prices were constantly falling, this altitude is also greed. And lastly fear of losing everything made her give up on the investment.
All these are examples of emotional bias

Disposition Bias

Disposition bias is the tendency of people to hold onto assets when the prices are falling for fear of totally losing the gains they might have made and hoping there will be a market correction soon so they won't have any loss. They also tend to sell off their assets in a good position (bullish trend) to protect this other asset in a Bearish trend and at the end of the day they loose on both sides because they exited the long position too early and also exited the short position too late.

Disposition bias is very common in the crypto market, I even feel guilty of this right now. Sometimes traders buy coins at the end of a bullish trend and when a bear begins they're reluctant to sell because they're still hoping a market correction will happen and rescue their profit but this is not how market price movement works.

Jane's problem with the asset price movement and her decision of buying more of the asset when it was still on a Bearish trend was also because she had disposition bias that a market correction will happen almost immediately and she will make huge profits. And there is every tendency of her selling other assets she may have in a bid to purchase more of the falling asset. We all saw how this behaviour affected her at the end of it all.

Bounded Rationality Bias

Bounded rationality bias refers to a scenerio where a trader makes a decision in trade because they're satisfied with it though it is not the best option to be taken at the time.
This bias is actually complex and many traders unconsciously demonstrate this behaviour in decision making.

We can see Jane buying because she felt it was buying at that time was good for her even though buying late in a bullish trend is always very risky and of course not the best option, and we can also see her selling her asset because the whole saga was getting her stressed out and later blaming the stop loss for her decision but this too was not the best option at that time. So her story also shows an example of bounded rationality bias.

List and explain how each bias you have mentioned can be avoided?

How these Biases can be avoided

Trend-chasing Bias

To avoid trend chasing bias in trading, a trader should not use the current price movements in the market as his main reason for making decisions but instead do a proper technical analysis of the asset before making decisions. A trader should understand the concept of rise and fall in asset prices and how to utilise it to make profits and not just following all the noise and excitement the bullish and bearish trends usually brings with them.

Herd mentality bias

Herd mentality bias comes mainly from little knowledge of trading and inexperience, so this makes traders to seek opinion of others and then make whatever decisions they find other making.
This can be avoided by learning more about the assets, the market, trading and how they work together. A trader should develop himself so he will be skillful and have personal strategies for trading so as to stop depending on popular opinions. And most times this popular opinions comes from market noise and propaganda so when it fails there is actually no one to hold responsible but yourself.

Emotional Bias

As humans we are emotional beings but this should not be brought into trading because the market is a world of its own and there is no place for emotions there.
A trader can avoid emotional bias by using professionalism, research and logical analysis as basic tools for decision making in trading and try as much as possible to avoid emotional drifts like fear, regrets, overconfidence etc.
Infact a trader should be professional and see his assets like a multinational company where decisions must be made from logical analysis and professional views, in this way there will be less room for emotional biases creeping into his decisions making reasons.

Disposition Bias

To avoid disposition bias a trader must learn how to accept the fact that his decisions was wrong and then decide the next best move based on technical analysis because most times traders find it difficult to tell themselves the truth and move on especially when they invested wrongly but instead continue believing there investment will grow and hence may even dive into deeper loses at the end of the day.
A trader should also make more research on price movements and understand that it is not a good move to sell long positions to protect short position otherwise you may loose in both sides.

Bounded Rationality Bias

Bounded rationality bias can be avoided by traders making sure their decisions is actually the best option at the time not just what they feel is satisfactory. Traders should learn to work with logical facts not just based on the information on ground.
It is understandable that most times there is limited information to use when making decisions but all the same a trader should go for the best not for what he prefers.

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.

Type of Analysis to monitor Market and Trading Psychology

The best and most popular analysis used in trading so far is the Technical Analysis and it can be well used to monitor Market Psychology and Trading Psychology too. Technical analysis is very common in Crypto market and among experienced traders.

Technical analysis is the use of past records of price movement of an asset to predict current prices and forecast price movement of the asset in the future as well. This analysis is very recommendable because it can used to see the movements of prices through charts and several special tools and at such help in making proper forecasting of prices and also to monitor Market movements.

Market price movement is largely influenced by the market psychology which in turn is made up of trading Psychology ratio of the population that makes up the market, so technical analysis is one of the best options for this task.

Differences between Market Psychology and Trading Psychology

Market Psychology	Trading Psychology
This is the collective mindset and behaviour of all the people in the market at a given period of time	This is the mindset and behaviour of an individual trader
Market Psychology takes time to be determined and also changes slowly because decisions of different people has to be cumulated	Trading Psychology is an individual affair so it can be determined very quickly and changes solely depends on the individual

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)

Measuring market psychology using crypto charts may seem quite confusing if you don't know how to but if you do then you'll discover it's very easy and efficient.

Looking at STEEM/USD chart above there are many observations worth taking note of, we can see that the movement of prices is never steady for long, infact there is no day on the chart that prices remain exactly the same, there is constant moving upwards and downwards both in the candlestick Chart and the volume chart beneath it, so what does this mean? We'll see that in sec

The upward movement of prices shows there is a positive market psychology we can see a bullish trend on the chart above labelled 1, this shows how long the trend continues till it gets exhausted and stops at a resistance, at this point there is probably a lot of traders purchasing STEEM maybe because of Fear of missing out (FOMO), or any other bias they may have and others buying more STEEM maybe out greed of making more profits if the prices still go higher. When the bullish trend stops at a resistance point what is likely to follow is a fall in prices (downward movement) and at this point we have say a negative market psychology is taking over which of course is as a result of the trading psychology of traders which at this point is mostly people selling STEEM because they think there will be a bearish trend and they will loose their minimal profits already made from the bullish trend.

So in this way charts can be used to not only understand the market psychology of the cryptocurrency but also the likely trading psychology of the traders in the market as well.

Now I'll be giving examples of some biases can cause cryptocurrencies to be oversold and overbought.

1. Trend-chasing Bias

In the Doge/USDT chart above we can see good examples of Trend-chasing Bias affecting the decisions of traders. The blue arrows shows us bullish trends while the red arrow show us bearish trends.

At first there is a huge bullish trend which saw dogecoin rising from 0 value to over $0.3 and we can see there was a brief resistance at that point probably because the FOMO rush has just begun and then there is another long bullish trend which is actually because of many people are now buying dogecoin believing the bullish trend may continue for a very long time, now this leads to dogecoin being overbought and hence the price continue surging, but just at the point above $0.6 the bullish trend is exhausted because people that bought are now selling to get their profit before prices go down again, another Trend-chasing Bias has just began except it is in the negative side now, and traders start selling massively, now this leads to dogecoin being oversold and prices falling down to the $0.4 mark.

We can also see the rise and fall after this trend as the market tries to balance again although the prices never rose the way it did during the last bullish trend again.
This is an example of Trend-chasing Bias affecting the dogecoin market.

2. Herd Mentality Bias

The dogecoin/USDT chart above also shows an example of herd mentality bias affecting traders decision making and also the market psychology by extension.

Majority of the people who bought dogecoin at the second bullish trend are likely those buying because they saw others buying and heard they were making a lot of profits and also coupled with the market noise about dogecoin during the second bullish trend and then they also starting investing in dogecoin. These people made little or no research on dogecoin before investing but did so because they believed in market noise and were also affected by the FOMO syndrome. Now this also contributed to dogecoin becoming overbought and prices surging but not too long after they started selling their coins because they saw others selling too without even knowing why and this also contributed to dogecoin being oversold and a bearish trend began.

3. Disposition Bias

I'll be using the BTC/USDT chart above to show the effect of disposition bias on traders and the market in general. Looking at the chart above we can observe that Bitcoin had a good start earlier this year and of course traders bought it till it was overbought, infact it was overbought before the year even started.

But then a bearish trend started and of course some traders sold their coins but many others didn't sell because they don't want to loose their minimal profits and potential profits should incase it rise again and yet some traders continued buying more during the bearish trend because they were having disposition bias until another bearish trends started and this one brought Bitcoin to half its former price making traders that were overcomed by disposition bias to loose far more than they would have lost if they were more logical and accepted the trend on time

4. Self-attribution Bias

Also using the BTC/USDT chart above through the price movements and trends we can observe that many people that benefitted from the first bullish trend were so pleased and confident in themselves that even when there were signs of the coin becoming oversold they refused to sell, and were probably buying in the dips, maybe waiting till it gets to their stop loss so they'll have what to hold responsible for their delay in selling and hence when they finally started selling the people selling Bitcoins were now so many that it led to further Bearish trends because it was oversold more and more.

Emotional Bias

I'll use the DOGE/USD chart to show how emotional bias made it to be overbought and oversold at different levels.

The two main emotional biases that came into play in this chart is FOMO and greed. At first people were buying in large numbers because they didn't want to loose out in the booty and this of course led to dogecoin being overbought and then greed to make more profit from the long position made traders to buy more and more resulting to a second bullish trend but at the $0.6 mark there was a resistance and fear then set in making traders to sell off their coin and hence resulted to dogecoin being oversold.
Most of the decisions in the chart were likely influenced by emotional biases of traders.

In your own words, define the term efficient market hypothesis (emh). List and explain the advantages and disadvantages of efficient market hypothesis (emh).

Efficient Market Hypothesis

In order to get a better understanding of this term, I'll first define the words that make up this term independently.

Now Efficient simply means being very effective and consuming little or no energy in the process
Market as we already know is a combination of buyers and sellers and also the platform on which trade is carried out
Hypothesis is a proposal or a truth based on logical facts and observations.