Steemit Crypto Academy Contest / S11W01 - The Cycle of Market Emotions

Hey Steemian friends!

Whenever I'm making a post to Steemit Crypto Academy it feels like I'm doing research on something. Learning a lot here. This is a valuable lesson to anyone who is trading. I will try my best to share everything I found and know with you in this entry.

👉 Briefly defined the following crypto-related slogans

a) PUMP and DUMP

A strategy where certain individuals or groups artificially inflate the price of a cryptocurrency (PUMP) by spreading positive hype and buying in large volumes over a certain period. Once the price rises significantly to the point where it should be, they quickly sell off their holdings (DUMP), causing the price to crash, leaving the investors jumped in at the pump at a loss.

b) Go to the Moon

A phrase used to describe a cryptocurrency's significant and rapid price increase. When people say a coin is "going to the moon," they mean its value is skyrocketing in quick period of time. The reason could be a positive market news where investors rushing in bulk to grab a better market position.

c) HODL

A misspelling of the word "hold," which became popular in the crypto community as HODL. It means to hold onto your cryptocurrency investment instead of panic sell, even during market fluctuations and bearish seasons. The one who HODL believe that its value will increase over time.

d) REKT

Another misspelling or can consider as a slang term derived from the word "wrecked." In crypto community, it refers to a situation where a trader or investor has suffered significant losses on their cryptocurrency investments. This usually happens due to the market's extreme volatility or poor trading decisions. Think about an investors who invest on Bitcoin price at 65K+, if they decide to sell off their position at the current market instead of HODL they have to surfer a huge loss.

e) BAG HOLDER

Similar concept as HODL. The term also refers to an investor who is holding a cryptocurrency that has significantly decreased in value they usually hope for price correction to minimize their losses. However, these investors are stuck with depreciating assets which might not potentially recover. Bag holders typically enter to the market during a hype or price bubble and then suffer with their "Bag" of particular cryptocurrency.

f) CRYPTOSIS

This term describes someone who's totally hyped and super passionate about the crypto world! Cryptosis are totally into digging deep into all details about any projects related to crypto. They love sharing their findings with everyone else. They're like topic-makers in the crypto universe!

g) ICO

ICO is a commonly used term and it stands for "Initial Coin Offering." It's like crowdfunding in the crypto world to raise capital. With a new project expecting to enter the market they create their own digital tokens or coins and those will be sold to investors in exchange for established cryptocurrencies or fiat money. Investors take part in ICOs on the expectation that the new project would provide an opportunity for profit. However, supply and demand control the price of these tokens.

👉 Let's talk about FOMO & In what part of the cycle does it occur?

This phrase is so widely used that I'm sure many of you have heard it. FOMO! the term stands for "Fear of Missing Out" and that is something could happens to many of us as traders or investors in the fast-paced world of cryptocurrencies.

Now Imagine this, you're scrolling through your Steemit blogs and suddenly, you see someone's post about this new coin which is "Going to the Moon". You check the facts from some news feed and maybe twitter and it is the trending topic. This is where you'll feel like a rocket taking off without you, and you start to feel left out. That's when FOMO kicks in! You're begin to feel that you're missing a golden opportunity to make some fast money.

Now, here's the tricky part. FOMO usually strikes when the market is at overbought stage. Everyone seems to believe that the price of that hot cryptocurrency will keep going up forever, and that's when we rush to invest, hoping to get the ride to the moon successfully.

But next few minutes or hours you'll realize that overbought market may eventually correct itself, causing prices to tumble and causing significant losses for the ones who entered hastily.

👉 How can we deal with crypto FOMO?

Dealing with FOMO is doable if you follow some simple rules.

• Think rationally without jumping to the conclusion:
  In most cases, we react to the online news feeds and we tend to follow the trends. The next thing is we see that it is happening on the chart. We conclude that we got the right news at the right time and without research or analysis we jump in. So, the first thing we should control is our emotions and be smart about our decisions and thereby protect our capital to invest.

• Diversifying crypto portfolio:
  “Don't put all your eggs in one basket” is a famous phrase for many financial advisors. This is one of the secrets to many successful traders. They don’t depend on one pair but analyze over 10 pairs in a day to find good traders and positions. The crypto market is 24/7 so if one goes south, you've got others to balance things out. Hence it is always a good practice to spread our investments across various cryptocurrencies.

• DYOR:
  From one famous phrase to another, "Do Your Own Research." or DYOR. Yeah, it sounds like boring homework, but trust me, it's the fastest way to succeed in this crypto world. Do proper research on your potential pick and then only make the conclusion. Don’t fall into marketing traps that some tweeter crypto guru tells you.

So, that’s basically the best way to navigate anyone through FOMO and become a pro trader, unfortunately, it is not easy as it seems! Media is sometimes too powerful for our thought process and they can manipulate our decisions easily.

👉 What is FUD?

"Fear, Uncertainty, and Doubt," are the 03 letters! and it's the complete opposite of FOMO.

As I mentioned earlier, the market is a place where everyone plays and the macro economy will manipulate the majority as it wants. Just imagine a piece of news about Steemit and a sudden attack on the server. What would happen to the Steem coin? How many users will react immediately? Fear will start to creep in from every corner of the world, uncertainty will build up every minute and you will begin to doubt whether you should keep holding that coin or power it down and sell it ASAP.

Just like that FUD can make your head twist for a moment. It will give you a panic attack to make hasty decisions based on emotions rather than logic.

👉 What is the cause of FUD and how can we prevent it?

We can find a few sources which gives birth to FUD?

• Rumors / Fake News:
  This is the main culprits behind FUD. Let one misleading stories go viral and boom! It spread like wild fire and make fear and uncertainty among investors.

• Government Control:
  Sometimes, FUD can even arise due to rumors of government intervention or regulations in the crypto space.

Now, let's analyze how we can prevent FUD from getting the best of us!

• Fact-check like a Pro:
  When you come across news or information that seems too shocking or scary, take a moment to verify its authenticity. Dig deeper, cross-check sources, and don't fall for sensational headlines.

• Stay Informed:
  Knowledge is always power, my friend! Stay updated on the latest happenings in the crypto world, and don't rely solely on rumors or hearsay. Follow reputable crypto news outlets and join reliable communities to get the real story.

• Keep Emotions in Check:
  FUD thrives on attacking our emotions like fear and doubt. So, take a deep breath, stay calm, and don't let emotions dictate your actions. Make rational choices based on solid analysis.

• Trust Your Instincts:
  Trust your gut feelings about the project, but always back them up with proper research and analysis. Combining intuition with knowledge is a powerful weapon against FUD.

👉 Choose any crypto asset of your choice and through screenshots explain in which phase of the cycle FOMO and FUD occur.

I am going to select BTC for FOMO analysis. I take the PA as 69K+ point where it was at all time high. I wish to use several indicators to get the correct analysis of my result.

• One of the most used techniques to evaluate this would be the "Fear & Greed Index". According to Coingecko the index score was 66 in Nov. 16, 2021. The all time high on BTC price recorded on Nov. 10, 2021. It is evident that greed get into most investors just after BTC pass that 69K mark and most jumped into the market blindfolded.

• Now I used the Bollinger bands indicator to see the points of "overbought" periods. We can clearly see the prize spike through the upper band which is a good indication that it is being overbought at that point.

^{Bollinger bands analysis for overbought periods}

• In my next analysis I'm using the RSI indicator and here too we can see that when the price broke the 58K mark RSI is above 70 suggesting that it is an overbought position. Next we can see a clear divergence on RSI and PA indicating momentum change for the next few days before the price collapse after hitting an all time high.

^{RSI above 70 and indicating bearish divergence}

From these analyses, it is evident that from the point that BTC crossed the 58K mark, investors should not have entered the market. But the FOMO push the market to its limit before collapsing to 45K within days.

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Now let's analyze the FUD in real market scenario. I'm going to take one of classic example for this.

• Elon Musk tweeted that Tesla would no longer accept Bitcoin as payment for its products. source

2021 May 12th Billionaire Elon Musk tweeted “suspended vehicle purchases using bitcoin,” Let's check how this one tweet affected on the PA.

^{BTC PA during 12th to 19th May 2021}

The PA is on a Bullish trend for several months starting a good year. However in May's second week, we can clearly see nearly 50% of market drop indicating FEAR & UNCERTANITY just from one tweet from one influential man. The report says "The price of bitcoin dropped about 5% in the first minutes after Musk’s announcement."

👉 Conclusion

We must be mindful of the high volatility and the significant influence that FOMO and FUD have on our decision-making in the extremely volatile world of cryptocurrency. FOMO can lure us into impulsive actions driven by hype, while FUD can spread fear through fake news and uncertainty.

To tackle these challenges, we must equip ourselves with knowledge and understanding. Staying informed, conducting thorough research, and avoiding emotional decisions are crucial. Adopting a rational approach and learning from both successes and setbacks will help us navigate this ever-changing market.

Thank you.

Peace to all 🙏

^{All the images have been developed by Midjourney / Dall E and photoshoped by me. Proper sourcing has been ensured for any other pictures used in the content. All the trading screenshots were taken from Tradingvies.com website}