Crowd emotions
The crowd is predictable: fear and greed turn up at the same places on the chart.
Crowd emotions — what it is?
The crowd behaves predictably in the market because it reacts to the same things in the same way. That very predictability is what makes it a source of liquidity.
The pattern repeats: a rally breeds confidence, confidence breeds greed, a sharp move against breeds fear, fear breeds panic closing. At each stage the majority acts alike.
Your own emotions are not an obstacle to analysis, they are part of it. If you badly want to get in right now, a thousand other people probably want the same thing.
Crowd emotions — how it is built?
The practical application: use your own emotions as an indicator of the crowd's state. A strong urge to buy into an impulse is a signal that liquidity is forming, and most likely out of buys exactly like that one.
Crowd emotions — common mistakes
Considering yourself an exception to the rule.
Confusing analysis with mood: "the market looks weak" is a feeling, not markup.
Looking for confirmation of your position in other people's opinions.
Thinking discipline cancels emotions. It only cancels acting on them.
Related to
Glossary
- liquidity
- a cluster of pending orders and stops in a particular zone. The fuel for large capital to move.
- indicator
- a calculation based on price or volume, drawn on the chart.
- impulse
- a fast directional move with large candles.
- position
- an open trade.
- Discipline
- following your own plan regardless of your current state. It shows up in numbers, not in intentions.