After studying this chapter, the practitioner and student should be able to:
The study of trader and investor psychology is critical to the full understanding of market action. In this chapter, we shall look at the various behavioral elements and mechanisms that are responsible for the manifestation of trend action, consolidations, and market reversals.
It is a well-accepted fact that the market is driven by expectations. In other words, the market is driven by the expectation of future prices. Expectation itself is a consequence of various beliefs, biases, habits, knowledge, attitudes, and emotions. Fear, greed, and hope play a very large part in trading and investing. Peer pressure and other third-party influence may also affect investment decisions. Experiencing significant life events is another factor that may alter one's outlook and investment ...