How does the market reflect human nature?
* The market is considered to be a reflection of human nature because in the process of trading, people tend to be influenced by psychological factors such as greed, fear, and impulsiveness, which leads to market volatility and irrational behavior. This is explained in more detail and illustrated with examples below:
1) Greed and fear: Greed and fear are the most important psychological factors in the market. When the market is **, people are often driven by greed psychology and want to get more profits, at this time they will rush to buy and push the market**. On the contrary, when the market is **, people are often dominated by fear psychology and fear that the losses will be bigger and bigger, at which time they will sell, exacerbating the ** trend of the market.
For example, let's say that *** of a certain commodity has been *** and news about how to make money spreads far and wide, at this point greedy investors rush to ** contracts in the hope of making more profits. However, when the market peaked and began, fear took over, and investors panicked and rushed to sell contracts, leading to the market.
2) Impulsive trading: In the face of a rapidly changing market, many investors tend to make impulsive trading decisions. This is due to the fact that people lose the ability to think rationally and make decisions when their emotions fluctuate, and they are easily swayed by the short-term ups and downs of the market.
For example, when there is an unexpected event or important news in the market, investors are often prone to panic and blindly act blindly, ignoring market fundamentals and trends. Under strong market pressure, they may overtrade, causing greater losses.
3) It's difficult to go with the flow: Following the trend is a strategy to sell when the market is trending upward** or when the market is trending down. While this is a strategy used by many successful traders, it is not easy for most people to go with the flow.
This strategy requires investors to reverse the instinctive reaction in human nature, i.e., to sell when the market is at market time. This type of decision-making tends to enhance people's psychological capacity. This is because, when the market is in a ** trend, people tend to wait for the market to stop falling or recover to avoid further losses. On the other hand, in an uptrend, people tend to miss out on ** opportunities.