General
Market Psychology
The collective emotions and behaviors of market participants that drive price movements, including fear, greed, FOMO, and panic selling, often creating predictable market cycles.
Last updated: January 5, 2025
What is Market Psychology?
Market psychology refers to the collective emotional state of investors that influences buying and selling decisions. In crypto—where markets run 24/7 and volatility is extreme—understanding psychology is crucial for avoiding costly mistakes.
The Market Cycle of Emotions
Bull Market Phases
- Disbelief: “This rally won’t last”
- Hope: “Maybe this is real”
- Optimism: “This is definitely real”
- Belief: “I’m a genius”
- Euphoria: “Nothing can stop us” (market top)
Bear Market Phases
- Complacency: “Just a correction”
- Anxiety: “Should I have sold?”
- Denial: “It’ll come back”
- Panic: “Get me out!”
- Capitulation: Selling at bottom
- Depression: “Crypto is dead”
Key Psychological Drivers
Fear
- Drives panic selling
- Creates buying opportunities
- Measured by Fear & Greed Index
Greed
- Drives FOMO buying
- Creates overvaluation
- Often peaks before crashes
FOMO (Fear of Missing Out)
- Buying because others are profiting
- Usually occurs near market tops
- Leads to buying high, selling low
FUD (Fear, Uncertainty, Doubt)
- Negative news or rumors
- Can be legitimate or manipulative
- Often creates temporary dips
The Fear & Greed Index
| Score | Sentiment | Typical Action |
|---|---|---|
| 0-24 | Extreme Fear | Often good to buy |
| 25-44 | Fear | Consider buying |
| 45-55 | Neutral | Hold |
| 56-75 | Greed | Consider selling |
| 76-100 | Extreme Greed | Often good to sell |
Common Psychological Traps
Confirmation Bias
- Seeking information that confirms your position
- Ignoring negative signals
- Echo chambers on social media
Anchoring
- Fixating on purchase price
- “I’ll sell when it gets back to my entry”
- Irrational reference points
Herd Mentality
- Following the crowd blindly
- Buying because everyone else is
- Panic selling with the masses
Sunk Cost Fallacy
- Holding losers to avoid realizing loss
- “I’ve already lost this much, might as well hold”
- Better to evaluate current situation, not past
How to Manage Psychology
- Have a plan: Set entry/exit prices before trading
- Dollar-cost average: Remove timing pressure
- Use stop losses: Automate emotional decisions
- Limit exposure: Only invest what you can lose
- Take breaks: Step away from charts
Trade with clear strategies on exchanges like Coinbase and Binance that offer automated trading tools.
Ready to Start Trading?
Now that you understand market psychology, explore the best exchanges to begin your crypto journey.