Blockchain and Cryptocurrency Advanced - What is Trading Psychology and Efficient Market Hypothesis?

Before I delve into the what trading psychology is all about, i want to first start with a brief case study about the emotions that is common in the crypto market. Once upon a time, there was a guy named Leonardo who was curious about investing in digital currencies. He decided to invest in a cryptocurrency called crypto and was happy to see that the value of his investment was going up. But then the value started to decline, and Leonardo began to worry. He thought he could make up for his losses by buying more crypto when the price was lower, but things didn't go as planned. He ended up losing even more money.

Leonardo became upset and stopped checking his investments. He even decided to quit investing in crypto altogether. But then, after a while, the value of crypto started going up again, and Leonardo wished he had held onto his investment. He blamed the stop loss feature for his loss and believed that good investments always pay off in the end. The story shows that investing in crypto can be exciting, but it can also be stressful and unpredictable. It's important to do your research and not let your emotions control your decisions. And remember, there's always a chance for things to turn around, even if they seem grim at the moment!

Based on the story case study, the psychology clearly shows that of trading psychology. Trading psychology has to do with emotions, it is basically the emotions and behaviors which influences the trading decisions of a trader, which in turn influences the success or failure from the investment. It is the study of how emotions and mental states affect trading decisions and performance. It involves understanding how fear, greed, confidence, and other psychological factors can lead to ill-advised trading decisions and strategies, and how to overcome them in order to be successful in trading. It is often said that successful trading is more about psychology than it is about the technical aspects of trading. It is important to understand the psychological aspects of trading in order to make sound decisions and manage risk properly.

From the meaning of trading psychology, we can see that it relates to the story of Leonardo whose trading decisions were heavily influenced by his emotions and behavior in the market. These emotions and behavior influenced his actions that saw her make a decision not to hold on to her make loss even after being in profit some days ago. Above all, Leonardo showed the concept of trading psychology because his decisions and actions were influenced by his emotions.

Efficient Market Hypothesis

Efficient market hypothesis is basically is a very popular theory when it comes to investing and trading. It is a theory that states that the price of an asset corresponds and reflects with the sentiments, news and information surrounding the asset in the market. This has become very popular in the crypto space as social media activities most especially on twitter greatly affects the price of cryptocurrency assets in the market. In efficient market hypothesis, old information, sentiments, news have already reflected in the price of the asset, hence only new sentiments, news, information can affect the price. This makes price of a cryptocurrency asset very difficult to forecast or predict because new information, news, and sentiments in the market are random and can happen at any time. We see this a lot in the crypto market. When there is a negative news about a particular cryptocurrency, the price of the asset would most likely reflect the negative news which would see the price go into the negative zone.

Advantages of Efficient Market Hypothesis

• One of the advantages of EMH is that it brings down the over-confidence self-made experts who rely on their technical analysis skills.
• Another advantage of EMH is that it saves t
• Another advantage of EMH is that it can stop new investors and amateur investors from losing money due to their reliance of signals from technical analysts.

Disadvantages of Efficient Market Hypothesis

• One of the disadvantages of EMH is that markets are irrational
• Another disadvantage of EMH is that it can sometimes make the market look like gambling due to the speculative nature of the market.
• Another disadvantage of EMH is that fundamental analysis can still ignore the EMH. This means that fundamental analysis still works in many situations.
• Also, Another disadvantage of EMH is that technical still works in a lot of cases which clearly ingnores the EMH theory.

Conclusion

When it comes to trading and investing, market psychology and trading psychology are key elements. Trading psychology has to do with emotions, it is basically the emotions and behaviors which influences the trading decisions of a trader, which in turn influences the success or failure from the investment. When it comes to market psychology, there are different phases in the market which influences the price and direction of the market. All the phases in the market proves the idea of the different trading psychology that make up the market psychology.