Mass psychology in trading reflects the collective emotions and behaviors of traders, influencing price movements. Fear, greed, herd mentality, and sentiment shifts play key roles, shaping trends, volatility, and market reactions.
One thing about pricing action is that it reflects mass psychology, or aggregate human behavior.
Let me clarify.
Every human has evolved to react in particular ways to particular circumstances.
Additionally, this is evident in the trading industry:
Numerous traders’ thoughts and actions create patterns, which are recurring price patterns that may be observed and used to reasonably forecast where the market will likely move once a specific pattern has established.
For instance, a bearish reversal candlestick pattern known as a “shooting star” is formed when the price hits a significant resistance level. At that point, you can declare with more assurance that Price will decline.
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Why?
Because so many traders are keeping an eye on that resistance level, they are all aware that the price has been rejected there once or twice before, which indicates to them that it is a resistance level. They can also see the bearish reversal candlestick formation. You know what they will be waiting for?
- Their sell orders will be waiting for them.thousands of sell orders, some tiny and some large, rather than just one.
- On the other hand, traders who purchased at a discount now find that the majority of their take-profit levels are at the resistance level, which is where the price is moving. There are therefore more sellers and fewer buyers now that they have taken their profits around resistance levels. The price is forced back down from a resistance level when the balance shifts in favor of the sellers.
The actions of traders influence the markets since price action is a reflection of mass psychology.
Price action trading, then, is about utilizing those patterns to get insight into the market’s psychology and turn a profit.
Price action trading can be divided into two categories: 100% pure price action trading and less pure price action trading. Let me clarify.
Pure Price Action Trading
Simply put, 100% price action trading is known as pure price action trading. only price activity as a signal.
Not-So-Pure Price Action Trading
This is the point at which price action trading is combined with other indicators, which are components of the price action trading system. These indicators may be oscillators, such as the CCI and stochastic indicator, or trend indicators, such as moving averages. (Please refrain from searching for stochastic indicators and CCI on Google!)
Origin Of Price Action Trading
The man who is recognized as the founder of technical analysis is Charles Dow. It was he who developed the DOW Theory.
The theory concentrates on market trends and attempts to explain market behavior. The market price discounts everything, according to one aspect of the theory. Therefore, technical analysts do not really care about the fundamental elements of what moves the markets; instead, they utilize price charts and chart patterns to study the market.
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