Market moves and it's Psychology

2021年2月7日

There's a great image available if you just search in Google - look for "The Wall Street Cheat Sheet" - Markets move in cycles, which is built on human emotions. There's plenty of research available on this. If you look into anything like Elliott wave theory, Gann fans & boxes, Wyckoff or simply Fibonacci, you will find (in the end) it's all based on the psychology of human behaviour.

Driven by greed, fear, stress and euphoria.

Understanding this will help with the very fundamentals of trading.

With proper risk management applied, traders can profit from the market with a shoddy Hit rate. Providing their edge is accompanied by good risk management.

How often have you been in a losing trade & moved the stop loss? Added to the position? Or in a winning trade, bailed and seen the price move another 10, 20 or even 100 pips in your direction???

Below is a set of images breaking down the market moves in simple terms. For clarity ***This is NOT an in-depth breakdown of strategy, it's not the correct application of Elliott, nor Wyckoff. It's a simple post to get you, the trader thinking beyond just the trade ***.


This image above shows the emotions as per the Wall Street cheat sheet. (Go google)

Apply some logic to the chart - Look under the hood.


Here you will see a basic Elliott wave structure playing itself out. This can then be broken into smaller pieces, like this below;


It's almost like going from a Telescopic view down to a magnifying glass.

You can see the price move up & consolidate, price move up and consolidate. This is all about timing. Trying to breathe with the market, or at least understand a little of it's cycle.

Same applies on the way down.

Again, there's a lot of information available on the Bear moves over the Bull moves and how they have different characteristics. But not for this post.

Now let's look inside the top - the consolidation of the peak.


Think of as simply as - some people have made enough profits from the move up & are selling their positions in vast quantities. There is some great content available on Wyckoff and the theory of composite man. But even at a simple level the basics can be explained as follows;

1) Buyers climax - Profit targets hit.
2) Automatic reaction (lots of selling at the same time)
3) A move to the upside to fool people into going long & collect liquidity at a better price for a move down.
4) Range bound moves - market manipulation (collecting positions ready for the short)
5) weakness - a first test to see the response of the market - also to push back long collecting stops of the eager beavers shorting.

After this there are a couple of concepts - but you get the idea by now.


You will see this type of structure if you zoom in a timeframe or two.

Inside of the structure you will see the list above and how it relates on a chart.

Like I said, this is not an in-depth strategy or breakdown of Elliott or Wyckoff. It's just putting the pieces together and to show how powerful tools can be to understand the market cycles. Obviously there's much, much more to understand before you jump into a trade using either Elliott or Wyckoff.

But I hope this helps.


Please feel free to send questions & like the post below.

Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.