As such there are three cycles that every market goes through:
The Upside - Greed:
- Optimism: The investor returns to the market with renewed confidence and high expectations.
- Enthusiasm: The investor is excited as the market continues to rise and more investors enter the market.
- Exhilaration: The investor is thrilled with the performance and high expectations continue.
- Euphoria: The investor is absolutely stoked, but the market has reached a peak. The asset is now over-valued due to high demand created by a greed driven buying frenzy.
The Downside - Fear
- Unease: A dip in the market leaves investor with a sense of anxiety.
- Denial: The investor go into a state of denial, ignoring key indicators of poor performance.
- Panic: The herd mentality kicks in, and the market goes into a fear induced selling frenzy.
- Capitulation: The investor has surrendered, giving up anything thought of recovering their initial investment and will either sell at a loss or hold out until the next cycle.
- Depression: The investor is depressed, wallowing in past mistakes, or blaming it on scapegoats like the government or the banks. There are no more sellers in the market place, and the intelligent opportunists start entering the market
- Hope: The investor is hopeful as the market continues to strengthen as the opportunists continue to buoy prices.
- Relief: The investor is relieved as the market has confirmed an uptrend, technical investors begin to enter the market looking for opportunities.
- Optimism: The investor returns to the market with renewed confidence and high expectations and so the cycle continues.
http://marketblog.wordpress.com/
If you can get this concept in your head and control your own emotions, you'll be able to identify and capitalise on opportunities within the market.
Until then,
Shut Up and Save (for the next opportunity)
Chris Hooper