The next stop on our Journey through the basic concepts of Market Sorcery leads us to a subject of great importance.
The emotions of market participants in the stock market can be identified in the price action of both individual stocks as well as the indices.
But let’s not get ahead of ourselves just yet…
First we need to talk about the different types of emotions people experience.
Like all things in the universe, emotions happen in a cycle, ebbing and flowing from one end of the emotional spectrum to the other. Much like a wave of alternating current in an electrical circuit. Take a look below and let’s discuss what we see.
What you see here is almost exactly the way many stocks trade, except that the line (t) would be tilted up or down over time depending on the current trend of the stock.
In this analogy, instead of electricity going back and forth from positive to negative in an electrical circuit, we have investors and traders going from loving a stock to hating it.
As the price gets stretched higher, the buyers overtake sellers and Enthusiasm takes over, pushing prices to highs.
On the other end of the spectrum, as sellers overtake the buyers, Panic selling sets in and sends prices tumbling to lows.
Using this information about human emotion, and how it goes back and forth in a cycle, we can attempt to identify when a current cycle in the market, or in a stock, is getting stretched to the point of “Enthusiasm” or “Panic”.
Combining this practice with many other concepts of Market Sorcery can lead to some of the very best action points in countless stocks and overall markets.
In future posts we will use this sentiment analysis in combination with other principles to pinpoint current stocks which may be at potential action points.
We hope you have enjoyed this presentation and look forward to reading your comments below!
Thanks and be well!