The Psychology of Market Cycles
Understanding emotional patterns that drive market movements
By GTO Behavioral Finance Team
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October 08, 2019
THE MARKET CYCLE PSYCHOLOGY
Market cycles consistently follow this emotional pattern:
1. OPTIMISM PHASE
- Gradual price increases
- Growing investor confidence
- Increasing media coverage
- Early adopters profit
2. EUPHORIA PHASE
- Rapid price acceleration
- FOMO (Fear Of Missing Out) buying
- Mainstream media attention
- Irrational exuberance
3. ANXIETY PHASE
- First significant corrections
- Doubt and uncertainty emerge
- Early profit-taking
- Volatility increases
4. DENIAL PHASE
- Temporary recoveries
- "This time it's different" thinking
- Bargain hunting
- Hope overcoming reality
5. FEAR PHASE
- Rapid price declines
- Panic selling
- Negative sentiment dominance
- Capitulation
6. DESPAIR PHASE
- Price consolidation
- Investor apathy
- Media negativity
- Bottom formation
Understanding these cycles helps maintain emotional discipline.