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The Experts Investment And Business Center - Muscat – Oman
In association with VIBHS
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Crowd Psychology Abdulazeem Idrees Alzain
Technical &
Economical Analysis Expert
Crowd Psychology
Crowd Psychology
What does Crowd Psychology mean?
The crowd psychology is a phenomenon that interprets the current psychology of the market participants, through the use of charts, support & resistance, trend lines.... etc
Brain Stem (Innermost part) This part is concerned with instinctive behavioral patterns, i.e. hunger, sleep, thirst. Etc.
The limbic system (surrounding the brain stem)
This part is involved with emotional activities, i.e. anger, fear, love .. Etc.
Neo-cortex (The outermost part) This part is concerned with all aspects of logical thinking and enables us to anticipate the future and recreate the past, this part is part that deals with rationale.
Conclusion
When the brain stem and the limbic system work full capacity, the capability of using the neo-cortex and think rationally and logically is suppressed, because the people are under emotional pressure.
Technical analysis: What is Technical Analysis? A study of market action and market psychology. Identifying trend in future change and forecasting future price trend through the use of charts. Technical Analysis ministers to achieve trader’s objective to minimize the loss to make profit. Varieties of tools are used to aid Analyst to identify and analyze market trends. Technicians or Traders on the other hand interpret what they see depending on their tactics, risk, tolerance and characteristics, thus take decisions. But remember, technical analysis is only the reflection of how the market is doing and zero effect on it. The Market is not technically mature enough and this is why technical analysis does not work in certain countries. Although, many times unidentified fundamental news can be seen on charts before these news are publicly known. We call this “Charts discount everything”.
IMPORTANT
Ø One of the striking benefits of technical
analysis is that it brings money management
into play by using stops.
Ø Price movements reflect human emotions
and human emotions can not be calculated,
thus analyzing market action is very
subjective.
Technical Analysis versus
Fundamental Analysis
The fundamentalist studies the cause of
market movement while the technician
studies the effect. So the technician believes that the effect is all that he wants to know and the reasons are unnecessary.
IMPORTANT
A buy and hold strategy is fatal when a downtrend is underway Even if the fundamentals of the company are good.
Technical Analysis versus
Fundamental Analysis
A technician can concentrate on many markets and
many trading areas as desired. This is not true of his
fundamental counterpart. So a technician can easily
rotate from an industry to another, from a certain
sector to another or even from a country to another
to pick the stocks or markets which are witnessing
strong bull trends.
Technical Analysis versus Fundamental Analysis
Technical Analysis can be applied to different
time dimensions ranging from the very long-term analysis to tic-by-tic data (intraday), while the fundamental analysis is only concerned with long-term analysis.
The Dow Theory
Ø The Dow Theory is the basis of technical
analysis and it is very important for technical
analysis students.
Ø Charles Dow and Edward Jones founded the
Dow Jones in 1882. The idea used to be
published regularly on the Wall Street
Journal.
The Dow Theory
Ø In 1897 Dow created the industrial Dow Jones
Average that consisted of 12 stocks and created also
the railway index, consisting of 20 stocks.
Ø In 1928 the Industrial Dow Jones Average grew to
include 30 stocks. Ø After Dow’s death in 1902, William Hamilton, the editor of the Wall Street Journal, took the Dow’s principles and formulated them in what everybody knows as Dow Theory.
The Dow Theory
Basic of Dow Theory •The averages discount everything.
•There are 3 trends in the market:
•Major or Primary trends: They last for more than one year and can last for several years.
The Dow Theory
Secondary trends: They last for 3 weeks to
many months and can retrace from one third to
two thirds of the major move.
Minor trends: They last for one week to 3
weeks. Dow considers these minor trends as
meaningless because they can be manipulated.
The Dow Theory
There are three phases in a primary uptrend:
•Accumulation phase.
•Markup phase.
•Distribution phase.
The Dow Theory
There are three phases in a primary down trend:
Ø Distribution phase. Ø Panic phase. Ø Discouraged selling phase.
The Dow Theory
Ø The two averages must confirm each other.
Ø Volume goes with the trend.
Ø Lines may substitute for secondary.
Ø Only closing prices are used.
The Dow Theory
A trend is assumed to be intact until a trend reversal is signaled
The Dow Theory
The following are the most important rules to be respected during investing and trading: Ø Discipline.
v You Have to know yourself. v You have to make your own plan. v You have to control your risk.
Ø Patience. Ø Humbleness.
The illusion of predictions Ø Traders believe that prediction is the most important element to successful trading (WRONG).
Ø The key for success lies in the traders actions.
The illusion of predictions Ø Most likely to see investors/traders with 85% accuracy losing money, while those with 40% accuracy ends up winning. Ø Nothing wrong with prediction, but money is made by proper money management and wise reaction to the market action.
Important Ø Invest in liquid stocks.
Ø ALWAYS use stops (don’t try to avoid them).
Trade with The WINNER Best Liquidity Provider Award
2012 in China:
Best Dealing Room Award 2012 in KSA
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