Forex and stocks tips – Buy on Greed and Sell on Fear

The supplying and demanding forces that steer a particular stock’s value high or low are derived from two forces present in the human nature; the forces of greed and fear.

Consider the situation where a trader while observing the expected rise in prices in a rally of a Stock XYZ considers entering at the start of the third green candle expected to rise in value.

The trader while observing the stock exchange realized that every trader who made an entry for the past two days won big. So out of greed to win, the trader decides to make an entry at the start of the third day while mentally calculating the profits while the stock rally reaches a fresh high. So later on after the stock has closed, the trader goes home all happy and content with his successful trade for the day. The trader even chops out investment plans for the profit he earned. The point that he missed was that the profit was merely in writing and has yet to be earned.
Fear & Greed in stock trading:

The following morning he checks the status of his position, half expecting that his bullish stock might have reached the sky overnight! Now just try conceiving what might be going through his mind when he discovers that his position besides failing to go any higher presently opens even below the price he made at entering the trade.

The emotion ruling his existence on seeing his account is no doubt “fear”. Not only his profits turn into dust before his eyes, but also now he is being robbed of his account containing his hard earned capital. And this fear will prompt him to make haste in liquidating his position as quickly as he can to save himself from any further loss.
Stock Market Psychology – see video:

Now consider the same example only this time consider an additional 2-3 thousand traders who too entered the stock XYZ at nearly the similar price with similar hopes of gaining a similar profit. By the start of the 4th day, all these hopeful traders would be stumbling over themselves making their way out of the XYZ stock.

The above example demonstrates the fact that the growth in fear ultimately causes a growth in the supply of a stock in contrast to the growth in its demand. Thus a sharp downfall in the value of stock is triggered. From the candlestick figure, the depth of the red candle vs. the expected corresponding green candle depicts the concentration of traders that are casted into positions suffering loss. Hence this causes the price of the stock to further decline.

By now you might have realized the controlling ability “emotions” have over the movement of stock prices. Through this candlestick trend reading, the technical analysts assess the levels of greed and fear in the market on basis of which they capitalize.