The Collective Market Mind

Golden Option Blog

In this blog article you will find about the underlying minds behind the price of the market, the collective market mind behind the price. I will explain to you (in depth) about what actually means when people are saying that to make money in the financial markets, you need to do the opposite of what everyone else is doing. In this blog post, my intention is to shed some light on the matter.

Take a different approach on technical analysis.

As you already know technical analysis is the study of charting and price patterns. In the short term, the value of a currency pair is governed by supply and demand. If the collective market has a view that the Australian Dollar will rise against the US Dollar, the very demand for the Australian Dollar will send AUD/USD higher. In technical analysis, your objective is to find significant points in time and price where the market is most likely to buy (or sell).

Buying and selling activity (and therefore price) is correlated to the oscillations of fear and greed, optimism and pessimism in the collective market mind. There's a lot of trading emotions behind the market, which I'll explained in dept below. The technical analyst see’s a story of human emotion in the price charts.

Just like “History repeats itself”, the market also repeats itself.

Human emotion drives order flow.
Order flow drives price.
Price creates patterns.
These patterns tend to repeat themselves over and over again.

Indeed, crowd psychology has been reflected in the price of stocks, indices, commodities, futures, and currencies since the beginning of the free market. He who joins the crowd has no choice but to move with the rhythm of the crowd. He who transcends the crowd can master it from above.

In trading, a master speculator is one who has transcended the emotional polarities of fear and greed that fuel the market. By rising above these emotions, the master can use technical analysis to observe the oscillations of the collective market mind from a neutral standpoint, free of judgment. Which is why the most common saying in the trading world- “Trade without emotions”.

It’s not a crystal ball

Technical analysis has faced significant opposition from critics for years. To this day, many believe that it’s a big bunch of hogwash, and in the context that these judgments are made, we often agree. There are many individuals and companies who paint an over-glorified picture of technical analysis.

Here’s our take on a few misconceptions:

There are no certainties in Technical Analysis.
It is not a tool for magical price prediction.
A master of Technical Analysis may not necessarily become a profitable trader.
There is no holy grail of indicators or algorithms.
Past performance does not mirror future performance.
Backtesting is wise for practice but unreliable as an indication of future profit.

At Golden Option, we use technical analysis for one purpose only- To identify when and where the collective market is likely to have order clusters. In identifying these areas, we may act on the side of probability, which is always on the opposing side of the collective market mind.

Your goal as a technical speculator is to buy from unjustified pessimism and negativity, then sell back to unsustainable optimism and positivity. Best example of this is, buy low when the market is fearful, sell high when the market is greedy.

Be fearful when others are greedy, and greedy when others are fearful. – Warren Buffett

The picture above depicts the market psychology curve. This is the fundamental behind the Collective Market Mind. Trading emotions are what traders would have to deal with. If you can control your emotions well trust me the job is 50% done. Controlling your emotions and following proper Risk Management will make you a profitable trader in the long run.

Your job as a technical trader is to find areas in time and price where the market is fearful and greedy. As long as he keeps his own emotions out of the decision-making process, he may buy low, and sell high, by acting in an opposing fashion to the collective market mind.

In other words:

Buy from the pessimists, sell to the optimists.

Buy from those in desperation, sell to those in denial.

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