The psychological evaluation of price developments in the financial markets

Observing price movements on the stock exchanges reveals fascinating insights into the collective psychology of market participants. For many decades, clever minds have been concerned with how human emotions and decisions leave visible traces in the graphic representations of courses. This knowledge forms the basis for the technical course evaluation,which is about recognizing recurring patterns and deriving derivable expectations for future development. Those who understand the mechanisms of mass psychology are able to foresee the next steps of the courses to a certain extent.

The recurrence of familiar patterns and the role of patience

Experience clearly shows that certain graphical formations are constantly repeated due to the same human reactions. These repetitions often resolve in a very similar way, which allows predictions with a hit rate of well over 60 percent. However, reading such course images requires a lot of practice and deeper understanding.A beginner needs up to a year to develop the necessary flair and expertise for a successful evaluation. It is of the utmost importance not to let any emotions flow into your own decisions.

Dealing with emotions and the importance of time

When feelings gain the upper hand, inexperienced individuals tend to abandon positions far too soon once the course briefly goes in the wrong direction. It often turns out later that the original assessment of the pattern was completely correct and the price turned exactly as expected. Only then you have already been pushed out of the market and miss the actualProfit. You should therefore give the evaluation enough time not to place loss limitation orders too tightly and always keep a cool head. Although this method is rather secondary for long-term investors, even they can derive excellent entry points from longer cycles in order to increase their own returns.

Support and resistance as psychological brands

Certain lines in the price chart serve as important signalers for possible purchases or sales. Theoretically, these brands represent a price level at which traders’ buying and selling interests converge. In an upward movement, this means that when a certain level is reached, the willingness to buy decreases and the price initially reverses. One speaks in thisCorrelation of a resistance line, as the willingness to sell again gains the upper hand. The majority of market participants believe that a fair price level has been reached, which is why some realize their profits and sell in the plus.

Acceleration after breaking through key brands

Scared by the now falling prices, even short-term entrants dispose of their holdings, which further accelerates the fall in prices. However, such lines also indicate whether the price has already reversed or struggled at a similar level in the past. Resistance lines are therefore preferably formed at old highs. Conversely,Support lines Price levels at which traders recognize potential in the security again. These brands often emerge at old lows, when the price has once again turned positive.

Round numbers and dynamics after breakouts

Market participants often remember that an upward movement has already started from such a level or that they have entered there for the last time. As prices rise again, additional buyers are attracted. In addition, round course numbers such as 20, 100 or 350 have the potential to act as psychological barriers. A course is much more likely to struggle with the round hundredthan with a crooked number. After breaking through such resistance or support lines, there is often further potential, which accelerates the course of the price massively.

The symmetrical triangle as a sign of consolidation

The breakthrough of the support line often accelerates further downwards, while the breakthrough of a resistance line opens up chances for new highs. The symmetrical triangle consists of two development lines, which converge further and further and thus form a geometric shape. This can occur if the price of a stock has risen for a long time and theninto a sideways motion. The price movements are becoming smaller and smaller and thus converge further and further. The next high points in the course of the price are always a little below the previous high point.

The resolution of the triangle and the danger of false signals

At the same time, however, the new lows are always slightly higher than the previous lows. If you now always draw a line at the end points, the triangle forms. The longer or the larger the triangle, the more meaningful it becomes and with correspondingly more force, the eruption probably takes place. The triangle is resolved as soon as a high point is again above the previousor the next low point is below the previous one. However, the breakout does not have to take place at the end, i.e. at the top of the triangle.

The price flag as confirmation of the overarching market direction

A breakout at the top even more often leads to false signals, in which the price breaks out only briefly and then turns in the opposite direction again. The course flag is a very promising formation that can be described as direction-confirming. It usually forms after strong upward or downward movements, with the strong previous rise as a flagpolehowever, this strong previous increase is also imperative for the validity of the pattern. The flag itself then runs a little wobbly against the market direction, with prices slowly wobbling up and down.

The psychology behind the course flags

These formations occur when, after a sharp increase, the first market participants take their profits with them. However, as soon as the price breaks up again, there is usually a further rise. Such a flag can extend over a period of up to four weeks. The flags are therefore suitable as a sign that the buyers have had enough tolong-term market direction. Therefore, a breakout from the fluctuation range of the flag is very suitable as a purchase point.

Different flags in rising and falling markets

This form of flags is called optimist flags because they occur in a rising market. On the other hand, there are also pessimist flags that occur in falling markets. They form after strong sell-offs when the markets turn upwards again. This is due to the fact that, after the sale, some dealers are already starting up again at low prices.these purchases in order to turn the price upwards again, which is why the market is wobbling slightly upwards and back again.

The identification of flags and the avoidance of traps

As soon as the price falls downwards out of the flag, the decline usually continues even further. If it breaks out upwards, this may indicate an end to the downward movement. In contrast to other formations, flags can be recognized relatively easily in the course image, which does not require so much practice. If you are not quite sure about a pattern, you prefer to stay in the marketas new opportunities reappear soon after. Because here, too, there are sometimes traps for optimists, where the price breaks out, but then falls back into the flag and destroys the buying signal.

Rising and falling triangles as breaks in the market

Unfortunately, it is never completely risk-free, otherwise we would all be hard-rich. In contrast to symmetrical triangles, the two development lines that delimit the triangles are ascending or descending. In the case of a rising triangle, the upper line shows virtually no gradient and is therefore almost horizontal. However, the bottom line points upwards,which is why the new lows in the course of the price are always slightly higher than the previous low. However, the new highs are at the same level as the highs before.

The signals of the different triangular shapes

A rising triangle is also a formation that can be seen as an interruption in an upward market. The buyers do not manage to generate new highs, but the sellers, on the other hand, do not manage to run the course south. Should the price break out of the triangle upwards, the next upward thrust often sets in, which you see as a buy signalon the other hand, a falling triangle is the exact opposite, where the top line forms a drop and the bottom line is almost horizontal. The falling triangle can therefore be seen as a pause in a downward market.

Dealing with falling triangles and lines of development

Here, buyers do not manage to generate new highs, but sellers are not yet strong enough to let the market fall further. So if you see a falling triangle in the course of the price, this is more of a signal to stay away from the market, unless the pessimists do not manage to let the price fall. Should the price even form a higher high,this can be seen as a reversal signal. A development line can be drawn in a course image by connecting the last high points. There is either a rising trend or a falling trend in prices.

The meaningfulness of the points of contact

The more points covered by the development line, the more meaningful the tendency. However, the correct interpretation of these lines requires constant practice and a deep understanding of the psychological workings of the exchanges. Those who observe these rules can base their own decisions on a solid statistical foundation.