Hey guys! If you're interested in investing in stocks, bonds and other financial instruments, it's important to have a good understanding of market cycles and the psychology behind them. And that's exactly what I want to talk about today.
The financial market is characterized by cycles that repeat over time. They are mostly divided into four phases: accumulation, bullish, distribution and bearish. Each of these phases has its own psychology that can be exploited to make smarter investment decisions.
In the accumulation phase (panic, extreme despair, distress, hope) , the most experienced investors start buying assets, but the general public is still not interested. This causes prices to remain stable, creating opportunities for more astute investors. Then, in the bull phase, (relief, optimism, enthusiasm, excitement, maximum euphoria) demand starts to increase and prices start to rise rapidly. It is at this stage that most investors get involved and start buying, often in a buying frenzy, without worrying about the price.
The distribution phase (anxiety, denial, fear, pessimism, stress, panic) is characterized by the sale of assets at the historical point of the asset (represented in the graph as "maximum euphoria") by more experienced investors, who are taking profits. It is also the time when prices start to drop as demand declines. Finally, the bearish phase is when asset prices drop sharply, often in a period of widespread panic, before stabilizing.
Now, why is it important to understand these cycles? Because it can help you make more informed investment decisions. For example, if you notice that you are in the distribution phase, it could be a sign that it is time to sell your assets and lock in your profits. Or if you find yourself in the bearish phase, it might be a good time to buy assets that are undervalued, hoping they will rise again in the bullish phase.
Also remember that market psychology is influenced by available information and information technologies, such as the internet and cell phones. Social networks and online investment platforms can create a frenzy of buying or selling assets, even when there are no fundamentals to justify the prices.
To illustrate this importance, it is enough to observe some proven historical events. For example, in the 1920s, the US stock market was in a period of optimism, with enormous growth driven by the emergence of new technologies such as electricity and the telephone. This generated a collective euphoria, which culminated in a speculative bubble known as the "Roaring Twenties". However, in 1929, reality hit the door and the market suffered a devastating crash, leading to a major economic depression. 
This is just a demonstration of the market cycle and the phases that can be observed, such as "hope", optimism, euphoria, denial, capitulation, anger and depression. It is important to be aware of these stages and their implications so that we can make more informed investment decisions. However, it is not just about identifying these phases, but also understanding how they affect investor emotions. When euphoria takes over, it's easy to get carried away and invest based on speculation and hearsay. But when denial and anger sets in, many investors get desperate and sell their stocks at very low prices, at a time when they might have expected a recovery.
Therefore, it is important to always be aware of market events, research and seek reliable information. If you're new to investing, consider investing in material that can help you better understand the psychology of market cycles, such as "Psychology of a Market Cycle, Wall St. Cheat Sheet."
I hope these tips help you make more informed and smarter decisions when it comes to investing. Remember that while there are risks involved, investing can be a great way to make your money work for you and reach your long-term financial goals.
