If you have been observing the market closely, then you will see that in the short term, the market does not follow the fundamentals. The short term movements are whimsical, and they do not track what the realty is. It is these movements that form trends.
If you are a Bitcoin Trader, then you need to be aware of the trend in the market because those who understand direction understand how wealth gets transferred in the market.
The trend in the market and the transfer of wealth
The trend in the market triggers an emotional response from the investors. It is these emotional responses that let the investors make buy and sell decisions irrationally. The trend in the market is responsible for the transfer of wealth between the different classes of investors.
Retail investors perform inappropriately when it comes to an understanding the market trends. They do just the opposite. They buy when the trend is forcing the prices higher, and they sell when the trend is pushing the price lower. And this is why most retail investors come out of the market with huge losses. The correct way to invest in the market is entirely the opposite. One needs to buy when the market is pulling itself down and sell when the market is going up.
It is a trigger that causes the market trend
The trend in the market starts with a trigger event. It is this trigger that grabs everyone’s attention. The trigger could be anything. It could be new tax reform or weak economic data. These events signal that the environment will be distressed in the future which will lead to an emotional reaction. The retail investors see this news, and this makes them to panic, and they start to sell their investments.
The fight between the bulls and the bears
The market forms because of the opposing forces. Hence when there is a trigger event that is crashing the prices of stocks lower then there will be a set of traders who believe that the market has fallen a lot and they start to take an opposing position in the market. That is when they begin to buy in the market.
On the one hand, some sellers have panicked from the event. On the other side, some buyers believe the discounted market is an excellent opportunity to buy. When this happens, it creates a fight between the bulls and the bears. Who is victorious in this fight is not decided; however, in the end, the original trend will prevail.