Psychology of Financial Market

Sentiments of investors very often drive the market to a track that falls against the fundamentals. Fear, expectations, greed and sometimes difficult situations of the investors leads to boom and bust cycles in financial markets. If for some reason the investors end up pulling back their stocks this may end up in falling financial market prices.
It always strikes our mind how can we benefit from market psychology. Well, to gain benefit it is required to do one's research. It is important to keep a track of when stocks are oversold or overbought and accordingly purchase or sell your stocks. When it is seen that stocks are oversold it gets crucial for you to buy stocks and when stocks are overbought you are advised to sell your stocks. There are various indicators available to forecast market prices depending on the mentality of investors.
Out of the two most broad methods of stock picking (i.e. fundamental analysis and technical analysis), technical analysis is the one that aims at tracking trends and it is the one that involves market psychology. It makes it very important to identify the defects in human decision making.
The role of psychology is often undervalued in the field of the stock market. But, to invest efficiently in the stock market it is very vital to know about the psychology of the financial market. Crowd psychology is one of the biggest contributors to the huge market boom and bust.

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