Market psychology is a term that describes the prevailing tendencies on a given market.
Market psychology is effectively an aggregate of trading decisions made by individual traders.
Market Psychology vs Trading Psychology
Trading psychology and market psychology are two different, but related terms.
Read the ATNET Glossary on Trading Psychology with book recommendations.
As a trader, your individual mindset and decision making process contributed to the existence of the market and in one way or another becomes an influence of the market psychology.
- You may be in agreement with the prevailing market tendency, act on it and make this tendency even stronger.
- You may be in disagreement with the aggregate market tendency, act on it and in this way create the opposite side of the book that is required for the market to exist.