The psychological barrier in Cryptocurrency trading: How do fear and greed affect the market?

In the cryptocurrency market, trading psychology has a profound influence on behavior, greatly affecting price fluctuation and trading decisions. This article is sourced from an article by Abdulafeez Olaitan, compiled and translated by PANews. (Background: How to break the 'cut loss and sell-off' curse in a high-fluctuation market?) (Background supplement: Gold mining in a bull market: 6 trading rules to increase trading success) In cryptocurrency trading, psychological barriers have a profound impact on market behavior, influencing everything from price fluctuations to trading decisions. In fact, studies have shown that over 70% of traders tend to place large buy or sell orders near integer barriers such as $10,000 or $50,000, forming strong support and resistance zones. These psychological barriers reflect collective emotions and are the focal points where fear, greed, and hope intersect, driving the development of market trends. Understanding how these barriers affect the cryptocurrency market can help you gain a strategic advantage in predicting price changes and optimizing trading strategies. Key points Psychological barriers are key price points, usually integers, and they play an important role as support and resistance areas in cryptocurrency trading. Traders often show emotional reactions when approaching psychological barriers, leading to increased volatility. Successful trading around psychological barriers requires a combination of technical analysis and fundamental factors to improve trading effectiveness. Institutional traders and market makers often manipulate price trends around psychological barriers. I. Psychological price points in cryptocurrency trading 1) Psychological price points Psychological price points, also known as psychological barriers, are price points in the financial markets (especially in cryptocurrency trading) where traders' behavior is significantly influenced by emotions, cognition, and collective psychology. These barriers often correspond to integers or milestone prices, such as $10,000 or $50,000, which naturally attract a lot of market activity. Integer prices such as $100, $1,000, or $10,000 are considered psychological barriers because they are prominent and easy to remember. These numbers become important reference points, and market participants are more likely to enter or exit at these positions, forming strong support or resistance. 2) Examples of key integer prices: BTC (BTC): $10,000, $20,000, $50,000 Ethereum (ETH): $1,000, $2,000, $5,000 Ripple (XRP): $0.50, $1.00, $1.50 Litecoin (LTC): $100, $200, $300 Integer prices have psychological appeal because they simplify trading decisions, and both newbie traders and experienced investors tend to rely on these points. These price points become psychological anchors, and a large volume often congregates at these levels. Psychological barriers reflect collective market emotions and become self-fulfilling prophecies as more traders set orders at these levels. Due to the simplicity of integer prices, traders often rely too much on them, making them important psychological barriers. Market reactions to psychological barriers are driven by emotions, leading to buying and selling cycles around these price points. Traders' perceptions of value, fear of losses, and desire for profits further amplify the importance of psychological barriers. The herd effect is also a major factor influencing psychological barriers, as traders tend to follow the behavior of the majority. Especially near key psychological barriers, when many traders anticipate price reversals or breakthroughs, others will also follow suit, accelerating price fluctuations. Emotions (such as fear and greed) play a crucial role in market behavior near psychological barriers. Fear may lead traders to sell prematurely near psychological resistance, while greed may prompt traders to buy near psychological support, often causing exaggerated market reactions in these key areas. “Psychological price points are not just digits; they reflect the collective emotions of traders and often become key points for market reversals or breakthroughs.” II. How psychological price points affect the cryptocurrency market The following are ways in which psychological barriers affect the cryptocurrency market: 1) Key support and resistance areas Psychological price points often overlap with key support and resistance areas in the cryptocurrency market. In these areas, prices often stagnate or reverse as market participants make trading decisions based on integer prices. Support levels are price points where buying pressure is sufficient to prevent further price declines. Psychological barriers such as $10,000 for BTC or $1,000 for Ethereum often naturally act as support levels. When prices approach these levels, traders expect more buying activity, believing that the price is unlikely to fall below this point. Resistance levels are price points where selling pressure is sufficient to prevent further price increases. Psychological barriers such as $20,000 or $50,000 for BTC often act as resistance levels. You may find that prices encounter resistance when breaking through these points, as many people choose to sell at these integer prices, anticipating a possible price reversal. 2) Congestion phenomenon near psychological barriers The congestion phenomenon refers to market prices fluctuating around certain psychological barriers. This behavior reflects traders' collective following of integer prices, with many setting buy or sell orders near these points. Market reactions near psychological price points tend to be rapid and intense. When prices approach psychological barriers, volume often surges as traders rush to buy or sell. This reaction may trigger short-term fluctuations, with prices changing rapidly to accommodate market sentiment. Due to increased market activity, volatility near psychological barriers often rises. Traders tend to place large orders at these integer prices, which may lead to rapid price fluctuations. When prices break through or fall below psychological barriers, changes in market sentiment may trigger even greater fluctuations, causing traders to react emotionally to these changes. 3) Liquidity and volume near psychological barriers Large amounts of liquidity and volume often gather near psychological price points, and when prices approach or break through these barriers, significant fluctuations often occur in the market. Your actions at these points will significantly affect price trends. The order book often shows a concentration of buy or sell orders near psychological barriers. Large orders tend to accumulate above and below integer prices, reflecting a strong consensus in the market. This concentration of orders affects the depth and liquidity of the order book, leading to rapid price changes when testing these barriers. Traders' psychology directly affects the liquidity near psychological barriers. When you emotionally rely on certain price points, you often place larger orders near these barriers, increasing liquidity. However, once these barriers are quickly broken, it may lead to a liquidity gap—buyers or sellers suddenly withdrawing, causing sharp price increases or decreases. “Traders' emotional reactions near psychological barriers can trigger significant fluctuations, so understanding how market sentiment affects price movements is crucial for traders.” III. Trading strategies around psychological price points The following are some strategies for trading around psychological barriers: 1) Support and resistance trading strategy The support and resistance strategy is a common method of trading around psychological barriers. With these strategies, you can identify potential price reversals or continuations, making it more effective to enter and exit the market. Psychological barriers can be used to determine buying and selling points. For example, $10,000 for BTC or $1,000 for Ethereum are often support (areas where prices stop falling) or resistance (areas where prices are difficult to rise). Here are the specific operations: Buy: At psychological support...