Advantages of psychology analysis in trading

1. It breaks the three traditional theoretical bases of themarket, leaving behind the old strategies and ideas.

(1) It breaks the concept of equilibrium in classical economics.

The value does not fully determine the price of the market, and the Law of Value is not practical in trading.

The "equilibrium" in classical economic theory is a balance of resource allocation and profitability, but this theory is not practical in themarket.

(2) It reveals that pricecould influence the supply and demand to some extent.

It seems to have become true that "supply and demand determine prices, and prices have a certain opposite effect on supply and demand". However, in the market,  price could determine supply and demand to a certain extent. Because if a market is mixed with more speculative elements, then this market will not be a market where prices are determined by supply and demand alone.

On the contrary, as speculative forces become stronger, prices increasingly tend to determine supply and demand. Once the market price reaches a critical point, people will consider a variety of factors and then make their buying and selling decisions based on their judgment or the advice of analysts.

If more speculators tend to short a stock, the price of the stockwill continue to fall. Then, the dropping price will stimulate more participants tosell. The fact that market participants are making shorting decisions based solely on price is a sideways reflection of the fact: price is affecting supply and demand.

Besides, there are plenty of investorsin the market who simply buy and sell on the basis of historical price trends, whichis also an exampleof supply and demand determined by prices.

(3) It denies that markets are purely rational. Markets do not operate solely under their own rational and logical control.

2. A new theorybasisfor market analyses.

As market psychology precedes market behavior, market psychological expectations could reflect the market's future trendsquickly and accurately.

Psychoanalysis breaks the traditional prediction model, which doesn'temphasis much on the law formed by historical prices andon the impact of the news, but emphasizes the "market psychology". Psychoanalysis tracks the root causes of future ups and downs, rather than the traditional model of historical price speculation.