Principles for Handling Market Rallies & Declines
Movements in the market are deeply influenced by the collective emotions, biases and behavioral patterns of its participants. Rallies can be fueled by sound fundamental data or events, but they can also be prolonged by emotions long after their initial driving force has shifted away from its narrative. Conversely, declines can be triggered by sudden economic shocks, the realization that the narrative may no longer be based in reality, or an overreaction to a particular catalyst.
In this piece, we analyze four separate case studies in order to better understand the psychology behind market rallies and declines, and the principles that we can apply to each individual situation when it ultimately transpires in the future once again.