Also read the previous post: Market Psychology: Fear And Greed (Part I)
Well, after understanding the main market psychology, namely Fear And Greed, you begin to understand it. But maybe you are a critical person, then ask: "Then what is the psychology of the stock market Market Maker who likes to "play" stock prices?"
I've been waiting for this question
Simple. You need to know that Market Maker also plays with your mind by taking advantage of situations of fear and greed. And Market Makers usually deliberately target stocks whose prices are low, even up to Rp. 100 per share and whose shares are illiquid. Why do market makers mostly play with low-priced and illiquid stocks? Aren't illiquid stocks not just stocks with low prices? Many stocks with high prices are also illiquid.
Psychology will answer this question. Shares with low prices will not require a large capital to enter, even if you have Rp. 500,000 in funds, you can buy the shares. Psychologically, people will be more interested when they see cheap shares whose prices are rising fast, because it is a money opportunity with capital.
Meanwhile, if the stock is expensive and the price is rising fast, people may still think about it. In addition to being expensive, the stock went up fast, meaning the price was even more expensive, and it was increasingly difficult for them to reach the stock with small capital.
Market Makers usually play with the psychology of retail investors and it is proven that these retail investors are always trapped in the Market Maker game. Market Makers often play with retail investors' psychology through rumors. His name is also a rumor, the truth has not been proven. Have you read the posts: Buy On Rumor, Sell On News?
I give a concrete example with a few illustrations:
AABB's shares cost Rp. 125 and these shares are illiquid. This stock price movement almost does not move because only a few are trading. Suddenly because of a rumor AABB stock rose very fast. The first day suddenly rose to Rp140. The next day, it rose to Rp158. Si Ali became interested in AABB shares. PSYCHOLOGICALLY, Si Ali could be tempted to buy AABB shares because he saw the increase was fast, the price was so cheap.
Ali started to enter AABB shares at a price of Rp. 160. And sure enough, the stock rose again to Rp. 171. Ali had already decided to sell at IDR 170, but because his stock was going up fast, this is where Ali's GREED feeling started to emerge. Ali began to hope that the stock price would rise again to Rp. 179 and automatically Ali had violated his own trading plan.
When the price rose to Rp173 suddenly the price fell in a matter of minutes to 164. Ali panicked, but in the midst of his panic (fear) Ali still hoped that the stock price would return to Rp170. Apparently, the stock price still fell to Rp150 and the next day the stock price fell again to Rp135. And a few days later the stock price dropped to Rp106, then AABB's stock price stagnated.
It turned out that AABB's shares were affected by Unusual Market Activity (UMA) due to unnatural stock movements. Seeing the stock whose value continued to fall, Ali did not dare to cut loss, and the stock 'hangs'. The funds owned by Ali are imprisoned and cannot be used for anything other than waiting for the stock price to rise again (and even then if it can rise beyond the initial purchase price).
Well in practice you will often encounter things like this. That's why many ask me: "Sir, when did stock A, stock B go up?" Where are the shares which in fact are illiquid. You need to know, Market Maker seems to understand what we want. Market Makers know that retail investors are starting to get in on the stocks they fry. When prices are too high in Market Maker's view, Market Maker understands the GREED situation of most retail investors. This is where Market Maker takes advantage of the moment.
Market Makers understand that retail investors can easily be lured in by "bad" stock increases. When the Market Maker feels that the stock price is high, the Market Maker will immediately sell their shares, and some retail investors will eventually participate in selling, so it is not impossible in one stock that panic selling occurs because of fear. After the Market Maker gets a big profit, the Market Maker will just walk away, so that traders who have not had time to sell their shares, because they are being played with by the greedy feelings of the Market Makers, the shares 'stick'.
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Slightly deviating from the topic of this discussion, through this paper I personally also want to express - so that regulators in the capital market in the future can be more sensitive to situations like this (fried stocks). On the Learning Stocks facebook account, when the stocks rose a lot and unnaturally, there were a lot of comments from colleagues who actually complained:
"Why does BEI always give UMA status and suspend companies whose shares are rising unnaturally, but if their shares drop drastically, the IDX will just let it go?" Honestly, I also have the same question as colleagues. Because I feel that when stocks go up fast, most of them are given UMA status which you can see through the website www.idx.co.id. However, not many stocks have dropped drastically given UMA status. The role of the regulator in the future is expected to be more able to control the presence of fried stocks in the capital market, so as not to harm retail investors with small funds.
Back again to the topic, then, how to beat the greed and fear? Read the next post: Market Psychology: Fear And Greed (Part III) - Defeating Fear And Greed.
