What are the more subtle tenets of market psychology?

Question

What are the more specific ones?

Any book suggestions that teach market psychology?

What I am really trying to assess is: does the study of market psychology posit more than the obvious?

Answer 1

Important themes to look into:

a) Panic buying/selling

b) Channel trading and herd mentality

A) is dominating our market right now with the anxiety of traders/investors specifically with any financial issue and recently metals and ag stocks

B) Herd mentality is usually associated with analysts and their ratings on stocks, but is often found in channel trading. It helps the idea of "a self-fulfilling prophecy". i.e. The trend is up and if we are at the bottom of the channel, I should buy because the trend is up as indicated by other traders

Book: Psychology and the Stock Market: Investment Strategy Beyond Random Walk (Hardcover) ---not bad

--> Market Psychology will likely make you more money than fundamental investing (see commodity boom, tech boom, financial meltdown, etc etc ....almost every time fundamentals painted a starkly different picture than what happened while psychology would have helped you be on the right side most of the time---such as being short financials all the way down meanwhile analysts on cnbc kept saying no more writedowns)

Answer 2

The primary element regarding market psychology is that markets move based - not on fact and logic - but on perception. To get at perception requires having your antenna up more successfully than the next market participant, in sorting out the massive amounts of information available each day, that drive perceptions, that drive the market.