What it is:
Market psychology refers to the manner in which the market reflects its participants' collective emotional state.
How it works (Example):
Peoples' perceptions of the market directly impact price movements and trends. Market psychology is the overall feeling among market participants that impels them to buy or sell. For this reason, an upward -- or bullish -- trend is associated with feelings of positive expectations expressed by optimism and hopefulness. By contrast, a downward -- or bearish -- trend correlates with feelings of pessimistic expectations expressed by anxiety and fear.