"The real loser is not the one who doesn't win. The true loser is the one who is so afraid of not winning that he doesn't even try" | Alan Arkin

We are going to breakdown the psychology behind the stock market cycles, as well as the way that we respond to markets, as well as to our own individual investments. With so much riding on our investment decisions, we owe it to ourselves to understand the emotions that arise during different phases of a market cycle. If we are mindful of which stage of the cycle we are experiencing at any given point of time, we will be more attuned to the ways that our emotions influence our investment decisions. For those investors that allow their emotions to dictate investment decisions, the investor emotional cycle may start over. 

In phase three of the cycle, bear market realities are brought into focus, and the investor can get discouraged and despairing. Fear sets in as markets fall, and investors may sell, often at a loss. When the market goes up, greed drives investors to jump in, but they can pay too high of a price. They end up worrying about being left behind because they did not buy stocks--that their friends are getting rich, and that they would better make big investments in stocks in order to appear intelligent and to earn their money. 

"The more absurd the behavior of the market, the better the opportunity for the methodical investor" | Warren Buffett

After spending weeks, sometimes months, watching markets deliver big returns, investors either buy or increase their stock allocation. By waiting for a short-term guarantee that the market is safe to invest in, most investors are actually hurting their long-term returns by buying once prices are already high. In fact, investors appear to have a talent for piling in at the market peaks and selling in at its lows, as it is not unusual to be caught up in media hype or fears, buying investments in their peak, then selling them during the valleys of the cycle. Overall, although there are times when aggressive, emotional investing can prove to be beneficial, data shows that following a clearly defined investment strategy and staying the course during periods of market volatility usually yields better returns over the long run. 

The fact is, the sooner you realize just how much the markets move on our emotions, the greater success you will have with your investments. Knowing that we will never overcome our own built-in emotional biases, we must strive to understand the array of emotions that we can feel as investors, and how that impacts our interactions with the markets. Another way to benefit from understanding an investors emotion cycle is to simply use it as a guide for assessing where we are in a markets cycle. In phase four of the cycle, investors can feel some hesitation as markets begin to rally. 

What if I take a risk and lose...? What if you take a risk and win? | Anonymous

This emotion cycle will usually cause the investor to make a bad decision at an inappropriate time. When markets are surging and posting large gains, investors rapidly shift from being bullish, excited, and outright excited. Individual stocks and markets cycle through their upward or downward trends, and this is something that is critical to understand for anyone looking to invest directly in the stock market rather than take the indirect route with the S&P 500 ETF. 

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This is an informational article, I do not promote, endorse, or recommend any particular investment. Investments in crypto assets are not regulated in some countries and may not be suitable for retail investors, as the full amount invested could be lost. Check the laws of your country before investing.