08/04/2010 – What You Can Learn From a Multi-Millionaire Who Understood Market Psychology

“Baruch, a multimillionaire through stock market operation
and adviser to American presidents, hit the nail on the head
in just a few words: ‘But what actually registers in the stock
market’s fluctuations,’ he said, ‘are not the events themselves,
but the human reactions to these events. In short, how
millions of individual men and women feel
these happenings may affect their future.’ Baruch added, ‘Above
all else, in other words, the stock market is people. It is
people trying to read the future. And it is this intensely human
quality that makes the stock market so dramatic an arena, in
which men and women pit their conflicting judgments, their hopes
and fears, strengths and weaknesses, greeds and ideals.'”

Prechter, the founder
and president of market forecasting company Elliott Wave International,
quotes Baruch again in his book The Wave Principle of Human
Social Behavior:

Download
10 FREE Lessons on Understanding Crowd Behavior Using the Elliott
Wave Principle here. Bernard Baruch knew the same
thing about the markets as Robert Prechter: If you can understand
the herding impulse driving the markets, you can understand the
markets and even probabilistically anticipate future market moves.
Get on the fast track to understanding market psychology — learn
more about the FREE 10-Lesson Elliott Wave Tutorial here.

“All economic movements, by their very nature, are motivated
by crowd psychology. Without due recognition of crowd-thinking
… our theories of economics leave much to be desired. It has
always seemed to me that the periodic madnesses which afflict
mankind must reflect some deeply rooted trait in human nature
— a trait akin to the force that motivates the migration of
birds or the rush of lemmings to the sea. It is a force wholly
impalpable… yet, knowledge of it is necessary to right
judgments on passing events.“

Baruch lived a long life (1870-1965). Baruch, My Own Story
is a great read. He reminisces about J.P. Morgan, E.H. Harriman,
“Diamond” Jim Brady, “Bet a Million” Gates
and others; his was an interesting story to tell. Prechter shares
Baruch’s viewpoint about how mass psychology relates to the market:

“As I see it, markets are people, and people never change.”

— Prechter’s Perspective

Bob Prechter is the world’s foremost practitioner of the Elliott
Wave Principle. The Principle describes how the markets reflect
changes in mass psychology — and how that psychology shapes market
trends. Despite a common belief to the contrary, markets are not
random. It’s been discovered, by repeated observation, that changes
in mass psychology and therefore the markets are actually patterned.
Let me repeat — changes in mass psychology and the
markets are actually patterned.

Now, here’s the key to probabilistic forecasting: These patterns
repeat themselves. That’s what makes
markets predictable. Once you know what part of the pattern the
market is in, you can make a probabilistic forecast as to where
the market should go next.

“The mechanics of the patterns appear to reflect mathematical
characteristics of a family of patterns found throughout nature.”
— Bob Prechter, Pioneering Studies in Socionomics

If a man who made multiple millions in the market believed in
the power of mass psychology, you too may find it rewarding to
discover the patterns of mass psychology which are developing
this very moment.

Download
10 FREE Lessons on Understanding Crowd Behavior Using the Elliott
Wave Principle here. Bernard Baruch knew the same
thing about the markets as Robert Prechter: If you can understand
the herding impulse driving the markets, you can understand the
markets and even probabilistically anticipate future market moves.
Get on the fast track to understanding market psychology — learn
more about the FREE 10-Lesson Elliott Wave Tutorial here.