Mastering the market cycle: understand how your emotions shape price behavior

Have you ever stopped to think about why you make irrational financial decisions in the most critical moments? When the market crashes, why do you sell in a panic? When prices soar, why do you ignore the warning signs? The answer goes beyond logic – it lies in the biology of your brain.

As Warren Buffett perfectly summarized: “The market is a mechanism for transferring money from the impatient to the patient.” This phrase encapsulates a profound truth about how emotions, not reason, often drive the cryptocurrency market cycle.

Behind the market cycle: neuroscience in action

Modern neuroscience has revealed something uncomfortable: our brain does not function like a rational calculating machine. When it comes to money and investments, emotions and cognitive biases almost always win the game.

Consider the amygdala – the structure responsible for processing fear and anxiety. During severe market corrections, it triggers “fight or flight” responses, leading to panic selling without reflection. This is a primitive survival mechanism, but in the context of the modern market cycle, it often results in catastrophic losses.

On the other hand, the ventromedial prefrontal cortex evaluates rewards and fuels excessive optimism during highs. When prices surged in early 2024, this was the activated neural circuit: anticipation of gains, dopamine release, feeling of invincibility.

The market cycle unveiled: optimism, greed, fear, and capitulation

Phase 1: Optimism and euphoria

When a market cycle begins in a bullish trend, optimism becomes contagious. Prices rise, dopamine flows in your brain, and you feel that the market will never fall.

This feeling activates the brain's reward system – the same system that motivated us as a species to hunt, accumulate resources, and seek social security. In modern markets, it motivates us to buy increasingly expensive assets, often without fully understanding what we are buying.

FOMO (fear of missing out) amplifies all of this. You see other people talking about extraordinary gains on social media, and your brain interprets this as a signal of an opportunity you can't miss. Platforms like X and Reddit exacerbate this dynamic by amplifying success stories and suppressing narratives of risk.

Meme coins like Dogecoin, Shiba Inu, and more recently, TRUMP and MELANIA, perfectly exemplify this phenomenon. These assets spike in value not because they have solid fundamentals, but because the market cycle fuels viral speculation. The hype completely outweighs any technical or fundamental analysis.

Phase 2: Extreme Euphoria and Bubbles

As the market cycle progresses, optimism surpasses rational limits. Prices skyrocket far beyond any justifiable real value. This is when financial bubbles form – and everyone knows how bubbles end.

Cognitive dissonance comes into play here. You know rationally that prices are outrageous, but emotionally you believe that the market can rise even further. Your brain holds two conflicting beliefs simultaneously, generating a discomfort that you try to resolve by ignoring warning signs.

Phase 3: The reversal – fear and panic

When the bubble bursts – and it always bursts – the market cycle changes radically. Optimism evaporates. The amygdala takes control.

Fear is intensified by the loss aversion bias: neurological discoveries show that losses cause approximately twice as much emotional suffering as equivalent gains generate satisfaction. You lose R$ 1,000 and feel much more pain than when you gained R$ 1,000 weeks ago.

As prices continue to fall, fear turns into pure panic. This is when capitulation occurs – the moment when investors sell off their positions en masse, usually at substantial losses. Bitcoin has witnessed several of these brutal corrections during previous market cycles.

Phase 4: Stabilization and Accumulation

Eventually, pessimism reaches its peak and the market cycle begins to stabilize. Prices move sideways, panic subsides, and a trend of quiet accumulation emerges. More cautious investors start to return, renewed by hope.

The role of mirror neurons and the herd instinct

A fascinating aspect of neurobiology that shapes the market cycle is the role of mirror neurons. These special nerve cells activate both when you perform an action and when you observe someone else doing it.

Basically, your brain internally simulates the experiences and emotions of others. When you see other traders celebrating profits, your mirror neurons are activated, and you feel an indirect version (of those emotions. This is connected to empathy and social influence – two powerful mechanisms that drive the herd instinct in the market.

During the bull market cycle of meme coins, this phenomenon was spectacular. Viral stories of quick gains, celebrities embracing the project, communities growing exponentially – all of this activates your mirror neurons and stimulates imitative behavior. Suddenly, you're not investing because you've done rigorous analysis, but because “everyone is doing it”.

The TRUMP case: neuroscience in real time

The explosion of the meme coin TRUMP offers a perfect case study of how the market cycle is driven by neurobiology, not fundamentals.

Initial stage – activated dopaminergic pathways: The launch was surrounded by massive hype. The connection with Donald Trump )widely recognized figure(, intense media coverage, and the prospect of quick gains activated dopaminergic pathways in millions of brains simultaneously. Dopamine released, FOMO amplified, speculation exploding.

Accelerated growth – mirror neurons and virality: As TRUMP skyrocketed in price, meme culture amplified the phenomenon. People shared stories of 10x, 100x gains. Their mirror neurons were firing with activity. The herd instinct turned FOMO into pure mass irrational behavior.

The correction – amygdala in maximum alert: After its peak, TRUMP faced the typical volatility of meme coins. Sharp declines triggered fear and anxiety. The amygdala fired. Many fell into cognitive dissonance – holding their positions in the hope of recovery, even in the face of reality. Others capitulated in total panic.

The announcement of MELANIA as a competing currency further intensified these emotional reactions, demonstrating how external factors can trigger waves of irrational behavior.

Psychological biases that control the market cycle

FOMO: Neurological need for belonging combined with fear of missing out on opportunities. Responsible for impulsive purchases at the peak of bubbles.

Loss aversion: Losses cause approximately 2x more emotional suffering than equivalent gains produce satisfaction. This leads to panic selling during corrections.

Cognitive dissonance: Conflict between rational beliefs )“this is absurd”( and emotional desire )“but it could go up more”(. Results in dangerous indecision.

Herd effect: Mirror neurons combined with social pressure create irrational mass behaviors during highs and lows.

Navigating the market cycle with emotional intelligence

Understanding these neurobiological mechanisms does not make you immune to them – but it offers valuable defense. If you can recognize when you are operating under the influence of dopamine or amygdala panic, you can make conscious pauses before making decisions.

Recognize the emotional patterns of the market cycle: extreme optimism signals the proximity of the peak, extreme pessimism signals the proximity of the bottom. The greatest opportunities often emerge when fear is at its peak.

Familiarize yourself with your own biases. Are you prone to FOMO? Do you tend to sell in a panic? Do you hold losing positions hoping for a recovery? Identifying your patterns is the first step to controlling them.

And remember: the market cycle will continue to exist as long as there are human brains in the market. It's not something to beat – it's something to understand and navigate wisely.