I broadly agree, but the place where psychology comes in in the continuous auction process. Just like a conventional auction, when prices start to go up, some people get overexcited and bid things up further, and conversely when people become terrified and stampede for the exits, selling assets at prices that are below any reasonable fundamental value. In the supply/demand model this is essentially the stock transitioning into being a Veblen good (where demand rises as price rises) and whatever the opposite of that is called, which is an interesting phenomenon and afaics purely psychological with no rational basis (unless you think greed/fear is rational I suppose)

That said, when people claim to distill the market psychology into a single recap or analyze the market psychology to predict future price, that's pretty much nonsense.