We have all seen this chart. We have all confirmed the truthness of its content. So, there is no doubt about it. However, we haven't learned to use it and benefit from it. The chart I am referring to is this:
As Daniel Jeffries says:
This cycle applies to all assets, at all times, in all markets. The cycle is eternal.
This is the universal market cycle.
No asset is exempt.
Every asset will follow this pattern at some point. The mountain might be spread out over many, many years, which is why most people miss it. They’re zoomed in too far.
Zoom out!
Look at the market over time and you’ll see this pattern again and again and again.
Because human beings (yes, that is you and me) are not that rational! We have feelings and emotions, and they frequently control our behavior. Using this chart to outplay the market requires that we behave against our emotions, and that is what makes it so difficult.
First, never buy or sell when you feel you have to. never.
Second, assess the market's emotions, not the price. What is the general feeling of the market? Look at the trending memes, tweets, blog posts ...etc. Look at feeling that news outlets are trying to convey.
Then, once you have decided what is the general emotion of the market, go back to this chart and act:
If the market is thrilled after a big price surge for a continuous period of time, and people are feeling that they are riding a rocket to the moon (yes, look for the "moon" word!), then you should wait a little bit. Wait until you see that people are buying out of FOMO. Wait until you feel the FOMO inside yourself. When that happens, then you should never buy. Instead, you should start selling!!
Usually, this means that the top is near. It might take some time. So, the best strategy is to sell gradually to make as much profit as possible. I would put 4 sell orders at increasing prices.
For example, when bitcoin started breaking ATH's every day, we should have noticed the thrill. It was so obvious. It started after BTC broke above $10,000.
we should have started putting sell orders like this:
When the price starts falling from the top, people usually think it is only temporary. But when a suitable amount of time passes and the price does not recover, but rather stumble more, then you start to see anxiety.
You should not buy yet. Some people will start selling here creating a larger pressure on the price. When you see that people are starting to panic, then that is your buy signal. The best strategy is to put buy orders at decreasing prices.
Make sure to have some buy orders at very low prices. You would be surprised how low can the price go when people are desperate.
Do Not Over-Trade. If you follow the above strategy, you can make a ton of profits with few trades. You don't need to stare at charts all day long. Actually, watching the price chart is a bad idea. It causes your eyes to swell, and makes you subject to the market psychology.
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