After reading part 1, part 2 and part 3 of our series on what you need to know before you start investing and all about assets or liabilities, we are now ready for the actual fundamentals of investing to increase your assets. The time has come to gear you up with the essential information. Please note we are still in the very basic stages of explanations here.
Market Cycles that are Really Waves
A common mistake most people who start to trade make is that they instinctively approach it with emotional anticipation. Now that is not a good idea. Investing should not be based on emotion but on utilizing tools such as patterns. One of the most important patterns you are going to encounter is the market cycle, thus it is vital to understand how market cycles work. Interestingly enough, a market cycle is a pattern that forms as a result of the emotional mass behavior of people investing. Study the pattern, learn what is happening and how to react and always keep in mind at what stage in the cycle something happens. Analyze this.
Traders Secret #1 – Learning Is Key
This cycle has the shape of a wave going up to a peak and going down again to level out, then going up again and it repeats itself over and over. It may be very fast – or it may be very slow – it could take days or months to complete one cycle but also only a few hours! Surf the net and study market cycles of various goods, epochs, industries, financial products. Educate yourself on the history of market cycles of the product you are interested in investing in, watch and observe before getting started yourself!
Traders Secret #2 – After winter comes spring
Let us say the market has more or less been steady at low prices, we are speaking of a low period. The curve of the cycle is low on the bottom. Crypto Winter is upon us. Market participants are in low spirits as well. They are depressed, desperate and greedy. Cryptocurrency Telegram Channels are full of fear, uncertainty and doubt (FUD) and disappointment. Greedy investors are licking their wounds and counting their losses. However, it is a time to put all negative emotion aside – like seasoned traders do and listen up. Yes, you read right – listen up as the market is dumping.
At this point in the cycle, on the very bottom, seasoned traders are carefully observing the market, researching and looking at diversified investments – they never put all their eggs in one basket. At low times like this, investors are happy to hold what they have.
On the other hand, they are also beginning to accumulate while prices are low. The depressed people (the masses) are selling at losses and venting their anger about losses in forums and Telegram channels. Highly seasoned investors are also keeping some funds back to buy in case of further price drops to strike there. The low phase is also the secret phase of accumulation in the market cycle. The greedy investor is sitting in the corner like a three-year old and is angry instead of informing himself and observing economic developments.
Traders Secret #3 – Think in Cycles
Once the price starts going up again, people are starting to get into it. The greedy investor jumps out of the corner again. People are beginning to buy and an emotion of FOMO (“fear of missing out”) may begin to accompany market development. People are buying. Greed is increasing, and the greedy investors are beginning to wake up. Just before this stage in the cycle, which is known as the mark-up phase, is ending is where the majority of people grows euphoric and is beginning to buy!
Even your friend’s great-grandmother is buying because everybody is buying. She is also telling everyone to buy and to get ready to be rich, so to speak, not aware of the fact that these people are all, actually, late bloomers!
Traders Secret #4 – To The Moon!
We have reached the peak of the cycle and this is where things seem crazy: seasoned investors with a long strategy are beginning to “distribute” – that is to sell while HODLing some assets, depending on their long-term plans.
That’s right, experienced investors start selling when the price is getting high – and they are making profits! The greedy majority is still buying at high prices, maybe not even realizing how high the price has already risen. And this is when the next stage sets in. It is the phase with the highest danger and the highest financial risk. Market participants think this phase will last forever, turning completely emotional, forgetting about the cycle and engaging in risky behavior, greedily waiting for the next increase in price.
Traders Secret #5 – Fight Your Greed
The seasoned investor always bears the market cycle in mind. He or she sells as prices are reaching their peak. Are you crying as you are reading this, getting ready to crawl into your corner? Yes, these seasoned investors are selling, and they have a plan. The greedy masses are HODLING and maybe still buying at outrageous prices while they have Bitcoin icons in their eyes. They have completely forgotten about the market cycle!
However, the next development is not an increase in price but the phase of complacency as the market cycle keeps moving as always. That’s right, it doesn’t matter who you are, the market cycle will. keep. moving.
Now come the first signs indicating the market is beginning to turn but greedy emotion-driven investors do not pay attention to the first price declines. Rather, their greed drives them to be certain of further price increases. Seasoned and calm investors are getting ready for a decline in the market after having sold with a plan at high profit. The emotionally-guided trader is slowly feeling financial pain and beginning to get worried.
Traders Secret #6 – Stay Cool
Anxiety is on the increase. Prices are falling. The mark-down phase of the market cycle has begun. This phase is now very painful for those participants who did not sell in time. Many are HODLING now while slowly losing hope and finally capitulate way too late, incurring great losses and selling at bottom prices.
This is the time of major sell-offs. The seasoned investor is watching the cycle and getting interested in new plans while doing his research, understanding that the time is right to start buying again. The cycle has now hit the bottom – usually in the shape of a longer plateau. It is the deepest of financial winter nights in the cycle, we are speaking of a low period…but beneath the ice the seeds are beginning to sprout, the seasoned investor is planning for thawing weather, and so the cycle begins again.
Please note this PURA article is merely for the purpose of information and does not serve as investment advice or financial service. Trading and investing involve substantial risk of financial loss, including loss of principal and all trading and investing you pursue is at your own risk.