For the Very Same Reasons They Missed the Exits During this Bear Market

TLDR: Nobody knows where crypto will be in a week, a month, or a year from now. Timing tops and bottoms is how novices approach the market. Rule of thumb: buy things going up in price. Sell things going down. Change course when the trend has reversed. This simple approach got me out of crypto late last year and has me back in since last week. I listen to charts, not headlines. Cause bad news is good, unless good news is good, then bad news is bad (except when good news is bad).

Let's travel back in time so we can get a glimpse into the future:

Very few retail investors got out when the signals were flashing at $60k. How could anyone sell when we're headed to $100k by end of 2021, right?

• [1] @$69k - $100k here we come!!!
• [2] @$60k - I'll take some profit when we pump back to $69k
• [3] @$50k - Should've sold at $60k, too late to sell now
• [4] @$40k - Since I'm still in, might as well buy some here at 40% off! We're headed back to ATH anyways!
• [5] @$30k - Bitcoin is down more than half since the highs. Can't exit now when I just added at $40k
• [6] @$20k - $15k is gonna be the bottom. I'll sell a little bit now and get back in later
• [7] @$25k - Whale manipulation. I don't trust this rally: it's a trap!

Current Bitcoin Bear Market - Nov 2021 to Present

You see what happened there? Sunk cost fallacy combined with making predictions about the future. It's difficult to think rationally when you're drunk off the euphoria of a parabolic run-up. And even harder when you're underwater and sitting on heavy losses. The market can leave you in denial. Or worst, lamenting that something different could've been done to change your current situation.

The market is never obvious. It is designed to fool most of the people, most of the time.
-Jesse Livermore, GOAT trader

Nobody Knows S*** About F***

Some guesses are more educated than others. As I alluded to in previous posts, it is beneficial to know how institutional speculators approach the market. Their #1 job is to manage risk. Preservation of capital is paramount: it supersedes return on capital.

These professionals take calculated bets and cut losses when they are wrong. When they are right, they let their winners run or add to the position. This requires a plan; it involves setting profit targets and exit prices. It means changing your opinion when the market presents you with new information. Professionals don't dig-in when a theory is invalidated; they pivot and look for the next opportunity.

Compare that to novices who aren't formally trained in navigating the markets. The desire for profit blinds them from protecting against losses. To the moon or bust! Cutting their winners short and letting their losers run. Not using stops or not taking profits. Adding to losing positions. Being stubborn, FOMO, fear, greed, and emotions are what drives their decision making. It is the polar opposite of how smart money thinks and acts.

The Power of Inversion

Let's flip the story from above as a thought experiment:

Very few retail investors got in when the signals were flashing at $20k. How could anyone buy when we're headed to $10k by end of 2022, right?

• [7] @$17k - $10k Here we come!!!
• [6] @$25k - I'll buy the dip when we dump back to $20k
• [5] @$30k - Should've bought at $25k, too late to buy now
• [4] @$35k - Since I'm still in, might as well sell some here at +100% run-up! We're headed back to the bottom anyways!
• [3] @$40k - Bitcoin is up more than double since the lows. Can't buy now when I just sold some back at $35k
• [2] @$45k - $50k is gonna be the top. I'll buy a little bit now and take profit later
• [1] @$40k - Whale manipulation. I won't be shaken out: diamond hands!

Prior Bitcoin Bull Run - Jan 2020 to Dec 2021

An uptrend is simply the opposite of a downtrend. Recall: The market is never obvious. It is designed to fool most of the people, most of the time.

Rinse and Repeat

I own long-term investments older than members of this sub. I've been in this game long enough to witness more market cycles than I can remember. Dot Com Bubble, housing, banks, gold, oil, cannabis stocks, shipping, pandemic stocks, etc. They all came and went. Crypto is no different; it is not special. It's just more volatile and trades 24/7: that's why Wall Street loves it.

The price of an asset goes up and down because humans behave in the manner demonstrated above (anecdotally). This phenomenon--called the Market Cycle, is a story as old as the Dutch Tulip Bubble of the 1600s. Professionals (i.e., institutions and whales) prey on this fact. That's why they do the exact opposite of retail. Diagrams below were done in MS Paint since I wasted all my crayons doing TA (and snacking on).

Price is trending higher and higher. Institutions are buying. Professionals buy the dip; Novices short the uptrend or buy too late.

Note: I am aware that most retail investors can't or don't short. The above depiction applies more to trading than investing--but you get the idea. Main Street is late to the party and/or going against the trend.

Price is going lower and lower. Institutions are selling. Professionals short the rallies; Novices buy the downtrend or sell too late.

A Timeless Approach for Viewing Markets

Institutions have the ability to profit when price is moving in either direction. More importantly, they have the capital required to create and sustain a trending market. Whales swim with the current and so should you. This is why it pays to identify which market phase/stage we're in. That would require a bit of analysis... of the technical variety... Technical Analysis, you could say. I don't mean studying astrology or watching squiggly lines intersect. I mean the Classic Market Cycle: it is an objective framework for analyzing asset prices.

Four Stages of the Market Cycle. Exists on all timeframes and represents human emotion

In the same way that you respect the downtrend when it is active, you should respect the uptrend once it confirms itself. The market pays you to react, not to predict. Quit wanting to be right. Stop trying to impress others with your forecasts. Why do you think YouTubers and Influencers get so much attention? Nobody is clairvoyant--unfollow the Furu's. Everything you need to know about the crypto market is right in front of your face. Crypto investors stare at charts all day anyways; that time would be better spent learning how to read them objectively.

For Anyone Who Scrolled This Far

You're probably asking what's the point of all my lengthy posts recently? I'm not on Reddit for karma. My goal is to spark some minds into taking control of their financial future. There are benefits in studying how markets behave. Learning to read charts can be a valuable tool for your investment strategy. It can help guide your decisions on when to enter, add, take profits, and exit on whichever timeframe matters to you.

If you don't have the desire or time for that, then continue on with DCA. There's a good reason why it is the recommended approach for passive investment. Just know that investors who don't manage risk end up losing more than traders. Traders who don't manage risk end up becoming long-term investors (bagholders).

​

Disclaimer: Not financial advice. For educational purposes only. Do your own due diligence. Only invest with money you can afford to lose. Sold majority of crypto end of 2021. 100% cash since May. Bought Bitcoin back at $21k and have since added Ethereum. Actively managing positions based on the charts. Never get married to your portfolio.