Crypto and Trading Bubbles
So this is really just a short post about something I saw on Whirlpool. Essentially there is quite a long thread called Advanced Crypto Trading (or something to that effect), where people are essentially talking about the advanced aspects of crypto trading (or at the moment whatever ALT coin is mooning...).
Essentially what I am seeing in the crypto world (and other markets) is a massive bubble, which meets all the tests outlined in the Behavioral Investor:
1) the assets prices have increased by massive amounts (i.e sharply, like 100-200% a day).
2) There is massive and public excitement about the getting rich quick
3) There is a media frenzy (hell even the ABC had an article about bitcoin today)
4) Envy inducing stories abound
5) there is a growing interest in the asset
6) There are plenty of theories about why this time is different
7) Lending standards have definitely declined and Governments, world-wide, have been handing out free money,
You can see almost all markets would pass these tests currently, so I think it safe to say there is a bubble.
That being said, I'm not saying you should sit back and avoid the bubble, thats just plain stupid, if you avoided trading bubbles, you'd lose out on a lot returns.
I think the trick to trading a bubble is to trade cautiously (small positions), set a stop and compound as the bubble expands.
I said it on whirlpool and I'll say it here, no-one can predict the future, but you should make sure you and your capital are protected by stops, hedges, something.
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