Education - How does a bubble develop and what are the signs?

2021년 2월 27일

Preface:

This learning content or information is merely my experience, or are those techniques that I use or find useful.
The beauty of technical analysis is that an analysis or forecast can be made using many different approaches.

These differ in effort, approach, tools and technical approaches.

However, I think one thing is important:

Keep the chart as simple as possible, try to see what is obvious and work with as few tools as possible but as many as necessary.

If you base your analysis on what seems obvious, it is likely that many other traders will also see it. This in turn would support a movement in the predicted direction.
= Self-fulfilling prophecy
-> Examples: Moving averages, Fibonacci retracements, Simple formations etc....
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Remark:

This is supposed to be a small help to identify signs of a bubble formation, I must absolutely note that a lot of experience and knowledge is necessary here, which I can not convey in a hurry, as this would definitely go beyond the scope.

Just try to analyze the BTC rise of 2017 with the help of these signs, or even the current rise.


What is a bubble ?

A bubble is usually easy to recognize in retrospect, a lot of green long candles, few red candles, until usually a high point. Then lots of big and long red candles and few green :)
But how do I recognize a bubble while it is forming?

Important:
Please read through the wave age tutorial I wrote beforehand, this understanding is needed to continue here.


If a trend does not consolidate sufficiently, but on the contrary shows shorter and shorter consolidations, rises faster and faster and ideally is still fueled by media interest, then these are the first signs of a bubble. (See bar in the chart)
Within a trend, the price must consolidate sufficiently after a rise (to go into this in more detail would go beyond the scope).
If now the trend in the period under review over the zenith, so after eg 6 waves, a new high and then further waves, with steeper and steeper price increases, so a bubble is to be assumed.
The price MUST consolidate sufficiently to be sustainable.

In the weekly, we can see that the price is moving further and further away from the standard SMAs (20,50,200) until it reaches an unnatural distance, which also indicates that the market may be in a bubble.

As soon as such signs appear, it is important to set very tight stops, as it can come to an abrupt end.


Summary:

-Ever steeper rises
-Ever shorter consolidations
-Distance to SMAs is becoming uncharacteristic of the market

Bonus: Media coverage of the asset


Annotation:
Since the weekly chart is shown here, it is not possible to see how the price reversal occurred. A SKS formed in the H4 , this was the beginning of the end of the steep rise.

Also today, we have the same signs as 2017, to note was the very strong and violent reaction , this does not mean that the course will now immediately sink it can go before still on 60.000 , 70.000 or even more high, from my point of view, the current consolidations were not sufficient, I have this in mind when placing a stop



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If I like this kind of tutorial, so leave me a like there and follow me. If there is enough interest I will post more tutorials like this in the future

Best regards and good luck
DCT Trading