Crypto currencies can sort of be called new, even though they’ve been around since 2009.
It’s only been the last year where we’ve seen a mass accumulation of investors coming into the Market due to FOMO (Fear of missing out) and unfortunately for them they don’t really have an idea of how markets operate, they just saw people making crazy profits and decided to jump in on the act, hoping that they would see some profit also.
This in turn isn’t great for investors as it inflates the price and never really gives us a true value of what we’re investing in.
Naturally markets move in cycles and I’m going to try and give you a brief breakdown of what a general cycle is for a given investment, so this will hopefully give you a better idea of how markets operate and to indicate where you are in the market before you decide to invest.
I’ve chosen Bitcoin for my description, using the trusty old charting software of TradingView.
TradingView is the trader’s choice for marking up charts and I highly recommend that you use it, if you’re trying work out a particular investments movement.
Other coins and investments can be viewed on the charting software and usually your Crypto exchange will have some form of chart viewer on it, but it will be pretty basic, but will give you a quick idea of where your investment is in the Market.
Price investment movement will usually come from a slight increase in the investment movement, where the price starts to rise and experienced investors see potential to make money, this is called a BULL Market, where in the initial Phase people in the know start putting their money in to make some great profit!
Primary Upward Trend (Bull Market)
The Accumulation Phase
The first stage of a Bull Market is referred to as the Accumulation phase, which is the start of the upward trend. This is also considered the point at which informed investors start to enter the market. The accumulation phase typically comes at the end of a downtrend, when everything is seemingly at its worst, but this is also the time when the price of the market is at its most attractive level because by this point most of the bad news is priced into the market, thereby limiting downside risk and offering attractive valuations. However, the accumulation phase can be the most difficult one to spot because it comes at the end of a downward move, which could be nothing more than a secondary move in a primary downward trend – instead of being the start of a new uptrend. This phase will also be characterised by persistent market pessimism, with many investors thinking things will only get worse.
Public Participation Phase
When informed investors entered the market during the accumulation phase, they did so with the assumption that the worst was over and a recovery lay ahead. As this starts to materialise the new primary trend moves into what is known as the Public participation phase. During this phase, negative sentiment starts to dissipate as news from the Investment company (In our case coin maker, or Crypto market as a whole) starts to improve.
As the good news starts to permeate the market, more and more investors move back in, sending prices higher. This phase tends not only to be the longest lasting, but also the one with the largest price movement. It’s also the phase in which most technical and trend traders have waited for.
The Excess Phase
As the market has made a strong move higher on the improved Crypto news and buying by market participants starts to increase, leading it to be mainstream news. We begin to move into the excess phase at this point, the market is hot again for all investors. The last stage in the upward trend, the excess phase. Is the one in which the smart money starts to scale back its positions, selling them off to those now entering the market, usually FOMO types of investors.
At this point, the market is marked by a perception that everything is running great and that only good things lie ahead. This is also usually the time when the last of the buyers start to enter the market. After large gains have been achieved. Like lambs to the slaughter, the late entrants hope that recent returns will continue. Unfortunately for them, they are buying near the top. During this phase, a lot of attention should be placed on signs of weakness in the trend, such as strengthening downward moves. Also if the upward moves start to show weakness, it could be another sign that the trend may be near the start of a primary downtrend.
Primary Downward Trend (Bear Market)
The Distribution Phase
The first phase in a Bear market (Selling) is known as the distribution phase. The period in which informed buyers sell (distribute) their positions. This is the opposite of the accumulation phase during a bull market in that the informed buyers are now selling into an overbought market instead of buying in an oversold market. In this phase overall sentiment continues to be optimistic, with expectations of higher market levels. It is also the phase in which there is continued buying by the last of the investors in the market, especially those who missed the big move but are hoping for a similar one in the near future. As was the case in the accumulation phase, the distribution phase can be difficult to spot in its early stages. The reason for this is that it may be disguised as a secondary downward trend within the primary upward trend. From a technical standpoint, the distribution phase is represented by a topping of the market where the price movement starts to flatten as selling pressure increases. The mid to latter stages of the distribution phase will see prices start to fall as more and more investors anticipating weakness, exit their positions. A new downward trend will be confirmed when the previous trend fails to make another consecutive higher high and low.
Public Participation Phase
This phase is similar to the public participation phase found in a primary upward trend in that it lasts the longest and will represent the largest part of the move, in this case downward. During this phase it is clear that the market conditions are getting worse and the sentiment is becoming more negative as time goes on. This can be caused by people spreading fear in the form of FUD (Fear, Uncertainty, Doubt) or by international bodies creating laws, regulations or totally un-recognising Cryptos in certain ways, that would restrict its form of growth to the masses.
The market continues to discount the worsening conditions as selling increases and buying dries up.
The Panic Phase
The last phase of the primary downward market tends to be filled with market panic and can lead to very large sell-offs in a very short period of time. In the panic phase the market is wrought up with negative sentiment, including weak outlooks on the overall market. During this phase you will see many investors selling off their stakes in panic.
Usually these participants are the ones that just entered the market during the excess phase of the previous run-up in investment price. But just when things start to look their worst is when the accumulation phase of a primary upward trend will begin and the cycle repeats itself usually.
So where are we in the Market now?
I think it’s quite easy to say that we’re past the Distribution phase and possibly past the Public participation phase (Selling).
The main question now is “Where will the market show signs of support?” for the Panic phase.
As you can see from the TradingView chart that I have created. I’ve created three good structured levels: One at $7500, the other at $6000 and the other at $3000.
I’m not saying that a reversal is going to happen from one of these points, but history suggest that traders work from ‘Key’ structure and those values are within the ball park, it’s just your decision to make as to whether you want to invest at that level and hope that it has reached support, or wait longer until the whole cycle starts again.
Just make sure that if you are going to invest, try to get in at the Accumulation or Public Participation phase, as this will give you wiggle room for good profits even if a reduction in price takes place, but if you buy at the top (Excess phase), I’m sorry to say that the only way is down and bye, bye profits!