You may have heard more than once that a price chart reflects investor psychology, and the larger the timeframe, the more significant the capital. That’s why our team often emphasizes the importance of following significant capital movements in the market, which becomes impossible without understanding the overall market picture and being aware of the current market cycle.
Below, we will explore each of the psychological market cycles, provide brief characteristics, and recommend the percentage of stablecoins that should be held in the portfolio.
Depression Phase
The depression phase in the market is characterized by low asset prices, low trading volumes, and diminished investor trust. During a depression, investors often shy away from active investments in risky assets. Moreover, widespread skepticism towards the stock market due to negative news at all levels leads to an overall reduction in investment activity.
In this phase, market volatility is minimal. World hunger, wars, and pandemics rage. This is the best time to invest. It is during this phase that significant capital is acquired amid universal gloom. If you employ a gradual asset acquisition strategy, such as the three-order strategy, the third orders are executed in this market phase. It is essential to have an additional percentage for unexpected “discounts” on promising assets. Maintaining a balance of 25-40% in USDT is recommended.
Denial Phase
In this phase, the market slowly begins to recover amid negative news, but Fear, Uncertainty, and Doubt (FUD) have little impact on prices. Significant partnerships, announcements of various developments, and fundamental innovations characterize this market phase, potentially leading to a subsequent bullish market. “Light” assets may reach their first selling targets during this phase. This phase is challenging to recognize due to emotional involvement in the news. Portfolio rebalancing and additional purchases are possible. It is recommended to maintain a balance of 30-40% in USDT, taking into account the closure of initial targets for some assets.
Hope Phase
The hope phase is characterized by the return of “average” capital. Investors begin to look optimistically into the future, leading to increased buying activity, correlated with higher trading volumes and volatility. This can create a self-fulfilling cycle where positive sentiments fuel more significant buying activity, resulting in price growth. The main danger in this phase is the uncertainty of the further trend for most investors, leading to the triggering of high-margin leverages due to volatility. It is recommended to maintain a balance of 40-45% in USDT by closing the first sell orders for most assets.
Optimism Phase
The optimism phase in the market is characterized by an overall sense of positivity and investor confidence in the profitability of assets. During this stage, an upward trend with rising prices is typically observed. This phase is often marked by an increase in the number and involvement of investors, leading to a significant surge in trading volumes. Assets grow almost without correction.
Moreover, investors at this stage may be more inclined towards riskier investments due to the overall emotional sentiment of the market. A well-constructed portfolio in this market phase means you have already secured the “body” of your investments and are operating without risks. It is recommended to maintain a balance of 45-60% in USDT. Almost all assets have reached their second targets. The most active and trending coins may have already set historical highs. In this market phase, various earning tools can be used with the greatest safety.
Faith and Excitement Phases
The Faith phase can be considered the culmination of the previous optimism phase, corresponding to the most positive news background and the entry of “masses” into the market who believe they have become successful investors.
However, the Faith and Excitement phases are most similar in that, during this market cycle, smart capital begins to smoothly realize its selling goals. This is characterized by the start of a corrective wave, during which colossal liquidations of newly minted longs take place.
Regarding long-term investments, in these phases, almost all third sell orders are executed, and often the market surprises with prices higher than expected. In the Excitement stage, which begins with a sharp impulsive price rise after a correction, significant players continue to increase sales, closing positions against the crowd, which continues to eagerly buy assets based on emotions.
The news background in this phase is maximally positive, genuinely “exciting” the interest of new investors. It is recommended to maintain a balance of 60-85% in USDT. Major positions are closed. It is recommended to withdraw profits from various DeFi protocols.
Euphoria Phase
The main feature of this phase is the feeling that everyone around is getting rich. The crowd finds it hard to believe that corrections are possible at all. Meanwhile, smart money closes their highly profitable positions, enhancing the news background with maximally positive news.
Often, in this phase, technical analysis indicates a trend reversal, contradicting the news background. It is recommended to maintain a balance of 85-95% in USDT. It is essential to close long positions as much as possible and prepare for immersion in trading with a focus on short positions or engage in enhancing personal knowledge and skills.
Yielding Phase
This phase occurs when the market has shown its reversal, but the crowd insists it’s just a correction. During this phase, the market may even rewrite its highs for the most popular and trending assets, allowing you to lock in profits if you haven’t done so already. The positive news background continues, enabling the “redistribution” of assets from smart money to the crowd. It is recommended to maintain a balance of 95% in USDT. These and subsequent phases are ideal for taking a break from the market, refining trading strategies based on the previous cycle, and improving skills and knowledge. It is preferable to prepare for working with margin leverage on Short.
Anxiety Phase
This phase is characterized by numerous liquidations of speculative long positions. Positive news does not lead to an increase in asset prices, and negative news results in significant declines. Most people maintain faith that the correction will soon end, and a bull market will resume. The culmination of this phase suggests the beginning of market cleansing and impulsive declines. A good example might be the collapse of Terra Luna. It is recommended to maintain a balance of 90-95% in USDT. Preferences in this phase are given to short positions and forming a strategy for buying assets.
Denial Phase
The denial phase is characterized by a full-fledged bear market. Negative news creates impulsive downward movements. Fundamental assets come to the first buying zones. Psychologically, investors are almost certain that the fall was final, and the market will soon turn around. A good example might be investors’ belief that Bitcoin would not go below $30,000, which ended in further capitulation. It is recommended to maintain a balance of 80-90% in USDT. Most of the first buy orders have been executed.
Panic Phase
In this market phase, negativity prevails, and millions of dollars flow to strong hands. This phase may witness the most significant impulsive declines. There are announcements that assets will never recover their prices, many projects exit the market, and liquidity issues come to the forefront. It’s the best time to buy promising projects. It is recommended to maintain a balance of 70-80% in USDT. Second buy orders for fundamental assets start to be triggered.
Capitulation Phase
The market is dominated by an extremely pessimistic sentiment, forcing most market participants to sell their assets at a loss. This is accompanied by bankruptcies of major companies, serious issues with regulatory bodies, legal proceedings, leading to the majority leaving the market in disappointment. It is recommended to maintain a balance of 60-70% in USDT. Second buy orders for assets have been triggered. At this stage, it’s crucial to monitor which projects continue developing their products and show interest in new technologies that may bring substantial profits in the future.
Anger Phase
This phase occurs in an extremely negative environment. Asset sell-offs persist, but no significant impulsive movements are observed. The first bottom of the market begins to take shape methodically. This phase is characterized by reduced volatility and the initial serious attempts to liquidate sellers. Moods are influenced by political problems, crises, pandemics, etc. It is recommended to maintain a balance of 40-60% in USDT. Third buy orders for assets start to be triggered.
Depression Phase
Many assets are consigned to the “graveyard” by news outlets. There is minimal volatility in the market. Negative news occasionally surfaces but has almost no impact on the market. This happens because significant capital continues to make purchases at the most advantageous prices, while the “crowd” has already sold their assets at a loss. Macro patterns of an upcoming market reversal begin to emerge in the economy. It is recommended to maintain a balance of 25-40% in USDT. Third buy orders have been executed in most cases. Attention should be paid to the formation of new trends and technologies. It’s crucial to monitor where significant capital is investing and understand which projects are genuinely needed in the market. Allocate additional percentages for purchasing promising and fundamental assets. Consider long positions with moderate leverage for the long term.