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“When I see a bubble forming, I rush to buy — adding fuel to the fire”.
- George Soros
But how do you play bubbles? Read on.
- George Soros
But how do you play bubbles? Read on.
1/ When I was a younger trader I would watch hundreds of assets. I always had an aversion to buying an asset that had already appreciated significantly, believing I could find a catch up trade or that mean reversion would kick in. This was ~wrong~!
2/ I was trading in a trending environment -- the bull market of 2010-2020. When you're trading a trend (especially a bubble!), you compound winners. You cut losers. Don't fight the market. Don't even anticipate. Don't time the low or high. Money is made in the middle.
3/ Fight the urge that tells you not to buy because things are "expensive". Trends introduce autocorrelation. An asset up 30% in a bubble is more likely to be up another 30% than asset B that is down 5%. But asset B "feels" better to buy.
4/ Make bets until the bets stop working. They way most people go broke is by sizing up bet after bet, so by the end when things stop working they have their largest position. Don't make that mistake. Size appropriately on every bet, but MAKE the bets!
4/ A practical example: Bancor. We are in a DeFi bubble. Bancor is up 300%, but it has more to go. There is a meaningful event (V2) this month, and it's still only 100m mcap coin (compared to the 200m+ of others). It's a braindead bet.
5/ We've all seen how events drive price recently. Take KNC rallying 100% into Katalyst. Imagine the poor souls who didn't buy KNC because it "already up too much". We're in a bubble. There is a meaningful event. Buy that until it doesn't work.
6/ Poor mentality (held by the majority of investors and trades) will make you believe theses assets can't go up more.
