The market is cyclical. They go through periods of both positive and negative sentiment. Price action follows the mood across the entire market. Although it is difficult to predict these market changes, Bitcoin prices are currently following the textbook market sentiment chart in The Nature of Risk.
A major trend shift is likely if the pattern described in the book holds true across cryptocurrency markets. Justin Mamis has created a chart that shows the market sentiment cycles.
Bitcoin Is Following a Textbook Market Sentiment Cycle?
The market tends to follow the same pattern. Certain technical analysis charts patterns may yield more accurate results.
Elliott Wave Theory states that even market cycles advance along the same five waves when zoomed in. Technical analysis is a powerful tool that can not only forecast market behavior but also human behavior.
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Ralph Nelson Elliott who came up with the theory also wrote a book on the secret of the universe he referred to as “nature’s law.”
Another author with plenty of stock market experience, Justin Mamis, also recognized these ties and penned the book The Nature of Risk: Stock Market Survival & the Meaning of Life. It contains the market sentiment cycle chart.
Bitcoin versus Justin Mamis market sentiment chart Source: TradingView.com BTCUSD| Source: BTCUSD on TradingView.com
Justin Mamis and Market Sentiment Cycles: All about Justin Mamis
Justin Mamis presents Juxtaposed alongside the Bitcoin line charts. This chart highlights many emotions and phases during a market sentiment circle.
The failure of the dip to work at the peak of excitement was an indicator that a change in trend was needed. Market participants entered disbelief when the support line below broke down. The market begins to feel discouraged by the inability to make any movement.
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Aversion can cause investors to feel strong dislike for the asset, and may even wish to see lower levels. At this stage, confidence returns and bearish traders remain in denial.
Justin Mamis is the former Assistant Director of the NYSE Floor Department, former Senior Vice President and Chief Market Technician at Hancock, and appeared frequently in Barron’s and The Wall Street Journal. Mamis wrote in a newsletter that he said these words:
A cycle begins with stocks climbing “a wall of worry,” and ends when there is no worry anymore. Even after the rise tops out, investors continue to believe that they should buy the dips…Unwillingness to believe in that change marks the first phase down: “It’s just another buying opportunity.” The second, realistic, phase down is the passage from bullish to bearish sentiment…Selling begins to make sense. It culminates with the third phase: investors, in disgust,…dump right near the eventual low in the conviction that the bad news is never going to stop…
Don’t believe the chart represents what could happen in Bitcoin? Then, do sentiment conditions follow Mamis’ instructions to investors?
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Featured Image from iStockPhoto. Charts by TradingView.com