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We become conditioned by the present environment, and when it changes our intuitions fail us.
Extremes in sentiment are only worth fading if *the sentiment shift itself was what was moving price*.
Extremes in sentiment are only worth fading if *the sentiment shift itself was what was moving price*.
So for example, in crypto since 2017 there have been no sustained net capital inflows.
As such, extremes in bullish sentiment generally meant that everyone is already long, so there’s no more buyers and a glut of potential sellers.
As such, extremes in bullish sentiment generally meant that everyone is already long, so there’s no more buyers and a glut of potential sellers.
Because of this, extremes in sentiment in either direction were a decent indictor for reversal.
But this isn't a universal truth.
This is not true in a market that is primarily driven by net capital flows.
But this isn't a universal truth.
This is not true in a market that is primarily driven by net capital flows.
In this case, new money is flowing into the space. It doesn’t matter if existing participants are extremely bullish, as the actions of existing participants aren’t the primary factor that is moving price.
A shift is occurring. It isn’t all the way there yet, but it is happening.
You have to understand these kinds of things so that you can adjust your approach as reality changes.
You have to understand these kinds of things so that you can adjust your approach as reality changes.
