White man magic for picking tops

Today I’d like to show you some white-man magic that will help you pick short term tops and bottoms.

Let’s start from the 30,000 ft view of how we are gonna get paid by the markets.

First principle.

Nobody’s gonna pay you to sit in a hot tub getting a blow job while you are eating a pizza.

Deep down you know that if you want this experience you will probably have to pay for it, right?

What kinds of things WILL the market pay you for?

Just like in real life I get paid for doing USEFUL THINGS.

HFT bots make the bid ask spreads as small as they can be, saving retail traders a LOT of money.

It’s perfectly reasonable that they should be compensated for that.

(Yes I know it’s fashionable to hate on high frequency traders but if you traded before them like I did you will know how badly it sucked for the little guy)

Market Makers make sure that you can always get a fill on your order. That’s hella useful, and it makes sense that market makers should, on average, be profitable.

There are other categories of things which are useful, too.

Two main categories, actually.

Category 1 - Finding price inefficiencies.

Category 2 - Taking on shitty risks that other people don’t want to take and getting paid for that

Today we are looking at category 1 - Finding price inefficiencies

The market is literally a machine for figuring out the fair price to pay for a thing.

With modern, liquid markets it’s actually very difficult to overpay for a thing given all the stuff we know about it right now (which changes, so the price changes)

But sometimes, traders will overpay for “good stuff” or underpay for “bad stuff” and that’s our moment to pounce.

Why would any trader do something so stupid?

Well… a few reasons, actually.

Not everyone is trading to maximize their profit.

Sometimes, traders get FUCKED (technical term) and are forced to trade price insentively.

Like when a big fund or position is liquidated with a stop loss.

They don’t have any say in what price it goes for, so they are probably gonna get their face ripped off, right?

Sucks for them, great for you.

If you catch this happening in real time you can make a high probability quick trade to help donk price back to it’s fair value.

You also see this sometimes around the end of the month, when hedge fund traders don’t want to have to report they are holding embarrasingly crappy stocks.

Or the end of the year when it makes sense for some traders to book in tax losses. They don’t care what price they trade at, so this distorts prices.

There is one more tricky category of price distortion.

We know that people will overpay for good shit.

And we know that humans are pretty stupid when they get into large groups.

They overweight the recent evidence and naturally assume that the recent past will continue.

So if the price has been going up lately, they assume this will continue and be willing to overpay.

We call this FOMO.

This FOMO is what drives trends, which is how we earn most of our money.

But sometimes, we have clear evidence that users are going nucking futs.

What this looks like leaves extremely obvious footprints on the chart.

And that’s what I’d like to break down for you.

First thing - you need to find a steady and smooth uptrend

(In the academic literature they call this “frog boiling in water momentum”)

Then when you see that uptrend is clear and obvious (that is key) look for a single candle where EVERYONE rushes in at once.

This giant white dildo candle is a visual representation of everyone rushing in at once.

Which has to be FOMO, right?

Which almost by definition is people overpaying because they love something.

Which almost by definition is a great place to sell or short.

You’re welcome

Scott

P.s. DeFi coins had a moment yesterday