The Ultimate Guide to Trading Market Bubbles

It’s a stock market bubble.

Also… Bitcoin is in a bubble.

Bonds are in a bubble.

Housing is in a bubble.

Everything is a bubble.

Take this week’s report from Jeremy Grantham from GMO partners stating that the market was “hysterically speculative” and that he was “doubling down” on this bubble, which “is beginning to look like a real humdinger.”

It’s easy to get drawn into these predictions, particularly if you are a contrarian. But there’s no way to prove they’re right. In fact, as the price moves against you, you become convinced you are right… the bubble grows.

So what can you do? There are two approaches: (1) do nothing; or (2) take the George Soros “buy it” approach.

Do Nothing

If you are naturally a contrarian, this may be your best choice. But it can be painful as euphoria and hysteria capture the world around you. It will seem like everyone is getting in on the bubble but you. That’s what happens in a bubble as more and more people rush to get in.

But you can’t short it.

These are all headlines from Business Insider (a favorite source of sensational news). And they’re all headlines from 2017. But they make a coming crash seem certain.

• BEWARE: The Stock Market Trade that could ‘Pop the Bubble’ by Year-End (Date: July 13, 2017)
• Stocks are Behaving in a Way Not Seen Since the Tech Bubble (Date: October 11, 2017)
• The U.S. Economy Looks a lot Like the Period Before the Tech Bubble (Date: June 16, 2017)
• ROSENBERG: These 10 Classic Signs Show that the Stock Market is ‘Bubbly’ (Date: March 13, 2017)
• JIM ROGERS: The Worst Crash in Our Lifetime is Coming (Date: June 9, 2017)
• Fed Warning on Extended Stock Valuations Highlights a Big Risk (Date: August 17, 2017)
• The Tesla Bubble Just Got Terrifying (Date: April 10, 2017)

Read the conviction in those headlines. They’re certain. And there are very big names — like Jim Rogers — making very big predictions.

But they’re also so, so wrong. If you acted on any of those, you would have lost money. So, do nothing instead.

George Soros Buys Bubbles

“When I see a bubble forming, I rush in to buy, adding fuel to the fire. That is not irrational.” — George Soros

Tom Canfield (@Canny4 on Twitter) has a great saying: Be dumb, follow price. If you can do this, then buying the bubble may be the best for you.

A lot of money can be made in bubbles. Just ask George Soros.

Soros believes in the reflexivity of markets, a theory that says that investors base their decisions on their perception of reality… not reality. This explains booms and busts, and why at the top of the market, traders are the most optimistic, while at the bottom of the market, they’re the most pessimistic. It’s not reality that matters, but the perception of reality.

So, if you’re early enough, you can buy a bubble, which will help influence others based on your decisions.

Case in point: Bitcoin. It’s been a well-touted “bubble” since, let’s just say, $1,000. Then it doubled. Then it doubled. Then it doubled. Then it went up 5x. Currently trading at highs around $40,000 with the latest run, you could have bought into the bubble at any point so far.

Interested in trading bubbles? Check out Market Rebels Crypto for all the latest Bitcoin and crypto trading news.