The greater fool theory is the assumption that there will be always be someone willing to purchase an asset at a higher price. This article is going to explain how you can use this theory to your advantage when investing in cryptocurrencies.
The age old saying of ‘Buy The Rumour And Sell The News’ is even more effective in the cryptocurrency market than the stock market. I am going to explain a strategy that will make sure you are not the greater fool when it comes to trading cryptocurrencies.
I’m going to start with an example of how this works…
1. Verge’s ‘Revolutionary’ partnership…
XVG announced that they had a revolutionary partnership that was going to be announced on the 17th April (although this date was originally sooner).
XVG increased by more than 300% leading up until the announcement and then fell 30% on the day of the announcement.
You are probably thinking, why on earth did it fall on the day of the announcement?
The simple answer to this is that the market had already priced in the event.
The strategy that most people do is they buy the rumour / announcement and then they sell the news on the day of the announcement. This strategy is purely based on the greater fool theory.
You are buying in early assuming that someone will buy in higher due to the announcement, but here’s the thing…
They are thinking the exact same thing.
The greatest fool is the person who comes in last and exits after the drop. You may not think this is you, but most investors let greed take over their rationality.
The variables of this theory are forever changing due to the adoption of it. The more people that know of this strategy, the less reliable it will become. Investors will start to do two things:
1. Enter sooner than others (again, assuming others will be the greater fool).
2. Exit sooner than others
Soon there will be no reliable set periods to enter or exit these types of trade, there will be a bunch of traders that are trigger ready on their sell order — which the manipulators will use to their advantage.
What’s the solution?
Always be one step ahead of the average investor. When the mass market says to get in 3 weeks before an event, get in 4. When the mass market says to exit 1 day before the announcement, exit 2. Always mitigate the risk of YOU being the greatest fool.
One last thing I want to add is that I wouldn’t exit 100% too far away from the announcement, it is often on the last day that prices rise the most, but remember, this is when the FOOLS enter so be sure to sell or keep tight sell limits on the day of the event.
So, the next time you are buying an event ask yourself this question…
Are you the greater fool?
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Any questions just email me at: Devin@cryptoinvestorsclub.co.uk
All the best,