When it comes to becoming a successful trader, having the ability to spot bubbles can make you a lot of money and help you make better trades. Over the years I have taken advantage of this to exploit bubbles in penny stocks and in options trading. The key to it, is know the stages to a bubble and this is essentially based upon trading psychology. Becoming a good trader doesn’t necessarily revolve around knowing how to trade options or how to trade penny stocks, because there is a huge emotional factor. You are going up against other market participants and if you know how to spot the signs you can exploit their psychological weaknesses. The key to this, is making sure you don’t get caught in the pump and dump esque nature of asset bubbles and make sure you are able to protect yourself.
I go over asset bubbles in this video and how to take advantage of them and explain briefly situations in which I used them in options trading, in relation to the earnings bubble of 2015. As well as how I used it in the marijuana penny stock bubble of 2014. The thing about spotting bubbles and taking advantage of them is all about timing to maximize your rewards. Sure you can day trade them, however daytrading wont really be as effective since you will be playing musical chairs for little amounts of money. Ideally the best strategy to take advantage of bubbles is swing trading. The interesting part about bubbles and trading them is that they are not necessarily fundamental analysis or technical analysis, it is pretty much the psychological part of trading and more or less related to price action but on a deeper level.
As I state in the video, the key to the bubbles is finding industries in the markets that are bubbling or getting hot and then zoning in on companies within those industries. If it is just one company and the industry isn’t popping or there is a lot of hype around the industry, it could simply be just a pump, which is very common when trading penny stocks. Moreover, if you are a beginner penny stock trader or beginner options trader, you have to make sure you don’t confuse artificial demand/hype with bubbles and be quick to jump in. As I explain, you kind of have time on your side and can still make a lot of money if there is truly a bubble so be patient!
Anyways I wont keep ranting, as always ask me specific questions and if you want me to elaborate on certain aspects post them below in the comments and I will make a follow up video!
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