Learn About Market Bubbles
Understanding bubbles is the first step to protecting yourself from them. Master the patterns that have repeated throughout history.
The Five Phases of a Bubble
Every speculative bubble follows a remarkably similar pattern. Learn to recognize each phase.
Stealth Phase
The earliest stage where smart money and institutional investors quietly accumulate positions. Public awareness is minimal, and the asset class may be dismissed or unknown to most investors. Prices begin to rise slowly from a base, but the moves are largely unnoticed.
Warning Signals:
- Institutional accumulation in filings
- Quietly rising prices with low volume
- Minimal media coverage
- Insiders increasing positions
- Early adopters showing interest
Awareness Phase
The asset begins attracting attention from more sophisticated investors and early financial media coverage. Prices rise more noticeably, and a compelling narrative starts to form. Valuations stretch but can still be justified with optimistic assumptions.
Warning Signals:
- Increasing media coverage
- Rising analyst price targets
- Growing retail interest
- Emergence of a compelling narrative
- Valuations stretch but defended
Mania Phase
The narrative dominates rational analysis. Retail participation explodes, prices rise parabolically, and anyone questioning the thesis is dismissed. New financial products emerge to "democratize access." This is the most dangerous phase for new entrants.
Warning Signals:
- Non-experts giving confident advice
- Price increases justify themselves
- Valuation metrics dismissed as outdated
- Celebrities and influencers involved
- New retail products for easy access
- Media coverage becomes breathless
Blow-Off / Peak
The final vertical move higher. Prices become completely disconnected from fundamentals. Trading volumes hit records. This phase can be brief but spectacular. Smart money begins quietly exiting while retail investors pile in at maximum enthusiasm.
Warning Signals:
- Vertical price action
- Record trading volumes
- Extreme optimism everywhere
- Smart money quietly exiting
- New paradigm declarations
- Massive media attention
Crash & Aftermath
Liquidity evaporates rapidly. Prices collapse, often faster than they rose. Denial is followed by capitulation as losses mount. The narrative that seemed bulletproof is now questioned. This phase can take months or years to fully play out.
Warning Signals:
- Sharp price declines
- Liquidity drying up
- Denial followed by capitulation
- Media turns negative
- Scapegoating and blame
- Regulatory attention increases
Theory & Psychology
Dive deeper into the mechanics and psychology behind market bubbles.
Bubble Detection Checklist
Use this checklist to evaluate whether an asset might be in bubble territory.
Price Behavior
- Parabolic price increases
- Price disconnected from fundamentals
- New "valuation metrics" being invented
- Historical comparisons dismissed
- Price targets constantly revised up
Market Psychology
- FOMO driving purchases
- "This time is different" narrative
- Skeptics dismissed or ridiculed
- Get-rich-quick stories everywhere
- Inexperienced investors piling in
Market Structure
- Easy credit fueling speculation
- New financial products emerging
- Increased leverage in the system
- Liquidity appearing unlimited
- Regulatory warnings ignored
If multiple items are checked, proceed with extreme caution.
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