How do you know when you have reached the market top?
The bull market shifts and becomes a bear market when the general public becomes involved because they typically have a low tolerance for risk and require significant reassurance that their investments are safe. As a result, they are often the last to recognize the potential opportunities in a rising market.
When a bull market persists, the general public tends to feel pressured to join in, driven by the belief that everyone else is profiting. They will latch onto any seemingly rational justification for participating, even if their understanding of the market is limited, convinced that since others are buying, they should also take part.
For a bull market to thrive, it relies on a steady influx of new traders willing to pay increasingly higher prices. Over time, as more individuals buy in, the pool of potential new buyers shrinks, leading to fewer traders available to drive prices up further. Although existing buyers want the market to keep rising, they also fear getting stuck with losses if the upward trend ceases. As they see their profits grow, they become anxious about cashing out.
By the time the general public starts investing heavily, seasoned traders recognize that the market is nearing its peak. These professionals are aware that there is a finite number of participants willing to drive prices higher. Eventually, the potential buyers will have all entered the market, leaving no one left to sustain the upward momentum. While professional traders desire continued growth, they also grasp the reality that it cannot last indefinitely, prompting them to secure their profits while there are still buyers.
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