It’s relatively simple — in a bubble fundamental valuation does not work and even technical analysis is unlikely to give exact indicators.

Therefore, you never know where the top is. If you’ve traded long enough you learn not to short a bubble. They always last longer than you expect and rise further. On a side note, when you short, you have unlimited loss potential (it can always rise further), so you need to be extra careful. When people short they usually do on margin (ie they only put up part of the collateral for their trade). When the trade works against them they need to add money to the account and if they can’t they need to buy back the asset they shorted. This is called a “short squeeze” and when it happens to many people at the same time it drives the bubble even higher.

So in short: you never short a bubble.

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Entrepreneur, Fund Manager, Ex-Consultant and Hobby Ice Hockey Player. Child of the Sun. Any opinions personal, never investment advice, sometimes parody

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