Wall Street Cheat Sheet displays market cycle psychology & helps identify market bubbles

What is the Wall Street Cheat Sheet?

The “Wall Street Cheat Sheet” is a popular term used to refer to a chart that lists common patterns in stock market trading,

It shows the market cycle of a hypothetical asset bubble bursting, after a so-called “parabolic” price runup. It’s a generic pattern, not taken from any actual chart (that this staff writer is aware of), and thus any asset bubble can fit within the pattern.

That this is not an actual chart, but rather a notional one, is fine because what’s important is not the specific market structures or patterns in the chart, but instead the generalizations about a market’s typical, collective emotional reaction to this kind of price action.

If we distill the Wall Street Cheat Sheet down to its basic message, what it aims to show is the emotions that propel huge, volatile movements in markets, the aforementioned fear and greed.




How to use the Wall Street Cheat Sheet

This Wall Street cheat sheet breaks down the psychology of market cycles and shows the different emotions that play out. As you know, the market moves in cycles, and these cycles repeat themselves over and over again. The cheat sheet shows what goes through the minds of market participants during the different stages of the market cycle.

The chart is designed to help investors identify potential opportunities for buying or selling securities. 

The chart includes different phases of a typical market cycle, such as the “accumulation phase,” the “markup phase,” the “distribution phase,” and the “decline phase,” along with corresponding signals or indicators to watch out for in each phase.

Aim to buy during Panic/Anger/Depression or Disbelief phase.

Aim to sell at the Euphoria phase.