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08.10.2018

How to use Formation of Bart Simpson in your investments?

What is the Bart Simpson Formation?

Has your investment ever rapidly gained in value? Well, what happened after a few days or weeks passed? Did your investment maintain its value? Or after a period of volatility, did it suddenly drop back to the price you paid for it, or worse, even lower? If this sounds familiar, you may have experienced what some have humorously coined the Bart Simpson phenomenon. Wait, Bart Simpson? Let me explain.

This wonky price pattern shows a sudden and drastic rise in a given investment, followed by a slight decline, then rise, then another decline, again rise, and so on, until finally, a sudden and dramatic drop. It is at this point, after the drop, where the investment usually stabilizes to around where it was before its unusual assent.

Is it common in cryptocurrency markets?

For better or for worse, those with investments in cryptocurrencies have become increasingly familiar with the Bart Simpson phenomenon. This may be because cryptocurrencies are often subject to large influxes of money in their initial stages and for that reason investors often witness a “pump” of capital before the enviable “dump”, meaning bigger actors may see gains, while smaller investors often do not. That is, the Bart Simpson formation has wreaked havoc for some investors, while others have used this pattern to turn a profit.  This pattern of “pump and dump” means that the Bart Simpson formation is not a naturally occurring trend, rather, it is the result of a sudden influx of capital from large investors, shortly followed by a quick sell-off. The hot spikes of Bart Simpson’s hair, therefore are, under this analogy, the result of market manipulation.

Unlike cryptocurrencies, the price of traditional investments, like oil for instance, are not easily manipulated. This may be why it is more common for investors to see the Bart Simpson formation in crypto markets than in traditional stock markets. Further, ICOs attract sudden influxes of large amounts of capital into a largely unregulated marketplace, making cryptocurrencies far less predictable than traditional investments types.

How to use the Bart Simpson Formation

Acknowledging the existence of the Bart Simpson Formation, however is the first step towards understanding how it can be used to better your investment portfolio.

If you have ever experienced the Bart Simpson phenomenon, you may know that it can lead to a quick loss of capital, especially if you jumped in too late. It is for this reason that it is generally considered very risky to rely on rapidly increasing stocks, as seen in the Bart Simpson formation, as part of your investment strategy. However, if you purchase early and sell before the crash, then you may stand to gain a return on your investments. Listed below are a few guidelines to follow if you are interested in using the Bart Simpson formation in your investments.

Firstly, you should always have an understanding of the stock and/or currency you are purchasing. See if you can identify if this has happened before, or look to see how similar products performed during their ICO.

Secondly, since you have no idea when the dumping will start, it is crucial that you monitor your investment closely. This means staying connected with the market regardless of where you are or what time of day it is. You never know when it is going to happen!

Finally, there are generally two opportunities to make money off of an investment that behaves like the Bart Simpson formation. The first is turning a profit by selling stocks long. This strategy involves making an investment, then selling it while it is still going up. The latter strategy is known as selling short. This strategy involves trading while the price of the investment is falling. However, doing so involves finding a broker who is willing to lend you shares that you can then sell before officially purchasing them. This way you are selling something for a high value that you will later purchase a lower value.

As anyone who has lost money because of the Bart Simpson formation will tell you, it is difficult to realize return on investments in a marketplace where the Bart Simpson formation is common. However, having the ability to identify when the Bart Simpson formation is occurring is the first step in understanding what it means for your investments.

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