Psychology of a market cycle and its relevance to Silver

As a person who has been learning a lot about market cycles, how they function and how buyers and sellers act, I feel like this post could help people understand why I believe silver is a phenomenal long term (at least the next 11 years) investment.

So, first and foremost, I would like to explain/portray a typical market cycle.

In the image above we can see the typical market cycle. The image presented also includes an explanation of the emotions that investors go through at each stage in the cycle. Too many investors have too much emotional attachment to their investments and, therefore, end up making irrational decisions based on emotions, not on technical analysis. People get rich off technical trading, not emotional trading. During emotional trading investors follow waves that took off too long before the person decided to invest and, therefore, the investor's % profit decreases while the risk:reward ratio of the investment increases.

Most market cycles will not look exactly like the one presented above, but there is a very strong correlation between the rises and falls in almost every market. Market cycles have different lengths, depending on the asset at hand. In crypto, these market cycles can happen within days or even hours. With silver, on the other hand, it takes multiple years for a market cycle to end. According to my technical analysis, I believe that silver is at the end of a market cycle, and, therefore, by definition it is also at the beginning of a new market cycle.

The spot price of silver in the year 2000 was around $5. At the height of the market cycle, silver peaked at an astounding $49.80 per ounce. This is a staggering 996% gain on the investment. If one was able to predict the absolute height of the rally, this, of course, would have been the best time to sell since silver, since was overbought. The RSI (Relative Strength Index) was at a whopping 93%. The RSI is the ratio between buyers and sellers. So, an RSI of 93% essentially tells us that 93 out of 100 people are buying and only 7 out of 100 are selling. While RSI isn't the end all be all, it definitely can provide valuable signals as to where peaks and valleys should reverse. I can delve further into RSI in another post.

Silver has fallen around 2/3 in price over the years to its current price. At the time of this post, we have a silver ounce priced at $16.58. The fall in price has been a steady decline for years, the lowest point being in January of 2016 with a price of slightly under $14 per ounce. I personally believe that that price was the best entrance into the current market and I do not believe that we will see silver dipping below that price anytime soon, if ever again. If we were to set a risk to reward ratio of 10:1 we would buy silver at the current price $16.58 and hold it until it reached our sell targets. This means we sell silver at $12.50 at a 25% loss, or we sell it at a 250% profit at ~$58 per ounce.

Another indicator I use, apart from RSI and the comparison to the emotional cycle of a market, is the Fibonacci Retracement. The Fibonacci Retracement tool is a phenomenal way to understand support and resistance levels within price movements. I personally use www.tradingview.com to do my technical analysis/charting. If one sets the bottom of the "Fib Retracement" to the price of the year 2000 and the top to the peak price of April 2011, we can see that the current price of $16.58 lies between the 0.618 and the 0.786 lines. This region has proven to me, in all of my trades, to be the ideal entry into any position I have taken in the past. This is because the price has already fallen so radically from its recent peak that it would be illogical for the price to force its way down further.

Market cycles tend to reach a higher highs than their previous ones. This leads me to believe that the upcoming rally in silver will break all time highs in price.

FULL DISCLOSURE

I am personally invested in silver; I own a Kilogram of it and will be buying more over the next few years on a monthly basis. I believe this asset is currently so undervalued that I am willing to have an aggressive investment strategy.

Diversification of assets is done because of a lack of faith in any one asset exclusively. So, one spreads out the potential risks within their investment portfolio. I have a tremendous amount of confidence that the silver market cycle will commence its rally soon and I will be buying as much as possible in order to beat the wave of people who will end up buying it emotionally when they see the price continuously rise over the next few years.

I hope this post was helpful and I will be posting more in the future, delving deeper into my reasons of believing that silver is currently "on sale".

Yours truly,
Lucas Hohl-Marchetta.