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More time is spent fishing and keeping fit. From entering the cryptocurrency world with 50,000 to making a profit of 10 million, then going into debt of 8 million, to making a profit of 20 million, and now achieving financial freedom.

[Must-See for Contract Trading] Dealer Psychology: Up and Down Spikes

Dealer Psychology: Up and Down Spikes

In the financial market's arena, dealers are like invisible chess players, controlling every piece on the board. Retail investors often think they are the players, but in reality, they are merely pieces, pushed toward the abyss by invisible hands. One of the most cunning tricks is 'up and down spikes'. This is not just simple price fluctuations; it is a psychological trap carefully designed by dealers, exploiting human weaknesses—fear and greed—to harvest the naive. What are up and down spikes? How do they manipulate hearts? This article will analyze this technique from a psychological perspective, helping readers to understand dealers' mental journeys and avoid the market's hidden reefs.

The Appearance of Up and Down Spikes: 'Spike Shadows' on Candlestick Charts

Let's break down this term. In the candlestick charts of stocks or cryptocurrencies, 'up and down spikes' manifest as prices sharply rising (upward spike) or plummeting (downward spike) in a short time, forming a long shadow, as if a needle pierced the candle. For example, a stock oscillating near a support level, which should rise steadily, suddenly dips to a previous low, hitting retail investors' stop-loss levels, then quickly rebounds; conversely, at a resistance level, it pretends to break through a new high, luring buyers, and then falls back. Such volatility often occurs during periods of low liquidity, such as before market open or close, lasting only a few minutes to a few hours.

From a technical standpoint, dealers create illusions through large orders or algorithmic trading. They do not operate randomly but target retail investors' pain points based on the depth of the order book. Data shows that in the cryptocurrency market, this spike phenomenon occurs frequently: according to Binance data, more than 30% of extreme fluctuations in Bitcoin futures in 2024 stem from such manipulation. Dealers do not do this to 'buy from themselves and sell to themselves', but exploit the liquidation mechanisms of leveraged contracts. Stop-loss orders set by leveraged traders become the dealers' 'bait'—one spike down, and a liquidation ensues, liquidity floods in, and dealers can buy low and sell high, profiting effortlessly.

But this is just the tip of the iceberg. The real killer move is psychology. Dealers understand human nature deeply; they are not trading prices but trading emotions.

Fearful Spikes: Downward Spikes and Panic Selling

In psychology, fear is a human instinctive reaction, primarily driven by the amygdala, much faster than the rational brain's cortical processing. Dealers exploit this 'fast track' to launch downward spike attacks. Imagine this: the stock you hold has a floating profit of 20%, and just when it seems ready to break even, the price drops like a free fall through support. Your heart races, and thoughts of 'crash' and 'zeroing out' flash through your mind. Behavioral finance founder Daniel Kahneman's 'prospect theory' explains this: the pain of loss is twice that of profit. In fear, retail investors prefer to take small losses rather than gamble on greater uncertainties.

How do dealers amplify this fear? First is the 'anchoring effect': they deliberately let the price 'anchor' near the psychological price level of retail investors and repeatedly test it. For instance, a certain cryptocurrency oscillates around $10,000, and the dealer spikes down to $9,500, hitting the stop-loss line of most bulls. The order book shows stop-loss orders pouring out like a tide, causing the price to crash. But the dealer has long been lurking with buy orders around $9,000, waiting for the panic selling to finish, and the price rebounds to $10,200. They not only eat up cheap chips but also profit doubly through short contracts.

A real case occurred in the Ethereum market in 2023. In May of that year, ETH consolidated in the $1800 range, and the dealer launched a downward spike for three consecutive days, reaching a low of $1650. Retail forums were filled with lamentations: 'The dealer is washing the plate, run!' As a result, ETH rebounded to $2200 a few days later, while the dealer laughed all the way. Psychological research shows that this 'loss aversion' causes 80% of retail investors to cut losses during spikes, while the dealer only needs to spend 1% of the cost to gain a 10-fold return.

More insidious is the 'herding effect'. In the age of social media, dealers amplify panic through paid accounts: a tweet about 'a crash is imminent' can trigger a chain reaction. Milgram's obedience experiments prove that people are easily influenced by groups. In the market, this translates to the 'herd effect'—seeing others sell, one hastily follows suit. Dealers reap the benefits, thinking, 'Fear is like a virus; one spike can infect the whole crowd.'

Greedy Spikes: Upward Spikes and Chase for Rising Prices

If a downward spike is a 'kill', an upward spike is a 'lure'. Greed arises from the secretion of dopamine; when the price breaks through resistance, the reward center of retail investors is activated, fantasizing about 'getting rich overnight'. Dealers cleverly exploit 'confirmation bias': people tend to believe information that supports their expectations. During an upward spike, the price soars like a rocket, creating a long upper shadow on the candlestick, falsely breaking a new high. Retail investors rush in, and the FOMO (Fear Of Missing Out) sentiment surges.

Dealers calculate carefully: they know that leveraged bulls will add positions to chase rising prices, while bears will panic and close positions. Upward spikes are often accompanied by false volume—dealers use small orders to lift prices, creating a false impression of large transactions. Once the price reaches an inflated level, sell orders flood in, and spike shadows fall back. Psychologically, this is called 'overconfidence bias': retail investors underestimate risks and overestimate their judgment. Kahneman's research shows that investors' confidence swells by 30% in bull markets, leading to chasing highs.

Take Dogecoin in the cryptocurrency space as an example. In May 2021, DOGE spiked from $0.5 to $0.73, and retail investors celebrated their 'moon journey'. Dealers sold at the peak, and the price fell back to $0.4, wiping out countless leveraged positions. The dealer's psychology: 'Greed is like a magnet; a spike draws in the golden fleece.' They not only profit from the price difference but also collect fees and liquidation funds. Data shows this upward spike yields an average return of 5-15% for dealers.

The combination of up and down spikes is even more deadly: first a downward spike to wash out bulls; then an upward spike to lure in buyers, and when they enter, a double kill. Dealers act like psychologists, accurately diagnosing retail investors' 'greed and fear syndrome.'

Dealer's Psychological Journey: Cold-Blooded Game Theory

Dealers are not born demons; they are rational economic agents following the Nash equilibrium of game theory. In a zero-sum market, your loss is their gain. John Maynard Keynes' 'animal spirits' theory suggests that markets are driven by emotion, and dealers are the directors of those emotions. They use big data to analyze order flows and predict retail behavior: selling more in fear and buying more in greed.

But dealers also have psychological weaknesses: overconfidence can lead to 'the emperor's new clothes'—false breakthroughs being countered by real capital. The 2022 FTX collapse was a case of dealers reaping what they sowed. But for most, they are winners, because of retail investors' 'status quo bias'—unwilling to change habits, forever trapped in a cycle.

How to Break the Deadlock: Cultivating Psychological Resilience

In the face of up and down spikes, technical stop-loss is not enough for self-preservation; mental preparation is the true path. First, be aware of emotions: take a deep breath before trading and record 'why buy/sell'. Behavioral economics suggests using a 'pre-collateral' strategy—setting stop-losses based on trends rather than panic.

Secondly, think reversely: when spiking, ask yourself, 'If I were the dealer, what would I do?' This comes from 'dealer thinking training', putting yourself in the opponent's shoes to predict the next move. Again, diversify risks: do not use all your capital for leverage; hold no more than 20% of total capital. Finally, learn 'delayed gratification': ignore short-term spike shadows and focus on long-term trends. Studies show that investors who adhere to these principles achieve annualized returns 15% higher.

Social media is a double-edged sword: filter out the noise and join rational communities. Remember, the market is like a casino, and the dealer is the house. Only with psychological independence can one avoid being pricked.

Conclusion: From Chess Pieces to Chess Players

Up and down spikes are the pinnacle of dealer psychology; they pierce not only prices but also hearts. Fear and greed, like the two ends of a needle, thread the fate of retail investors. But knowledge is the antidote: understand the dealer's tricks, and you can laugh at the changing winds. In the financial arena, the game is endless. May every reader wield reason as a shield, avoiding hidden needles and welcoming the dawn.

The way to profit in the cryptocurrency market is:

In the ever-changing cryptocurrency space, to establish a long-term foothold and achieve profitability, mastering core survival principles and trading strategies is crucial. The following experiences have been paid for with real money by countless investors and hope to illuminate your path forward.

Core Survival Principles:

Capital Investment Principles

Always invest only money that you can afford to lose. It's like marching in battle; supplies must be sufficient and not put all eggs in one basket. Only by using idle money that does not affect life can one remain calm in the face of market fluctuations, avoiding getting into dire straits due to a single loss.

Capturing Trading Opportunities

In trading, be like a cheetah, patiently waiting for the best opportunity. A cheetah will lie in ambush for a long time before hunting, observing the movements of its prey, and once the moment is right, it strikes swiftly. The same goes in the cryptocurrency space; do not blindly follow the trend but wait for clear trend signals to enter decisively.

The Way of Using Leverage

A 5x leverage is considered the golden ratio. Leverage is a double-edged sword; when used well, it can amplify profits, but if used poorly, it can accelerate losses. 5x leverage can amplify profits to a certain extent without letting risks spiral out of control, providing a relatively stable operating space for trading.

Capital Protection Philosophy

Preserving capital is preserving hope. Capital is the foundation of trading; once capital is significantly damaged, it becomes exceptionally difficult to recover. No matter how tempting the market may be, always remember the importance of protecting your capital to avoid falling into an irretrievable situation due to greed.

Core Trading Strategies

High Leverage Precision Sniping Combined with Strict Stop-Loss

Adopt a strategy of high leverage + precision sniping + strict stop-loss. High leverage can achieve rapid capital growth in a short time but comes with high risk. Precision sniping requires investors to have sharp market insight and accurate judgment, only choosing the most assured trading opportunities. Strict stop-loss is key to controlling risk; when market trends deviate from expectations, decisively stop-loss to avoid further loss.

Selection of Trading Varieties

Only trade BTC/ETH. These two cryptocurrencies have high liquidity, and spike phenomena are relatively rare, making them battlegrounds for large capital. For ordinary investors, choosing highly liquid varieties ensures smooth trading, reducing problems like slippage due to insufficient market depth, thereby increasing the success rate of trades.

Setting Leverage Ratios

Use 20 times leverage. For example, with $1000, using 20 times leverage means that just a 5% fluctuation can turn the capital into $20,000. But always remember to set a stop-loss when opening a position; the liquidation line is your bottom line. While high leverage can bring high returns, risks also increase exponentially. Setting stop-loss can ensure timely exits when the market is unfavorable, avoiding total loss.

Breakout Buying Techniques

Utilize the breakout buying method. Wait for a major horizontal breakout (over 4 hours), and when the price breaks through the previous high or low, jump in instantly to capture the momentum. This strategy takes advantage of market trend inertia; when a breakout occurs, the market often continues the original trend for a while, providing profit opportunities for investors. However, be cautious of false breakouts, and combine with other indicators for comprehensive judgment.

Core Trading and Position Management

The Essence of Core Trading

In the core of cryptocurrency trading, only those who have been 'educated' by the market can truly understand. The essence of trading is position management; all trading activities must be conducted within appropriate position management. It is like building a skyscraper; position management is the foundation, and only with a solid foundation can the skyscraper stand tall.

Profit and Loss Balance

Reasonable position management allows you to make big profits when the timing is right and small losses when the timing is wrong, ensuring stable capital growth. When the market trend aligns with expectations, a larger position can amplify profits; when the market trend is unfavorable, a smaller position can limit losses. By balancing profits and losses in this way, stable capital growth can be achieved.

Emotional and Rational Game

Humans are always emotional beings who rationalize their emotions. No matter how much you emphasize the rationality of your decisions, in reality, it is always driven by emotion. Your directional judgments often carry subjective biases, and all technical indicators will show strengths or weaknesses based on your judgments. Therefore, always be vigilant against emotional interference in trading and rely on objective data and rules for decision-making.

Gratitude for the Market's Gifts

When we make money in the market, we should thank the market. It is not because we are so strong, but because the market has allowed us to taste the sweetness. The market is unpredictable; it gives us opportunities to profit but can take them back at any time. We must maintain a sense of reverence and cherish every opportunity for profit while also preparing for losses.

Discipline Achieves Victory

Everything is about opportunity and discipline leading us to victory, with the key being position management. Surviving longer increases the chance of winning; cryptocurrency trading is a probabilistic game, not a personal ATM. The difference between speculation and gambling lies in discipline; only by strictly adhering to trading discipline can one survive in the market long-term and ultimately achieve profitability.

Pay attention to Lao Chen, and you will definitely gain something. Helping others is like helping oneself. I hope that regardless of how the market changes, we can continue to walk together, and ten years from now, we can look back at the cryptocurrency space with a smile.$BTC $ETH