You’ve seen the meme. You’ve probably felt the meme. The Wall Street Cheat Sheet is a tidy sketch of how crowds swing from disbelief to euphoria and back to despair—then do it all over again. Useful? Very. But the diagram alone won’t keep you from buying the top or panic-selling the bottom. What will help is knowing what to look for, what to feel, and what to do at each stage.
I’ll break the cycle down with the real-world tells I watch (breadth, volatility, credit, flows, options positioning), the trap you’re likely to fall into, and the exact playbook I use to avoid donating my account to the market gods.
The Cycle At A Glance
| Phase | Dominant Emotion | Price Character | Retail Behavior | Pro Behavior | Typical Headlines | What I Do |
|---|---|---|---|---|---|---|
| Disbelief | Skepticism | First higher low; low volume up-days | Shrug off the bounce | Quiet accumulation | “Dead-cat bounce” | Build watchlists, start small probes, DCA rules ready |
| Hope | Cautious interest | Break of prior swing high | Tiptoe in | Add on strength, sell weakness | “Recovery?” | Add on constructive pullbacks; tight risk |
| Optimism → Belief | Confidence | Trend confirms: higher highs/lows, improving breadth | Join the move | Pyramid positions; rotate to leaders | “New bull market” | Ride winners, trail stops; don’t chase parabolas |
| Euphoria | FOMO | Vertical ramps; volatility crushed until it isn’t | YOLO, leverage | Distribute to late buyers | “This time is different” | Scale out methodically; hedge via puts/collars |
| Complacency | Overconfidence | First sharp pullback, then bounce | “Buy the dip!” repeatedly | Lighten up on failed retests | “Healthy correction” | Reduce risk on lower-highs; respect trend breaks |
| Anxiety → Panic | Fear | Lower highs → break of key MAs; vol spikes | Stops cascade, margin calls | Short pops, buy vol | “Market turmoil” | Harvest hedges, only scale into quality with plans |
| Capitulation → Anger/Depression | Exhaustion | Climax selling, breadth washouts | Throw in the towel | Cover shorts, nibble best assets | “Markets broken” | Deploy staged buys; widest stops, smallest size |
| Disbelief (again) | Cynicism | Quiet base, higher low, tight ranges | “It’ll fail again” | Accumulate | “Bear market rally” | Repeat: build, don’t boast; let price prove it |
Phase 1: Disbelief
You’re exhausted from the last drawdown, and so is everyone else. Price stops going down, carves a higher low, and limps higher on thin volume. Sentiment surveys are still grim, fund flows are negative, and your group chats say “fake rally.”
Data tells I watch
- Breadth: percentage of stocks above the 50-DMA rising from washed-out levels but still <50%
- Volatility: VIX easing off panic highs, but > long-term averages
- Credit: high-yield spreads begin narrowing from extremes
- Options: put/call still elevated; skew normalized
My play
I don’t need to predict “the bottom.” I pre-commit a small percent of cash to probing entries in highest-quality names or broad ETFs, then automate DCA weekly. Any add must have a hard stop beneath the recent higher low. No hero trades.
Phase 2: Hope
Price starts breaking prior swing highs. Pullbacks are bought. Twitter’s tone upgrades from nihilism to “maybe.”
Data tells
- Breadth thrusts (e.g., >90% up volume days) without immediate failure
- New highs list growing beyond mega-caps; small caps stop underperforming
- For crypto: funding back to neutral, stablecoin netflows turning positive
My play
Add on constructive pullbacks (pullback to rising 20/50-DMA with diminishing volume). I’m still sizing small; if the trend is real, I get many chances to pyramid. If it isn’t, losses are trivial.
Phase 3: Optimism And Belief
The trend is obvious: higher highs and higher lows, expansion in new highs, leadership baskets (AI, energy, semis, pick your year) pull the tape. Media upgrades forecasts.
Data tells
- Advance/Decline line confirms price
- VIX bleeds lower; realized vol compresses
- Active managers’ exposure (NAAIM) > average; CTA trend models long
- Options dealers net long gamma near spot (pinning effect)
My play
I ride winners and trail stops (ATR-based or last higher low). If a position extends 20–30% above its 50-DMA, I trim into strength and rebalance; parabolas don’t do gentle goodbyes.
Phase 4: Total Euphoria
The hardest stage to resist. Vertical candles, “stonks only go up,” and anyone with a brokerage account is an expert. Leverage spreads. Pullbacks vanish… until they don’t.
Data tells
- Retail call buying spikes; put/call at extremes
- Skew collapses (nobody hedges tops), then abruptly inverts into the decline
- Insider selling rises; corporate buybacks pause around earnings windows
- Crypto: perpetual funding goes persistently positive; open interest balloons
My play
I never call tops; I scale out. Example: pre-planned trims at +15%, +25%, +35% from basis. I add hedges (put spreads 1–3 months out; or collars on oversized winners). I stop initiating new swing longs unless they offer base-breakouts with volume (not chasing ramps).
Phase 5: Complacency
The first meaningful drop arrives. It feels buyable—because it was, every time, for months. This time, rallies stall at lower highs.
Data tells
- Failed retests of prior highs; leadership begins to diverge
- Sector rotations get violent intraday
- Dealer gamma flips negative more often; price becomes jumpier around options expiries
My play
I ask one brutal question: “If this were any stock on my watchlist, not one I own, would I buy it right now?” If the answer is no, I cut or reduce. Lower highs are warnings, not invitations.
Phase 6: Anxiety & Panic
Stops cascade. Headlines go from “healthy correction” to “crisis.” Selling begets selling. Liquidity thins.
Data tells
- Breadth collapses: <20% above 50-DMA; new lows spike
- VIX regime shift higher; term structure inverts
- Credit spreads jump; defensives outperform hard
- Crypto: funding flips negative, OI wiped, cascading liquidations
My play
This is where hedges pay. I take profits on puts as vol explodes and redeploy only into A-tier assets (index, sector leaders) with pre-defined scaling (e.g., 20/40/60 bps adds at −8%, −12%, −18% from highs). No knife-catching penny junk, ever.
Phase 7: Capitulation, Anger, Depression
Exhaustion. Climax volume. Sentiment surveys at extremes. Quality sells off with junk. This is where the best forward returns are seeded—never guaranteed.
Data tells
- 90% down-volume days cluster, then you get a 90% up day
- Insider buying turns up; buyback windows reopen
- Options: put/call spikes, then quietly normalizes as price bases
- For crypto: exchange balances drop (coins moving to cold storage), MVRV/NUPL reset
My play
I stagger entries across days/weeks. I focus on relative strength (names that refused to break key levels) and broad beta. My stops are the widest here, my size the smallest, my patience the longest.
Phase 8: Disbelief (Again)
We’re back at the start. A base forms, price creeps higher, nobody trusts it. Perfect.
Data tells
- Higher low + higher high on improving breadth
- Narratives still negative; positioning light
- Vol drifts lower while price grinds up
My play
Repeat Phase 1–2: probes, DCA, and let the trend prove itself.
Indicator Playbook By Phase
| Indicator | Disbelief | Hope | Optimism/Belief | Euphoria | Complacency | Panic | Capitulation | Disbelief (again) |
|---|---|---|---|---|---|---|---|---|
| Breadth (adv/dec, %>50DMA) | ↗ from washed-out | ↗↗ | Strong, broad | Still strong | Diverging | Collapsing | Bombed out | Mending |
| Volatility (VIX/realized) | Elevated, easing | Falling | Low, stable | Ultra-low → jumpy | Rising | Spiking | Peak → mean-revert | Easing |
| Credit spreads | Narrowing | Narrowing | Tight | Tight | Widening | Widening fast | Peak | Narrowing |
| Options (put/call, skew) | High P/C, normal skew | Normalizing | Low P/C, flat skew | Extreme call-buy, low skew | Skew steepens | P/C spikes | P/C peak | Normalizing |
| Positioning (CTAs, NAAIM) | Light | Adding | Heavy long | Max long | Cutting | Net short/flat | Covering | Light → adding |
Crypto-specific overlays: funding, basis, OI/liquidations, stablecoin flows mirror the same crowd emotions on faster timeframes.
Timeframe Matters
- Investor (months/years): Your edge is position sizing and behavior. DCA into quality during Disbelief/Capitulation; systematically scale out into Euphoria. Taxes, fees, and sleep quality matter more than tick-perfect entries.
- Swing trader (days/weeks): Respect market regimes. Trend-following works from Hope to Belief; mean-reversion dominates during Complacency to Panic. Don’t mix playbooks.
- Intraday: The cycle compresses. Use dealer gamma and liquidity windows (open, lunch, close) to time entries; fade crowded extremes, exit quickly.
Biases That Trip You At Each Stage
- Disbelief: Recency (anchored to pain), confirmation bias
- Hope/Optimism: Narrative fallacy, overconfidence
- Euphoria: Herding, FOMO, authority bias
- Complacency: Anchoring to peak prices, sunk cost
- Panic/Capitulation: Loss aversion, availability bias
- Disbelief (again): Outcome bias (“the last rally failed, so will this”)
I keep a literal checklist on my desk: if I can name the bias, I can usually disarm it.
Position-Sizing And Risk Rules I Actually Use
- Max risk per position: 0.25–0.75% of equity, depending on regime
- Max portfolio risk at once: 3–5%
- Pre-defined trims: scale out 10–30% at staggered targets; never let a 30% gain round-trip to zero
- Hedges: buy put spreads when IV is cheap (Hope/Optimism), monetize when IV explodes (Panic)
- No averaging down losers in downtrends; only add into strength after a higher low forms
- One “why” per trade that doesn’t include “vibes” or “Twitter”
Three Mini Case Studies (pattern, not prophecy)
- 2020 Crash → 2020–21 Euphoria: Textbook Capitulation (breadth/vol) followed by explosive Belief. Anyone who pre-committed a DCA plan did fine; anyone who waited for “certainty” bought much higher.
- 2022 Drawdown: Complacency failed repeatedly, morphing into a grinding bear. Buying the first dip was punished; buying after breadth washed out and based worked.
- 2023–2025 Leaders: Narrow leadership in megacap tech then broadened; euphoria pockets formed inside a bigger uptrend. Scaling out of vertical leaders and rotating to fresh bases beat diamond-handing everything.
A Simple, Boring, Effective Cycle Checklist
- Are we printing higher highs/lows on multiple timeframes?
- Is breadth improving or deteriorating?
- What’s vol doing (and is it cheap or dear)?
- Are credit spreads widening or narrowing?
- Who’s forced to buy/sell next (dealers, CTAs, funds)?
- What’s my max pain if I’m wrong right now?
- If I didn’t own this, would I buy it today?
If you can’t answer those fast, you’re trading hope, not a plan.
Bottom Line
Markets are a feedback loop: emotions → positioning → price → new emotions. The Wall Street Cheat Sheet is useful because it maps that loop. Use it as a behavioral framework, then layer in data (breadth, vol, credit, options, flows) to anchor your decisions.
You don’t need to nail tops or bottoms. You need to:
- Add with intent in Disbelief/Hope
- Ride with discipline in Belief
- Scale out and hedge in Euphoria
- Survive (and be patient) in Panic/Capitulation
Do that consistently and you’ll feel a lot less like the meme—and a lot more like the trader who quietly buys when it’s hard and sells when it’s easy.
Educational only. Not investment advice. Markets change; your risk tolerance and time horizon matter more than any template.
