tools-only Bubble Detection Quick Reference (English)
Daily Checklist (5 minutes)
Morning Routine (Before Market Open)
□ Step 1: Update Bubble-O-Meter (2 min)
- Score 8 indicators (0-2 points each)
- Check risk budget based on total score
□ Step 2: Position Management (2 min)
- Update ATR trailing stops
- Check stair-step profit targets
- Evaluate new entry eligibility
□ Step 3: Signal Check (1 min)
- Media/Social trends (Google Trends, Twitter)
- Major indices distance from 52-week highs
- VIX & Put/Call ratio
Emergency Assessment: 3 Questions
When uncertain about an investment decision, answer these 3 questions:
Q1: "Are non-investors recommending it?"
- YES → Mass penetration complete, likely late stage
- NO → Still early to mid stage
Q2: "Has the narrative become 'common sense'?"
- YES → Euphoria stage, contrarian views socially unacceptable
- NO → Healthy skepticism still functions
Q3: "Is 'this time is different' the catchphrase?"
- YES → Classic historical bubble signal
- NO → Healthy caution still present
All 3 YES → Critical zone, prioritize profit-taking/exit
Action Matrix by Bubble Phase
| Phase | Score | Risk Budget | Entry | Profit-Taking | Stop | Short |
|---|---|---|---|---|---|---|
| Normal | 0-4 | 100% | Normal | At target | 2.0 ATR | No |
| Caution | 5-8 | 70% | 50% reduced | 25% at +20% | 1.8 ATR | No |
| Euphoria | 9-12 | 40% | Stopped | 50% at +20% | 1.5 ATR | After confirm |
| Critical | 13-16 | 20% | Stopped | 75-100% now | 1.2 ATR | Recommended |
8 Indicators Quick Scoring
1. Mass Penetration
0 pts: Investors only
1 pt: General awareness but investment limited
2 pts: Taxi drivers/family recommending
2. Media Saturation
0 pts: Normal coverage
1 pt: Search trends 2-3x normal
2 pts: TV specials/magazine covers, 5x+ search spike
3. New Accounts & Inflows
0 pts: Normal account openings
1 pt: 50-100% YoY increase
2 pts: 200%+ YoY, first-time investor flood
4. New Issuance Flood
0 pts: Normal IPO volume
1 pt: IPO/SPAC/ETFs up 50%+
2 pts: Low-quality IPO flood, "theme" fund proliferation
5. Leverage Indicators
0 pts: Margin debt in normal range
1 pt: Margin debt 1.5x average
2 pts: All-time high margin, funding rates elevated, extreme positioning
6. Price Acceleration
0 pts: Annualized returns near historical median
1 pt: Returns exceed 90th percentile
2 pts: Returns at 95-99th percentile, or positive second derivative
7. Valuation Disconnect
0 pts: Fundamentally explainable
1 pt: High valuation but "growth expectations" provide cover
2 pts: Pure "narrative" dependent, fundamentals ignored
8. Breadth & Correlation
0 pts: Only leader stocks rising
1 pt: Sector-wide participation
2 pts: Low-quality/zombie companies rising (last buyers in)
Profit-Taking Strategy Templates
Template 1: Stair-Step (Conservative)
Position: $10,000 initial investment
Targets: +20%, +40%, +60%, +80%
+20% ($12,000) → Sell 25% = $3,000 secured
+40% ($14,000) → Sell 25% = $3,500 secured
+60% ($16,000) → Sell 25% = $4,000 secured
+80% ($18,000) → Sell 25% = $4,500 secured
Total profit secured: $15,000 (+50% equivalent)
Template 2: ATR Trailing (Aggressive)
def calculate_trailing_stop(current_price, atr_20d, bubble_phase):
"""
Calculate trailing stop based on bubble phase
bubble_phase: 'normal', 'caution', 'euphoria', 'critical'
"""
multipliers = {
'normal': 2.0,
'caution': 1.8,
'euphoria': 1.5,
'critical': 1.2
}
multiplier = multipliers.get(bubble_phase, 2.0)
stop_price = current_price - (atr_20d * multiplier)
return stop_price
Template 3: Hybrid (Recommended)
Stage 1 (Boom):
→ Stair-step reduces 50% of position
Stage 2 (Euphoria):
→ Apply ATR trailing to remaining 50%, ride upside
Stage 3 (Panic signals):
→ Exit immediately when ATR stop hit
Short-Selling Timing Decision (Critical)
❌ Absolutely Avoid: Early Contrarian
Reason: Often 2-3x further rise after "obviously too high"
Risk: "Markets can remain irrational longer than you can remain solvent"
✅ Recommended: After Composite Conditions Met
Need at least 3 of 7 conditions before considering:
- □ Weekly chart shows clear lower highs
- □ Volume peaked out (3 weeks declining)
- □ Leverage metrics drop sharply (margin debt -20%+)
- □ Media/search trends peaked out
- □ Weak stocks in sector breaking down first
- □ VIX spike (+30%+)
- □ Fed or policy reversal signals
Execution example:
Conditions check:
[✓] 1. Weekly lower highs
[✓] 2. Volume declining 3 weeks
[×] 3. Margin debt still elevated
[✓] 4. Google trends -40%
[×] 5. Still broad rally
[✓] 6. VIX +35% spike
[×] 7. No policy change
→ 4/7 met, short consideration OK
→ Small size (25% of normal) test entry
Common Failure Patterns & Solutions
Failure 1: "Too late" mentality, perpetual waiting
Psychology: Regret aversion (FOMO about missing out) Solution:
- Run Bubble-O-Meter when feeling too late
- If score ≤8, small entry OK
- If score ≥9, correct to wait
Failure 2: Re-entry after taking profits (buying high)
Psychology: Hindsight bias ("I knew it would go up") Solution:
- 72-hour re-entry ban after profit-taking
- Re-entry only after Bubble-O-Meter check
Failure 3: "Still going up" paralysis on profit-taking
Psychology: Greed + Overconfidence Solution:
- Automate stair-step (preset limit orders)
- Target "satisfaction" not "perfection"
Failure 4: Premature short selling
Psychology: Subjective "obviously too high" Solution:
- Mechanically check composite conditions
- Wait for minimum 3 conditions
Emergency Response Flowchart
Market shock detected
↓
Q: Have positions?
↓YES
Q: Down -5%+ ?
↓YES
Q: ATR stop hit?
↓YES
→ Sell immediately (no debate)
↓NO (stop not hit)
Q: Bubble-O-Meter 13+?
↓YES
→ Consider 75%+ profit-taking
↓NO (score ≤12)
Q: VIX spike +30%+?
↓YES
→ Take 50% profits, tighten stops on rest
↓NO
→ Normal monitoring, stay calm
Golden Rules (Post on Your Wall)
Watch the process, not the price
When taxi drivers talk stocks, exit
"This time is different" is the same every time
Mechanical rules protect your psychology
Short after confirmation, take profits early
When skepticism hurts socially, the end begins
Aim for satisfaction, abandon perfection
Bubbles last longer than expected, crashes faster
Leverage is an express ticket to ruin
"Markets can remain irrational longer than you can remain solvent"
Key Data Sources
Instantly Accessible Indicators
| Indicator | Source | URL Example |
|---|---|---|
| Google Search Trends | Google Trends | trends.google.com |
| VIX (Fear Index) | CBOE | cboe.com/vix |
| Put/Call Ratio | CBOE | cboe.com/data |
| Margin Debt | FINRA | finra.org/data |
| Futures Positioning | CFTC COT | cftc.gov/reports |
| IPO Statistics | Renaissance IPO | renaissancecapital.com |
API-Accessible for Automation
# Example: Google Trends (pytrends)
from pytrends.request import TrendReq
pytrends = TrendReq()
pytrends.build_payload(['SPY', 'stock market'])
data = pytrends.interest_over_time()
# Example: VIX (yfinance)
import yfinance as yf
vix = yf.Ticker('^VIX')
current_vix = vix.history(period='1d')['Close'].iloc[-1]
Further Learning
Books
- "Manias, Panics, and Crashes" - Charles Kindleberger
- "Irrational Exuberance" - Robert Shiller
- "The Alchemy of Finance" - George Soros
Research
- Hyman Minsky's Financial Instability Hypothesis
- Behavioral Finance classics
Data & Tools
- TradingView: Charts & technical indicators
- FRED (Federal Reserve): Economic time series
- Finviz: Screening & heatmaps
- Google Trends: Social trends
Last Updated: 2025 Edition License: Educational/personal use only