You've seen the chart. Even if you don't know it by name, you’ve seen that colorful zig-zagging line with labels like "Euphoria," "Disbelief," and "Capitulation." That is the Wall St. Cheat Sheet, specifically the "Psychology of a Market Cycle" infographic. It’s basically the "Live, Laugh, Love" poster for crypto traders and stock market junkies, but with way higher stakes and more crying.
Markets are weird because they aren't just numbers on a screen. They’re a collective mess of human ego, fear, and sheer greed. Most people think they’re rational actors making smart choices based on P/E ratios or technical indicators. Honestly? Most of us are just reacting to the chemical surges in our brains. The Wall St. Cheat Sheet maps that chemical journey. It shows how we consistently sabotage our own bank accounts by following the herd.
What the Wall St. Cheat Sheet Actually Represents
The infographic was popularized years ago by the media company Wall St. Cheat Sheet, founded by Hoffman Brothers (Damien and Derek). While the site eventually pivoted toward broader financial news, this specific chart became immortal. It’s a stylized version of a standard market cycle, but it focuses on the emotional state of the investor rather than just the price action.
It starts with "Disbelief." This is the rally after a long bear market where everyone is convinced the "suckers rally" will fail. Then comes "Hope," "Optimism," and "Belief." By the time you hit "Euphoria," the taxi driver is giving you stock tips and your cousin is mortgaging his house to buy an NFT of a cartoon penguin. This is the point of maximum financial risk, yet it’s exactly when most people feel the safest.
Then the "Complacency" phase kicks in. The price drops a bit. People say, "We just need to cool off before the next leg up." They’re wrong. The drop continues into "Anxiety," "Denial," and eventually "Panic." This is where the retail investor sells everything at a massive loss just to make the pain stop. Ironically, the chart labels this area as the "Point of Maximum Financial Opportunity."
The Brutal Reality of the Euphoria Phase
Euphoria is a hell of a drug. In 2021, we saw this play out in real-time with growth stocks and crypto. Everything was going up. If you weren't making 10% a week, you felt like an idiot. This is the peak of the Wall St. Cheat Sheet.
At this stage, "fundamental analysis" gets thrown out the window. People start talking about "new paradigms." They say things like "this time is different" or "the old rules of valuation don't apply anymore." When you hear people unironically using those phrases, you should probably be looking for the exit. History shows it is never different. The names of the assets change—tulips, dot-com companies, subprime mortgages, Bored Apes—but the human psychology remains identical.
💡 You might also like: Dealing With the IRS San Diego CA Office Without Losing Your Mind
Why Our Brains Are Wired to Fail at Investing
Evolution did us dirty when it comes to the stock market. For most of human history, following the crowd was a survival mechanism. If you saw the rest of your tribe running away from a rustling bush, you didn't sit there and perform a "fundamental analysis" of the bush. You ran.
In the market, that same instinct is a disaster. When the herd is buying, the price goes up, creating a feedback loop of FOMO (Fear Of Missing Out). By the time you feel "safe" enough to enter, the smart money—the "whales" or institutional investors—are already looking for liquidity to sell into. They need your "Euphoria" to exit their positions.
Then there’s the "Depression" phase at the bottom of the Wall St. Cheat Sheet. This is the hardest part to navigate. It’s not just that prices are low; it’s that the news is objectively terrible. The media is screaming about a recession, companies are laying people off, and your portfolio looks like a crime scene. Your brain interprets this as a threat to your survival. Buying during the "Depression" phase feels physically uncomfortable. It feels wrong. But as Justin Mamis, the legendary technical analyst, used to say: "The market is a mechanism for transferring wealth from the impatient to the patient."
Disbelief: The Most Profitable (and Scariest) Phase
If you look at the very beginning of a new bull market on the Wall St. Cheat Sheet, it's labeled as "Disbelief." This usually happens when the economy still feels like it's in the gutter.
Take the 2020 COVID-19 crash. In March, the world was literally shutting down. It was terrifying. Yet, that was the exact moment the market bottomed and began one of the most aggressive rallies in history. Most people sat on the sidelines in "Disbelief" for months, waiting for the "inevitable second crash" that never came. By the time they felt "Optimism," they had already missed the first 50% of the move.
The Hoffman Brothers and the Legacy of the Cheat Sheet
It’s worth noting that the "Wall St. Cheat Sheet" isn't just a meme; it was a legitimate financial media outlet. Founded in 2008 by Damien Hoffman and Derek Hoffman, the site aimed to democratize financial information. They wanted to give the average person the same "cheat sheet" that professional traders used.
📖 Related: Sands Casino Long Island: What Actually Happens Next at the Old Coliseum Site
While the brand has evolved, the "Psychology of a Market Cycle" chart remains their most lasting contribution to the zeitgeist. It’s been translated into dozens of languages and posted on nearly every trading forum on the internet. It works because it's a mirror. It doesn't tell you what the market will do next; it tells you what you will want to do next, and why you should probably do the opposite.
How to Use the Cheat Sheet Without Getting Burned
The biggest mistake people make is trying to use the Wall St. Cheat Sheet as a precise timing tool. You can't just look at a chart of Bitcoin or Tesla and say, "Okay, we are exactly at the 42% mark of the Anxiety phase." Markets are messy. They can stay in "Euphoria" way longer than you can stay solvent if you're shorting. They can also grind through "Depression" for years.
The real value is in sentiment check-ins. When you feel a desperate urge to buy because you're tired of seeing everyone else get rich, look at the chart. You're likely in the "Belief" or "Euphoria" stage. When you're considering selling your long-term holdings because the "world is ending," look at the chart. You're probably in "Panic" or "Capitulation."
- Audit your emotions: Are you feeling "smarter" than the market? That’s a red flag.
- Check the headlines: Are the news outlets suddenly calling for $100k Bitcoin or Dow 50,000? You might be at the peak.
- Look for apathy: The best time to buy is often when nobody cares about the market anymore. When the "crypto is dead" articles start appearing daily, that’s usually the "Depression" phase.
The Role of "Smart Money" vs. "Dumb Money"
In the context of the Wall St. Cheat Sheet, "Smart Money" usually refers to institutional investors, hedge funds, and seasoned pros who accumulate assets during the "Depression" and "Disbelief" phases. They have the capital and the stomach to buy when blood is in the streets.
"Dumb Money"—which is a mean term for retail investors—typically enters during "Optimism" and "Belief." They provide the "exit liquidity" for the smart money at the top. This isn't because retail investors are stupid. It's because they don't have the same risk management systems and emotional detachment that pros have. The Wall St. Cheat Sheet is a tool to help retail investors bridge that gap by providing a visual map of the emotional traps ahead.
Common Misconceptions About Market Cycles
A lot of people think the Wall St. Cheat Sheet is a guaranteed roadmap. It's not.
👉 See also: Is The Housing Market About To Crash? What Most People Get Wrong
Sometimes a market doesn't go through a full cycle. It might hit "Anxiety," bounce back, and go straight into another "Euphoria" phase. This is what we call a "secular bull market." Other times, a market can crash, enter "Depression," and stay there for a decade (look at the Japanese stock market in the 90s).
There's also the "Complacency" trap. This is the "return to normal" peak. On the chart, it looks like a small bump after the initial drop from the top. Many traders lose more money trying to "buy the dip" during the Complacency phase than they did during the actual crash. They think they're getting a bargain, but they're actually just catching a falling knife.
The Nuance of Sentiment Analysis
Modern traders use more than just a 2D drawing. They look at the Fear & Greed Index, which aggregates data like market volatility, social media sentiment, and trading volume. They look at "Put/Call Ratios" to see if everyone is betting on a crash.
But even with all that tech, the basic principles of the Wall St. Cheat Sheet hold up. Why? Because human nature hasn't changed in 500 years. We are the same hairless apes that panicked during the South Sea Bubble in 1720. Our tools are better, but our "software"—our brains—is still running on ancient code designed for the savannah, not the NASDAQ.
Real-World Examples of the Cycle in Action
Let’s look at the 2008 financial crisis.
The "Euphoria" was the mid-2000s housing boom. People were flipping houses they couldn't afford. "Denial" hit in 2007 when the first subprime funds started failing. Ben Bernanke famously said subprime was "contained." That was the quintessential "Complacency" moment. "Panic" and "Capitulation" hit in late 2008 with the Lehman Brothers collapse.
Or look at Bitcoin in 2017.
It went from $1,000 to $20,000. That was pure, unadulterated "Euphoria." Then it crashed to $3,000 in 2018. The "Depression" phase lasted for over a year. People stopped talking about it. It was "dead." Then, quietly, it entered "Disbelief" in 2020.
Actionable Insights for the Modern Investor
If you want to actually use the logic behind the Wall St. Cheat Sheet to improve your returns, you have to stop acting on impulse. It sounds simple. It’s incredibly hard.
- Inverse Your Feelings: If you feel like bragging about your gains to your friends, you should probably be trimming your position. If you feel embarrassed to tell people you still own a stock, you should probably be holding or buying more.
- Dollar-Cost Average (DCA): This is the ultimate "cheat" for the cheat sheet. By buying a fixed amount at regular intervals, you automatically buy more shares when prices are in the "Depression" phase and fewer shares when they are in "Euphoria." It removes the need to time the cycle.
- Zoom Out: Most people look at 5-minute or 1-day charts. This amplifies the emotional noise. Look at weekly or monthly charts. The "Wall St. Cheat Sheet" patterns become much clearer when you ignore the daily zig-zags.
- Understand the "Why": Don't just follow the chart. Understand the macro environment. Is the Fed raising rates? Is there a global liquidity crunch? Psychology matters, but math eventually catches up.
- Have an Exit Plan: Write down your "sell price" before you buy. When you’re in the "Euphoria" phase, your brain will try to convince you to never sell. Having a pre-written plan is your only defense against your own greed.
The Wall St. Cheat Sheet isn't a magic crystal ball. It’s a psychological warning. It’s a reminder that when the world feels like it’s ending, opportunity is usually knocking—and when the world feels like a literal money printer, the bill is about to come due. Stay objective. Stay skeptical. And for heaven's sake, don't buy the "Euphoria."