Joe Ross
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This question was sent to me from one of our students: "Hey Joe! Isn’t it better to get into a trade when you know everyone else is thinking the same way as you? Isn’t there safety in numbers?"
There's safety in numbers alright. Have you ever looked at a herd of zebra on a plain in Africa? They stay together in a big group because if a lion is nearby and ready to eat one of them, a single zebra is less likely to be captured while feeding in the middle of the herd than alone.
We humans also tend to stay with the crowd in our everyday lives. It's sometimes easier to follow the crowd, especially when trading. "The trend is your friend" as they say. Well…it isn't always, especially with markets that no longer trend but instead swing.
It feels comfortable for many to follow the crowd. Many times, it appears to be to our advantage. But this kind of thinking simply doesn’t work when it comes to trading. In trading, we learn to anticipate what the crowd will do next and be the first in line to act alone, rather than wait to follow them. We need to be ahead of the crowd, not in the middle. In trading, the primary activity is buying and selling in order to make a profit. It's hard to do that if you are following or in the middle of the crowd.
Ideally, you must anticipate when the crowds are ready to buy, have gone long at a lower price than they will gratefully pay, and sell them that stock during the crowd’s buying spree. You need to be the first in line ready to sell, while everyone else is in an entirely different line, ready to join the mob as they buy. You need to anticipate the upcoming trend, and do the opposite of what the majority are doing.
In terms of methods for doing so, it's easier said than done. You've got to have an accurate assessment of momentum and be able to anticipate where profits will be taken. But from the practical point of view, you must be ready to go against the crowd and stop seeking protection by following others. In trading there isn't safety in numbers. When it comes to trading, you've got to view the crowd as the opponent, not the ally. You've got to anticipate what they are going to do, and think of a way to capitalize on their weaknesses.
There's safety in numbers alright. Have you ever looked at a herd of zebra on a plain in Africa? They stay together in a big group because if a lion is nearby and ready to eat one of them, a single zebra is less likely to be captured while feeding in the middle of the herd than alone.
We humans also tend to stay with the crowd in our everyday lives. It's sometimes easier to follow the crowd, especially when trading. "The trend is your friend" as they say. Well…it isn't always, especially with markets that no longer trend but instead swing.
It feels comfortable for many to follow the crowd. Many times, it appears to be to our advantage. But this kind of thinking simply doesn’t work when it comes to trading. In trading, we learn to anticipate what the crowd will do next and be the first in line to act alone, rather than wait to follow them. We need to be ahead of the crowd, not in the middle. In trading, the primary activity is buying and selling in order to make a profit. It's hard to do that if you are following or in the middle of the crowd.
Ideally, you must anticipate when the crowds are ready to buy, have gone long at a lower price than they will gratefully pay, and sell them that stock during the crowd’s buying spree. You need to be the first in line ready to sell, while everyone else is in an entirely different line, ready to join the mob as they buy. You need to anticipate the upcoming trend, and do the opposite of what the majority are doing.
In terms of methods for doing so, it's easier said than done. You've got to have an accurate assessment of momentum and be able to anticipate where profits will be taken. But from the practical point of view, you must be ready to go against the crowd and stop seeking protection by following others. In trading there isn't safety in numbers. When it comes to trading, you've got to view the crowd as the opponent, not the ally. You've got to anticipate what they are going to do, and think of a way to capitalize on their weaknesses.
