Crowded

Just looking at that picture makes me anxious.

Kind of like buying a stock (insert FANG name here) that everyone is talking about. Yuck.

Bad idea. Almost always. (Will explain more about the exception below).

Originality and looking at things others are not patient enough to seek out or understand is a strategy that must be employed in the markets if you want to excel. The goal is to be one of the first people to arrive at the idea, rather than waiting until it’s a “crowded trade

Another very important skill to go with this is understanding how to look at markets as a whole.

The subtleties of markets is where the skilled participant searches for valuable signs and signals. Markets move because of buying and selling, and studying this “price action” combined with sentiment and other factors gives incredible insight into potential future movement.

The best performing investments come from taking the time to understand what has made other strong performers from the past do so well. In other words “backtesting“.

Getting back to being original, let’s talk about something that is used incorrectly very frequently: Volume.

If you’re one of the first people to understand that an idea could potentially be a huge success, then by the very nature of the situation there will not be a larger than normal amount of “volume” of shares being traded. I see this important factor misunderstood most often in my travels about the interwebs, because people generally are not comfortable taking a risk, because they do not really understand what makes an idea good or bad, and therefore seek “volume” for confirmation.

Again, the very nature of the idea of being in a stock or option before a big move, is that you will be buying when NO ONE ELSE wants to get involved. Can’t stress that enough. The absolute best entries come from buying when very few others understand it is a good place to initiate risk.

The only time when buying something that is a crowded trade can work, is when the stock is hated and badly beaten down in price for a long time, and also accompanied by a large short percentage in the stock.

I will go into that concept more in a future post.  For now though, go forth and seek out some original ideas! See you soon!

 

-JP

 

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