On Your Own and Loving It

On Your Own and Loving It

Winning traders are rugged individualists. They go their own way. They aren't afraid to risk money. And they are the first ones to develop and implement a novel trading strategy. They don't follow the crowd. They lead it. They anticipate their every move, and capitalize on their herd instincts. If you want to make big profits, you too must be self-reliant. You must go your own way and love it.

There are good reasons for following the crowd. Many times, it's to our advantage. There's security in numbers. Have you ever looked at a school of fish in an aquarium? They stay in a big clump because if a bigger fish is nearby and ready to eat one of them, a single fish is less likely to be captured while swimming in the middle of a pack. We humans also "school" in our everyday lives. When speeding along a barren highway, for example, it's safer to drive in the middle of a clump of cars. As the logic goes, "the highway patrolperson can't pull us all over, and give a ticket to the whole bunch." Similarly, if none of our well-to-do friends live on the west side of town, it's in our best interest to find out why, or simply live on the east side with everyone else. But this kind of thinking must be abandoned when it comes to trading.

Successful trading requires that you must learn to anticipate what the crowd will do next, and be the first in line to act alone, rather than wait to follow them. In trading, the primary activity is buying and selling stocks in the short term to make a profit. It's hard to do that if you are following the crowd, especially in choppy markets. For example, if you have purchased a large block of stock with the goal of selling it when the price increases a few points, you can't wait for the masses to confirm your expectation. Prices move in cycles. If you wait too long for the price to reach a zenith, and for the masses to validate your forecast, you may be trying to sell as the cycle moves the price back downward. And at that point, you've missed the buying frenzy, and will be trying to sell your shares at a time when "fear" sets in, and much of the masses are ready to sell.

Ideally, you must anticipate when the masses are ready to buy, have purchased stock at a lower price than they will gratefully pay, and sell during the mass 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 masses as they buy. You need to anticipate the upcoming trend, and do the opposite of what the masses are doing. In terms of the practical methods for doing so, that's easier said than done. You must have accurate momentum indicators, for example, to anticipate the pivot points. But from the psychological point of view, you must also be ready to cast off what you have learned throughout your lives about seeking protection from others. In this case, there isn't safety in numbers. When it comes to trading, it's crucial to view the crowd as an opponent, not an ally. You must anticipate what they are going to do, and think of a way to capitalize on their fear and greed.

Don't follow the crowd! Think like a rebel. Get ready to break the rules when you need to and always be skeptical of the status quo. There are times when you must think like a contrarian. If you can guess what the crowd will do next, and anticipate how the movement of the masses can benefit you as a trader, you'll take home profits while the masses are feeding their accounts to cover losses.

...and be the first in line to act...

When I read that snippet I thought about how often I didn't get a fill at a particular price even though we spent a fair amount of time trading at that price just because I wasn't first in line.

Although I'm taking this out-of-context I believe that it is a practicle example of "getting there first" - i.e. being the first with a limit order at that price and at the front of the queue and getting filled while the others behind you don't get filled.