If you haven’t seen the homepage, you should go take a look. It says… only 10% of traders are winners. The rest — that is a whopping 90% — are losers. Now, think about that for a minute. If you follow the crowd and do what they do, what group will you find yourself apart of?
Now, don’t get me wrong. This isn’t to say you should trade opposite of the markets, no no. That would be foolish. In fact, that would be what Sergeant Osiris calls going “full retard” (Who doesn’t love Tropic Thunder?). You always trade with the direction of the markets; never against! So, get that thought out of your head right now!
However, what you must NOT do is let the crowd drive YOUR trades. That is where many traders fail. We, as humans, instinctively want to follow the crowd. The crowd is safety, the crowd will help us survive. Do what they do and you will go far!
Well, that may be true during the apocalypse when zombies/mutants/bandits are chasing us down to kill us (eat us?), but that is NOT TRUE with the stock market. If you follow the crowd, they will only lead you to slaughter. 10% win, 90% lose — remember?
The Crowd Is Always Right… Until They’re Wrong!
I know, confusing isn’t it? Well, that is the best way to describe this whole “don’t follow the crowd” message.
At the beginning of a move and even the middle of a move, the crowd has the right idea. After all, they are what drives price action, are they not? Without the crowd, prices would be stagnant.
The crowds are the ones that make these stocks go up and go down. Unfortunately for those who aren’t aware however, the crowds can only be right for so long. It’s only a matter of time before the slaughter begins and they watch as their profits evaporate and they start going into the red.
When the markets turn (and they always do!), it’s not the individuals sticking to their own trading plans and strategies whom get slaughtered — it’s the crowd. The crowd, as odd as it may seem, reacts to itself and follows itself, be it higher or lower. The crowd doesn’t stop and think about technical indicators or price action… the crowd reacts.
Everyone is selling, I must sell. Everyone is buying, I must buy. They are their own doombringers and if you climb aboard their wagon, you will ride to doom with them.
The fear of loss — be it from losing money or from missing out on profit — is one of the STRONGEST motivators on the planet. If everyone is doing something you’re not doing, you’re missing out, right? I mean, you gotta be, right? Why else would everyone else be doing that if it wasn’t the right thing to do, right? Right? RIGHT?!?!?!
This is the mentality of the crowd. “Do what they do and you’re sure to be a winner!” Except, in this case, being a “winner” actually means being a loser.
How Do You Use This Information To Your Advantage?
For one thing, just knowing that the markets are a “great big cattle ranch with a conveyor belt leading to the slaughterhouse“, well, that is actually a big step in the right direction. Knowing your marked for slaughter should immediately wake you up and help you pull yourself out of the meat line — at least a little bit.
Practically speaking, however, it takes time to break the herd mentality, to train yourself NOT to panic and do what everyone else is doing just because their doing it. It’s not something you just “do”, however. Simply trading the opposite of everyone isn’t going to make you an automatic winner. It’s not that easy.
Through technical analysis, you’ll be able to see when the crowd is getting less enthusiastic about a stock; when the bulls are getting tired and the pendulum is beginning to swing toward the bears. Your job is not to follow the crowd but to anticipate their movements and get in ahead of them.
When everyone is looking at the stock as it falls from a colossal move and is thinking “pff, what a turd!”, you’re looking at the chart and identifying pullback zones, areas of support (stop loss), and future zones of resistance (profit target). This isn’t a falling turd tumbling into no-mans-land, this is a stock in retracement, ready to move higher still!
When the average retail investor sees his stock move up 5 to 10% in one day and immediately sells, you gladly buy his shares because you noticed this breakout was from a 10-day consolidation period on nearly triple the daily volume with the stock still in a strong uptrend!
When a long time bag holder finally gives in and sells after being down for months, you’ll be there to pick those shares up. The stock just hit a strong support area from 8 months ago and a hammer just formed yesterday on almost double daily volume, showing the bulls may be back in town!
You need to be the one buying from and selling to this pool of 90% losers; the ones following the crowd with no plan or strategy of their own. The stock market is as cutthroat as it gets. When you win, somebody loses and vice versa.
If you think you can make money hand in hand with the rest of the market (singing kumbaya as you do so), it’s going to be a rough ride and you won’t be smiling when it’s over….