Monday, November 3, 2008

trading away from the Crowd

Trading apart from the crowd is the only way to consistently profit in the stock market. History has shown that the majority of people are wrong, the majority of the time.

Even so, it is human nature to follow the crowd. That has helped us to survive when we were hunters and gatherers. It was either eat or be eaten and if you are in a big group you aren’t going to get eaten. There is something to the strength in numbers after all. But in the world of the stock market following others only leads to disaster.

Finding good stock market picks should be done with research and logic. You should develop rules in which to trade. Yet so many people will decide what to buy based off of what the news says, or what the bloggers are saying.

This could lead to good returns during a bulls market but can also completely destroy your account when the markets are heading down. Following the crowd and buying the “Hot” picks can sometimes lead to good results in the short term, but will not make you money in the long term.

The only way to make consistent money in the market as a short term trader is to develop your own strategy. By developing a system that you trade you can make a profit in the long term.

Your system doesn’t have to be perfect all systems fail now and then. The only thing it needs to be successful is it needs to work in the long term. If after 100 trades you make $10,000 then you have a working system that can generate money for you in the long term.

By refusing to take the extra mile to develop a strategy that works you will be unable to make it in the stock market. And you will probably fall back to trading with the crowd.

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