Go With the Flow
After a big event, like a basketball game or a concert, there’s always a flood of people rushing out to the parking lots. Sometimes there’s a quicker, backdoor way to get out, but if you’re too far downstream it’s pretty much impossible for you to get there. Even though you know it’s better, it would be futile to attempt it, so your only options are to follow the masses slowly meandering out the main door, or wait for it to clear out a little before heading for your unknown shortcut.
I constantly bring up the point that you should be trading with momentum, rather than against it, and this is exactly why. Think about what actually makes stocks move. While good earnings and balance sheets make a stock worth more intrinsically, that does not necessarily make the stock price go up. What does drive the price up is people wanting to buy more shares than are currently being sold.
Maybe you noticed an underlying company that is good, but the majority of the people are going the other direction and selling. People sell their shares of stock for a variety of reasons, and if you’re reading this blog you probably aren’t in a position where your buying a stock against the trend would make a significant number reconsider. If the large majority of the people are going against it and making the stock go down, the only options you should consider are shorting it or better yet, if it really is a good company, stand on the side until they clear out. Who knows, maybe the thousands of people going in what you think is the wrong direction actually do know better. Standing on the sidelines and waiting may not be exciting, but attempting to go against the crowd will just leave you trampled and broke.
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