“Money is made by discounting the obvious and betting on the unexpected.” – George Soros
The obvious trades that everyone thinks are a no brainer usually do not work because when a trade becomes obvious it is too late as the winning traders prepare their exit strategies to lock in profits the unprofitable traders are preparing for their entries to chase a late trend. The unexpected happens regularly as growth stocks go higher than anyone believed possible but the early buyers and bear markets go deeper than anyone thought possible because of fear of loss begins overriding any fundamental valuation. When everyone agrees with your long trade being a good one beware, who is left to buy? If everyone thinks you are nuts for buying a deep dip in price because the world could end then most the selling pressure should already be gone and a market should be due for a rally. The “everyone hates your trade indicator” is a good one as it can show that the majority has already made their move and you are the first back in a new trend or reversal. Extremes in sentiment are one sign that the majority have already made their moving and buying or selling or exhausted and a new move could be near. Of course ‘obvious’ or ‘unexpected’ are not trade signals so you need to look for technical signals that line up with the extreme market sentiment that you are seeing. Get in the habit of being the contrarian when the vast majority thinks that a trend has to stop immediately or that it will go on forever. Get in the habit or trading your best signals when the majority thinks you are crazy.
Find all 39 Trading habits here.