| There are various indicators to help traders determine when sentiment is at heightened levels. Good traders can effectively trade these swings, but it's not easy. Fear and greed can sometimes move in unforeseen ways. Sentiment may stay extreme for longer than expected, or it may instantly reverse. One of the most important things to understand in the market is that when sentiment is euphoric - when folks believe the market can only go up, professionals like doctors and lawyers are quitting their jobs to start trading, and Uber drivers are giving stock picks - that is often a time to get fearful and do some selling. The opposite is true when fear is overwhelming the market. Think back to the global financial crisis - or, more recently, the COVID-19 crash in 2020. Investors and the population in general assumed things were going to be bad for a long, long time. In the case of the global financial crisis, some believed it was the end of the economy as we know it. While the crisis was very real, the economy, of course, recovered like it always has. Had you bought stocks while everyone else was selling, it would have provided an amazing entry point. (And remember, the market bottomed in March 2009, well before the economists and market pundits gave the all-clear signal.) The lesson here is not to wait for things to change, but to take action when it feels like things will never change. The action you take should be the opposite of what you're feeling. When investors become excessively fearful or greedy, that is usually an excellent time to enter or exit your positions. Markets don't stay sky-high or in the basement forever. There's an ebb and flow. Train yourself to go against the grain at extremes. When you learn how to do that, your trading and investing will improve dramatically. Good investing, Marc P.S. I've just debuted a new trading strategy that's designed with that exact purpose: going against the grain and capitalizing on the market's overreactions. It's based on the only ticker in the entire market that moves in a 100% predictable way. Click here to find out what this mysterious ticker is. |
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