Crowd psychology as a trading strategy.
Each trader involuntarily looks back at the behavior of the masses before opening a position. It seems to him that most of the players are professionals. They know for sure at what point they need to buy assets, and which one should immediately sell. But do not blindly trust the crowd in assessing the market. Sometimes a massive direction of movement can lead to serious losses.
Some traders, watching competitors, use their actions as a hint. During unexpected price hikes, these traders forget about psychological discipline, trying to act quickly, not lagging behind the extras. However, the behavior of the public can be wrapped up to their advantage by creating a new successful strategy. Not all market participants realize that this is a natural daily phenomenon for the market. During a lull, the mass behavior of prices does not too much influence the variability of the trend. But if any trader has an emotional breakdown at some point, any other trader can quickly react to price changes. In this case, the first player will lose his money, and the second one will gain. Therefore, the phase of price spikes is the main period of profit. In order to extract your own profit out of the emotional weaknesses of others, we must act in the opposite direction. Ordinary traders do not prepare for trading, do not make a plan and are too dependent on emotions. So you need to do the opposite. Plan a phased trading plan. Do not go on about the mood. But do not overdo it, believing in the full conviction that the profit is already in your pocket.
☝️ Be out of the crowd
Various trading platforms offer training "closed areas" for registered users. Thus, individual traders are cut off from the crowd, and the use of strategies unfamiliar to most participants increases the chances of success. The most effective strategy is to buy or sell assets at key prices against the general flow. Focus your attention on such levels where the price movement cannot always be understood correctly. It is there that emotional failures occur most often. Some believe that making money on the lapses of others is incorrect. But the very principle of stock trading is that any opening of a position will be a loss for someone, and for someone a profit.
☝️ Keep your distance
Never follow mindlessly behind a crowd. Be one step ahead or trade against the general flow. Keeping up with all is possible only in a short period of calm, but be always ready to change direction at the right moment. Four types of situations when it is necessary to go into opposition:
Before the crowd: Enter the market when the price range is narrow enough, and watch the setup before a sharp jump.
Behind the crowd: Do not rush to open a position, wait for a rollback and reduce sharp jumps.
Against the crowd: Buy breakdowns and vice versa, sell breakouts if there is a discrepancy in volumes on technical indicators and prices.
Simultaneously with the crowd: While the price starts to accelerate, move in the general direction.
Always remember that if one earns, the other will lose. Do not miss the moment of weakness of other traders.
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