Well, after this article it won't be a secret anymore. Actually, the key to success is not really a secret at all, it is simply about a mindset and how you approach trading. One of the most baffling things I've seen about traders is their affinity to go where the crowd is.
No matter if they are right or wrong, it feels good and 'warm' to be part of the consensus or the majority, right? For a time, yes it does - but it's not how you make money trading. I'm sure most of you will disagree, but let's see if we can break it down so it makes perfect sense.
Now, we can certainly agree from an investor standpoint that if you put your money in the markets, over the long term you should do substantially well. No dispute there, and if you have a solid, regular investment plan then you have the benefit of compounding. There are additional ways to grow wealth too, like high yield investments. But let's get to trading here.
When the crowd is leaning to one view or opinion it is often far to late to make money trading from that side. Markets move very fast, sentiment rules the day for a trader. It is the emotional drivers - fear and greed - that move the markets like a wave.
So, if you get caught leaning to strong on one side, there is the tendency to spill, and with that losses. What does that look like exactly? Imagine being on a small boat with 50 people, and 48 of them are on one side of the boat. It won't be long before they are all wet and trying to get back into the boat. Meanwhile, the other two are probably dry - or at least out of danger.
It is no different for trading in markets. Yet more recently, we have seen a nasty bear market take its swipes from just about everyone. That's how bear markets work, and the ones that overstay their welcome suddenly become quite popular. Over the past five months we have seen markets fall four of five times, and the worst start ever for the first 100 days of a stock market.
It's been down, down, down for weeks and weeks, and when it seemed right to take a bullish stance in the throes of a selloff it turned out to be the wrong move. How many times will you take a pie in the face before you throw your hands up and say enough! That's been the plight of most who have tried to fight the bear market, which will eventually go away at some point.
But do you need to be in front of that trend change? You don't have to be first, but you do have to wait for the signs and let the market tell it to you. Most traders won't wait, and that is how they will get hurt. But the secret of success in my view, don't follow the crowd. Wait for the right moment and conditions then pounce.