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The individual versus the “group”

January 31, 2012

As traders, we are constantly in a battle between the need to think independently and avoiding the urge to fight market momentum. A trading idea can be correct, yet end up losing money because the trader (the “individual”) believes so strongly in the trade that they fight the market’s momentum (the “group”). This often occurs because a trader has the correct idea, but the wrong market timing. Markets shift momentum when the “group” decides — not when the individual trader believes the trend shift should occur. There is a saying on Wall Street that accurately describes this behavior: “The market can remain irrational longer than you can remain solvent.” As a trader, the trend is your friend; fighting it will only result in losses over the long-term.

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