Where Are We Going Next?
Have you been reading the media reports lately? What's going to happen next? Are you bullish or bearish? It's hard to know what to think and what to do. Looking for guidance from the media, analysts or the crowd may be reassuring, but in times like these, times where we do not know whether we are heading for inflation, recession, or a temporary economic slump, it's hard to know whom to trust. Some analysts are bullish, and others are bearish. There are good arguments for both sides, so which path will you follow? In the end, the best that you can do is go your own way.
Whatever you do, however, you must recognize the powerful tendency to follow the crowd, even when the masses are wrong. Following the crowd is instinctual as well as socially learned. Most successful members of society have seen the virtues of following the crowd. They have learned to look for rules to follow and to decide which standards to strive for. In school, for example, it was to our advantage to follow the rules. Blind obedience to authority may not be beneficial but compromise is. To be successful, it is often necessary to stay within the bounds of acceptable behavior. So although following the crowd has disadvantages, it's important to acknowledge that it is often adaptive. In addition, humans may follow the herd instinct. There is safety and comfort in numbers. The masses offer confirmation, and it's nice to have the sense of reassurance that the confirmation of the masses offers. Following the crowd is comforting and adaptive most of the time, but there are times when the crowd is wrong. And when you follow the crowd at the wrong time, you lose, and lose big.
During times when the longer-term trend is uncertain, it isn't safe to follow the crowd. In times like these, you must go your own way. You must think outside the box, guessing what the crowd will do next, and anticipating how the movement of the masses can benefit you as a trader. The key is to know when to follow the crowd and when to go against it. The challenge is making an educated guess as to when a turning point will occur, anticipating it, and developing a trading plan to capitalize on it. Now, this all sounds easy in theory, but in practice, it is difficult to implement a trading strategy to capitalize on this cycle. How can one guess the turning point? Some say it is almost impossible. All you can do is develop a sound method that works most of the time but also admit that it may fail. Whether you use technical indicators or you are lucky enough to use the media news to your advantage, you must temporarily have full confidence in your method, put money on the line, and act decisively. Sometimes thinking independently is risky, but trading during uncertain economic times is inherently risky. You can either stand aside or trade and accept the risk and uncertainty. In the end, if you want to keep trading, you have no other choice but to go your own way.
