Searching For Where the Masses Will Go Next

Even during a strong bull market, you have to do your homework. Sure, many stocks will go up while the public is interested in trading the markets, but not all stocks are equal. Some will go up dramatically while others will barely move. If you want to trade like a master trader, you must closely study the markets to
find stocks that are likely to go up.

In his interview in "Market Wizards," David Ryan offers some useful tips. Despite the necessity of studying the fundamentals of a stock, mass psychology is also important. A stock may rise steadily, but "people might not believe that the earnings are going to continue as strongly as they had in the past." The opinions of the masses do matter, and it is vital to continually ask yourself, why would the masses be interested in trading the stock? "There should be something new that attracts people to that stock." We see this principle work these days just as it did in the 1980s when Mr. Ryan gave his interview. When Apple announces a new iPod, the extent to which the masses will buy it dictates the price of the stock. The trick is in anticipating how the masses will react. Will the masses buy a new product? Will a different company come up with a better competing product? These factors are a matter of mass psychology, and the trader who knows how to anticipate what the masses wil l do next will be the one who makes the most profits. That said, the facts of the tape also make a difference. Price is important but so is volume. As Mr. Ryan suggests, "You can tell a lot by volume. If the volume doubles one day and the stock moves to a new high, it is telling you a lot of people are interested in the stock and buying it. If a stock moves to a new high ground, but the volume is only up 10 percent, I would be wary."

This is sound trading advice. You must always look at the interest of the masses and figure out how this interest will impact prices. When the masses strongly believe in a company, the price is bound to eventually go up. Products and earnings are also important. We have seen time and time again that a hot product also has a major impact on earnings. The trouble is that it is hard to know what the latest hot topic will be. How many innovative products are now commonplace? Consider the iPod, cell phone, PDA or laptop computer. Hot new examples of these products may be forthcoming, but perhaps innovation in these areas may have ended. Your ability to guess what happens next will foretell how well you will do in the future. If you can figure out what the masses will buy next, you will profit. What is the next trend? People have been more likely to shop at Target than at a luxury department store in the past few years. But some of you may remember the early 1980s when designer jea ns and Polo shirts were all the rage. Perhaps clothing preferences will change in the near future. If you can get an intuitive feel for how the public wants to spend their limited finances, you will be able to purchase stocks that are on the rise. Consider the 1930s when people's income was limited. They didn't go to movies but stayed home and listened to the radio. RCA stock may have been a relatively good investment in those days. It is no different these days. If you know the next trend, you will profit. Trading is often 90 percent psychology, so if you can anticipate what the masses will do next, you will profit.