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They Think, We Think, Group Think

Master the markets by challenging the conventional wisdom



Today we are going to take a look at market psychology and how you can use it to become an Elite Trader while avoiding the crowd and mastering your emotions.

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When you're new to the markets, you'll usually get what people call "beginners luck".

You've bucked the trend early on by following your intuition, you take profits and you make good decisions.

In a blink of an eye that changes, why?!

Greed, FOMO, seeking out others wisdom so that you can increase your performance..

Guess what!?!

You're not the only one, all new traders go through this learning curve and even seasoned traders (I'm guilty of it too) run into this issue! You're not alone. The image below shows you why not everyone makes it to becoming a full time trader. It's difficult!

Learning Curve of a Professional Trader
Learning Curve of a Professional Trader

The first step like any problem is to identify it, if you've come here to read the blog for this reason kudos!

So what happens over this time?

We get so ingrained with the ideologies of others and look for confirmation bias, instead of trusting our gut that helped us break the norm in the first place. Trust me, it's hard!

There's an adage in America that when you see your neighbor getting rich you get jealous so instead of figuring out what makes them unique you want to get rich to and copy them.

The problem: we are all unique individuals and what works for one person doesn't work for everybody. This is true of any profession and what makes our world truly unique.

For me, it helps me differentiate myself from others in the market. When the overwhelming view is bullish, I get bearish.

Boy did that help in our last blog post for subscribers too! The fear/greed index was at 70 allowing us to think differntly where the market was headed next allowing us to collect gains of 120% ($TSLA), 60% ($COIN) and 70% ($META) on our positions!!

So, how is it possible "to know" when to get out???

Let's explore groupthink!

Groupthink is the tendency for groups to think in unison.

Why is groupthink bad?

  1. Hides reality by seeking an agreement

  2. Inhibits from uncovering a better truth

  3. Makes people conform

  4. Seeks approval from others instead of risk taking

So think of a feedback loop in an organization or meeting where instead of people actively disagreeing with each other to get to the best solution everyone want s to politely agree with each other and say 'yes' to afraid to step on each others toes.

Unfortunately and fortunately for us this SAME exact behavior tends to show up in the markets! After all, the market is just a collective sum of humans buying and selling stocks. This is why having a view that opposes a collective groups allows us to make the BEST decisions in the market as oppose to mediocre ones or just accepting what others tells us.

And after all the market, ultimately PRICE, is the final arbiter of truth!

So, if we are RIGHT or WRONG we'll figure it out pretty quickly.

One last example, that I continue to think about often -> the MEME stock mania rally.

When AMC, ticker $AMC, and GameStop, ticker $GME, we're all the rage I remember being at friends house watching CNBC the day it topped very vividly. We had a snow storm that day in New York and everyone was talking about RobinHood and it's bold move to halt trading in GameStop.

So you could imagine the look on my face when the group I was with asked "Should we buy AMC or GameStop right now???"

It looked something like Jim Carrey from the mask:

Jim Carrey from the Mask (1994)
Jim Carrey from the Mask

"Of course not!", I replied. And what's difficult about that, just like I stated in the anecdote above when your neighbor is getting rich you want to too, is that I have to tell them what they don't want to hear.

The short term pain of not being liked by the group is rewarded by the long term gain of having them not buy the top, which is something that you get use to mastering once you've seen it happen a million times.

So, just remember, it's ok to say no politely to help others in the long term. My favorite quote from Warren Bufett puts it succintly: 'Honesty is a very expensive gift, don't expect it from cheap people."

So if you think I am wrong I encourage you to reach out and tell me or ask why, after all that's how we'll learn to master the markets!

Appreciate each of you that takes the time to read my blog posts and don't forget to trad confidently!


Essex Trading Quote of the Day (#EsxQotD)

~ TelMudic



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