Reverse Herd Mentality Kicked my Butt!

I know I have not posted in a while and to be honest it was because my trades were working out well and I got cocky. I felt that I had a great understanding of the stocks I was trading and could do no wrong. Basically, I broke my own rules about ego and thinking I knew more than everyone else. I’m not going to mention the stock I was trading as it was a relatively low priced issue that I have played with great success for some time. I guess its true, familiarity breeds contempt and this caused me to feel I was right and the entire market was wrong. Remember, psychology plays a huge role in market movements and going with the herd may not be such a bad thing, provided you get in early enough and out soon enough, before everyone else begins to second guess themselves and start exiting their positions. My problem was that in this particular issue is that I felt that conditions causing this stock to decline were highly over stated.

Whether it was an increase in supply or socio-economic condition or climate or whatever, I took a stand that this issue was highly oversold. I began looking at various technical indicators of the last 90 days and then weekly and determined it was time to begin to accumulate this stock. After all, it was an under $10 issue and rarely moved more than about .25cents in a day. Mistake number one is that I am for all intents and purposes a “day trader”, I should be looking for issues that I can get into make a quarter or fifty cents and be gone. That is my expertise or comfort zone so to speak. The other mistake, (although this week, and trade was riddled with mistakes) was that the pressure of the herd was still pushing this issue down. This meant that even if I was correct on why the stock seemed oversold to me, the selling pressure of the herd was still going to drop the price.

As a day trader, I could have made some money by entering and exiting judiciously throughout out the day, but another mistake was that I was getting greedy, and decided not only to accumulate this stock, but keep it overnight even though it closed down on a day when the rest of the market was up (big mistake when taking something overnight). I made the excuse that this stock didn’t trade in accord with the rest of the market and found myself battling back from a disastrous opening the next morning. I am not ashamed of posting this information publicly as it is my hope that this incredible number of newbie trader mistakes made by a seasoned trader may be recognized, and that even experienced trader such as me can break the rules. These mistakes although unforgiveable have been a blessing, as I am now more focused than ever and realize that the rules I trade by are not randomly thought up factoids, but the result of other people’s losses who have imparted their wisdom upon me, so I wouldn’t have to take major losses, as I hope my losses will assist you. My losses were not major as I still had many of my risk management rules in place, but they were avoidable. You don’t know more than the market as it is a living, breathing entity pushed by human emotion. Good luck and good trading!

Noah Hochman

About the author

Noah Hochman

Leave a Comment