Should I follow the crowd that is the topic of today's video. and I'm gonna start today's video by quoting one of the greatest investors of all time. Warren Buffett He has this quote: be fearful when others are greedy and be greedy when others are fearful. This paid off for him big time when he dropped five billion dollars into Bank of America coming out of the Great Recession at about $10 a share and I think it was late 2018 or early yea, late 2018 I hit a high of $30.00 around $33 a share.

a 300% return on five billion dollars? Well, that's not too bad. How does that saying apply to day traders? That's we're going to talk about today. So as a day trader, What? I feel like I'm doing most of the time and I'd love for you guys to comment below, what your thoughts are and what you do I feel like I Buy high and sell higher. So that's saying buy low, Sell high If you've ever seen like the vanity plate on a Ferrari buy Low Sell high.

You know that doesn't really apply to active day trading. Certainly, it can apply to investing. It's definitely an investing strategy to buy undervalued stocks. No, no doubt about it.

But as a day trader I don't feel like that really works. It's because in the context of just one day and even within just a few hours, I don't feel like there's usually enough range to really, truly buy something very low unless I'm doing reversal trading on large cap stocks, which I've never found to be particularly rewarding or give me really big win. certainly not homeruns. As a trader, what I'm generally doing is buying high and selling higher.

And that means I'm kind of following the crowd because I'm buying a stock that's already been bought up quite a bit, a stock that might be gapping up 10 or 15 percent meaning it's up 10 or 15% versus yesterday's close and has maybe up another 5 or 10 percent this morning in the last half hour. So I'm buying a stock up 25 30 percent? That seems crazy, right? Well, what about when I buy that stock and then it goes up another 30 40 percent. Now it's up 70 percent on the day. All right, this thing is really taking off.

Now am I a dummy? If I buy it when it's up 70 percent, stocks up 70 percent. It's kind of crazy. Well, what if it then runs another 50 percent is up 120? 130 hundred, 40 percent. So who's the dummy now? The guy who bought it when it was up 70 percent? Or you know, the guy who sat on the sidelines and just watched it run.

Without that's the struggle. Here's my thought on crowd mentality. As a day trader, there are usually only a small handful of stocks that are really moving each day. and so we use these tools.

These scammers kind of like radar to help us find what's moving. The scares are constantly running and then boo-boo-boo-boo-boo-boo-boop they start to lock in on something. Something is moving all right. So we all go to that and all traders go to it.

So you know we just like we use these same tools. similar tools at least they all have serve the same function of trying to find stocks that are moving. I'll put a link below in the description for the scanners that I'm using so you guys can check them out. But when we find something moving, we all just walk right on to it because we want a piece of the action.

So the crowd all rushes to this one stock that's moving. now. as a result of the crowd rushing to the stock, it starts to move and then people jump into it which creates more movement which attracts more traders which creates more movement. And then all of a sudden you have this cycle.

That's what we call the parabolic cycle where stocks all of a sudden go up. You know, 100, 200, 300, 400 % and we've seen it happen. Some of you guys remember some of the biggest movers of all time: Dr. Y: Yes, L Fi N these are some crazy stocks comment below: if you traded any of those and made money or maybe you lost money I Personally didn't trade Dr.

Ys on the day of the big move. I think I traded at the day before and l Fi Ana care but that was nuts. Just totally crazy In any case, you know my problem is that when I see these stocks that are up three dollars or they're at three and then they're up to five and they're six. So now it's up a hundred percent and then it's up to nine dollars.

So two hundred percent it's going higher and higher and you feel like I can't buy a stock at nine dollars. That was just at four dollars or three dollars. That's crazy. Next thing you know, it's at fifteen.

Dang it. 16 17, 18, 19, 20, 22 24 hour I forget about I'm just jumping in. That's FOMO fear of missing out. Then you just jump in.

You mark it in a crazy spot. This is sort of my approach since I know that there's usually only a couple of stocks each day that are really strong I want to focus on them and that means that I am ultimately trading with the crowd because all traders active traders are honing in on those two or three stocks each day to have volatility and volume. All right. So we're gonna trade pretty much the same stocks.

But what I want to do is I want to capitalize on FOMO and never fall victim to it. So what I mean by that is when I see a stock starting to take off and it's moving higher. and let's look on my chart here are KDA So our KVA is a stock that literally was at $2 and then the next day squeezed up to a high of $4.97 Stocks up over a hundred percent on fifty six million shares of volume 56 million shares. That's That's a ton of volume.

So the crowd was focusing on our kDa. The second day. the stock that's already up 100% goes up to seven dollars and thirty four cents. Now it's up over two hundred percent, closing in on three hundred percent.

Within a couple more days, it hits a high of over $10 a share. That's four hundred percent. So this stock clearly was making big moves. Big volume, big volatility, huge opportunity.

And absolutely you would have been trading with the crowd if you were treating it. How do you capitalize on the opportunity without falling victim - fear of missing out and buying it? - Hi. So the question that I always ask myself when I'm seeing stocks that are moving quickly I asked myself what is the potential that the stock has and how much am I risking Now the risk question is a really important one because I get this all the time. Students will sometimes say Ross You know you bought fifty thousand dollars worth of stock.

Let's say I buy 10,000 shares of a five dollar stock. That's a $50,000 position and that's a pretty big position, even for me, no doubt about it. But I'm not actually risking fifty thousand dollars, right? So let's think about this. Let's look at the profit trifecta.

So the profit trifecta is a way to understand the comparison between profit loss ratio and accuracy. So what I look at are the three core components of profitability: The first one? Consistency, And the question here is in the last six weeks, how many of those weeks were you profitable? And so if you're profitable four out of the last six weeks, you're doing pretty well. All right. Next one down is accuracy.

Out of 100 trades, how many of them were winners? If you're right 70 percent of the time, 70 winners out of 100 trades, you're doing pretty darn well. And now the third is the profit or loss ratio. So if I put $50,000 into a trade, I'm not risking fifty thousand because I now own an asset, that stock has value and so in fact, what I'm really risking is the difference between my entry price and how far I'm gonna let it go down before I sell it for a loss. So if I'm in it with $50,000 when it's worth only 49,000 I'm probably gonna sell for a loss and take back my 49 grand.

Which means I've lost a thousand and so I look at that as actually just risking $1,000 And then if I'm up to fifty two thousand and total value I would have sold it for two thousand dollar profit. So the goal here with a good profit loss ratio is to risk $1 to make two dollars, to risk a thousand to make two thousand. And so when I see these stocks ripping up moving higher I'm asking myself what's the most that I'd be risking if I bought it right here. And so let's say I'm gonna evaluate the current pattern, the bull flag, the flat top, breakout, the micro pullback and tell myself, okay, my max loss on this right now is $1,000 Okay, so that's my, that's my risk, that's my loss.

What's the potential of profit If I look at a stock like our kDa and it's squeezing up from five dollars yesterday and to six dollars and I know if it breaks 6 the next psychological resistance point what do you think it's gonna be 6 657 758, 859, 950, 10 1050 11 These stocks often start moving in 50 cent increments. They start to run into a little bit of resistance at the half dollar and the whole dollar. So once it breaks through the half dollar, I'm looking a course for my first entry point. Next profit target is the next half or a whole dollar, whichever one is closer.

So if I'm risking maybe a thousand, then my profit target is up to the next half or a whole dollar. And if that's at least two thousand, at least two to one, then I'm gonna take the train even if the stock is extended. But what I won't do is if I just see it ripping up higher and higher and higher and higher. I will not just impulsively press the Buy button because I just see it going higher and I'm just like I'm missing out.

So I'm just gonna jump in whenever I do that. it means I'm buying sort of at the top of this extension. and although it may continue a little further, my downside risk is all the way back to where that first pattern began to break out. So whether it's a one-minute pattern or a five-minute pattern I need to have what I would consider to be a low-risk entry, which would be buying maybe the little dip off of a pattern.

So again, you're a little lost here on these pull backs. the terminology. Check the links below register to one of my webinars where I really break this down in more detail and just for right now, know that I think there's a very valid strategy as a day trader in buying something that is already high with the goal of selling it higher things that you of course have to be mindful of the risk of a teacher halt t12 halts or when stocks are halted pending a review by the exchange. so the actual exchange says we'll hold up this stocks up a hundred percent.

There's no news what's going on, they'll halt trading in the stock. They'll go to the company and say hey, what's going on of your company with your share price, the stock. the company will often say there's no material news that we are aware of that warrants this type of move so we don't know. And then when the stock resumes, it often opens a lot lower because part of the reason it was moving up was speculation.

Maybe someone knows something, maybe something is happening. There's no news, but but maybe maybe there will be. So then when the company says no, there's actually no news. The stock opens a lot lower and that's where you can take a much bigger loss than you were anticipating.

So the way I avoid T12 halts is: I Really try to be very careful trading a stock that's up more than 200% that has no news. Now if the stock has news they've got FDA and clinical trial results. They've got a new contract, they've got great earnings, then that's the catalyst. That's the reason it's moving higher and I feel totally comfortable being in the trade unless I guess it gets to the point of being up a thousand percent or something.

that's really, really getting crazy crazy and then by that time the stock is obviously well over $20 and it starts to get into the place where the dollar amount in the trade and the the just the price of the stock is outside my wheelhouse. You know I focus on three two, You know two, three to eight dollars being where I really do the best anything above $1 and below ten is good. When it starts to get into the teens into the 20s, that's where I start to struggle. Now when you have a stock like LF I n that goes from $30 to 40 50, 60, 70, 80, 90, 100 you're thinking oh my god this is insane.

It's got to have resistance at 100 pulls back for a second. Alright, that's what I thought Then 110, 120, 130, 140 You gotta be kidding me. Literally went up to $140 a share to two or three days before. it was at 8 bucks.

so that was the craziest one of all time. and I on that one I had to sit on the sidelines because I just felt like at that point it was FOMO to be trading at that high because even the pull backs they were so extended. the risk to get in the pull backs were so big and so dramatic it just didn't feel safe. The question will continue to be yes I'm happy to trade with the crowd I'm happy to trade the stock that's moving.

but can I manage my risk and if I can manage my risk and I'm not concerned about a t12 halt, then I'm gonna jump in because each day when we have those one or two strong stocks, it's kind of a feeding frenzy. That's what it's like. sharks in the ocean. When there's you know when there's a fresh piece of meat, a fresh stock.

Everyone goes for it and gets as much as they can on it and then it kind of is gone. and on that same note. one of the things that's interesting is, you know. Let's just say for instance, that you know there's a really fat seal that drops in the water.

It's huge. So you get this huge move in one stock, everyone's excited, and then you know there's another small opportunity. There's like a smaller seal. It's not too exciting, but you know people get a little piece of it and then you know there's a burger that drops in the water.

Wow Okay, I guess I'll go for that. There's a little something. it's not a lot. and then next thing you know, there's like a lobster pot dropping and everyone goes 40.

Wow Everyone gets burned. Every one gets hurt. That was terrible. I'm not doing that again.

Next thing, it drops in the water. I'm not gonna be full and then a seal comes in the water. Wait, someone else is eating. Okay.

I'm going for it. and it starts the new round of momentum. And so that's kind of that a band flow in the market where we have these huge opportunities that kind of come out of nowhere. They might surprise us at first, and then we get into a real feeding frenzy where we feel really confident.

The winners. They're all kind of crunched together back-to-back big winners. and then it kind of gets to the backside of that mentality where you're seeing stocks failing a lot sooner and stocks are popping up but getting rejected. it's not working and you're starting to get burr.

You're starting to get a little hesitant, a little cautious, you slow down, and then that might mean you miss the first one that starts to pop back up, but you see it's working and then you start to take a little bite, a little taste, and then you're back into it. And then we start the next round of momentum. So what I always say is the market. It's not seasonal.

It's not about necessarily time of the year or the day of the week, or anything like that. It's cyclical. We have hot cycles. when you have cold cycles, the ebb and the flow, and what you really, as a good trader, need to mean to be able to master is the ability to to ease on the throttle when it starts to heat up, increase share size, be more aggressive, try to really capitalize on that hot streak, and then ease off the throttle when it starts to slow down so you don't start giving back profit.

And when it's slow, you know, just kind of tread water. Go easy until things start to pick up, because the last thing you want to do when the market is slow is waste your energy and essentially take unnecessary losses jumping into things that aren't really working because that's the time when there isn't a lot of crowd mentality because what you notice is a lot of people are just sitting on the sidelines and the ones that are able to do that comfortably of course, are the ones who did really well during the last hot streak. and they're like, well, I've got my cushion so I can just sit tight and then of course the ones who feel like they really need to pay the bills. They're the ones out there fighting it out trying to find something, but there's nothing there.

They incur unnecessary losses, and then by the time the next hot streak comes around, those winds are just getting them out of the hole. And that creates this sort of negative cycle. So it's really interesting. this kind of mentality of a trader I'd really encourage you to try to if you're not there yet, at least adopt the mentality of a profitable trader.

You know that kind of just thought that I'm successful I've got a cushion if the crowd is is kind of on the sidelines. if we're not seeing a lot of opportunity. I'm gonna step back I'm gonna go slow I'm gonna wait until I see things pick up. That's the game plan.

It's been working really well for me so as always questions, comments, leave them below and I'll see you guys back in the chat. Oh hey, I didn't see you there while I was just working on the dream board for my next home run trade. Hopefully it comes soon. Until then, Make sure you subscribe to get email alerts anytime! I Go live or upload new videos.

Until then, happy surfing!.