To Make Money, You Need to Follow the Money

Wayne Gretzky was arguably the greatest ice hockey player ever.  But he also had a silver tongue, his quotes served a purpose to explain his extreme passion for winning.  Of my two favorites, Gretzky once said, ‘A good hockey player plays where the puck is.  A great hockey player plays where the puck is going to be’.  Now, you might ask how this relates at all to trading.  We have defined trading as a metaphor of life so we often find real world examples that mimic trading psychology and execution.

A trader needs to understand what is happening in real time but also what may happen down the road.  We’re not talking months or years here, that is certainly a requirement for an investor.  But traders can capitalize on short term movements and money flow that is so powerful a trade can literally double or triple within days.  We would NOT recommend this as a steady diet of trading, yet when the opportunities are there and potential gains are robust and short term, why not take some risk?

Another of my favorite Wayne Gretzky quotes is, ‘You miss 100% of the shots you don’t take’.  Some have defined trading in this market as irrational, irresponsible and reckless.  Interesting that those descriptions are often from the sidelines, those participants who are not playing in the same sandbox as short term traders.  I don’t think anyone is going to apologize or give back their gains on the recent parabolic rise of AMC stock.

If you’re paying attention to the markets on a daily basis you can see the opportunities arise.  Some names that have been promoted by Reddit, Wallstreetbets and other blogs/boards are getting trader attention.  I had never heard of Clover Health (CLOV) or ContextLogic (WISH) before last week, but those stocks roared higher on very strong turnover. Be aware these moves can be strong an intense and last only a couple of days if not hours.  

Even the biggest stocks of all get their share of money flows, it’s always good to follow the money. 

Some made significant gains in just a few days.  The money was flowing and the crowd was following.  There is nothing wrong with this approach but know your limitations and always practice disciplined risk management.  A few big wins here/there could make a huge difference in your overall performance.  Just use caution and care and accept when the ‘good times’ like this are finished.

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