Today's Quote: “Follow the crowd and you will never be followed by a crowd.” Hannah Whitall Smith.

There are several good books out there about trading that should be on every trader’s must read list. If you were forced to choose one and only one, the only possible pick would be “Tools and Tactics for the Master Day Trader”. We are going to run a series of excerpts from the best selling book for the next series of lessons. Now in the words of the master trader himself, Oliver L. Velez…

SECRET #11 : WALL STREET GURUS WILL ALWAYS BE WRONG

There have been times when some of Wall Street's top market strategists called for the end of financial civilization, as we know it. During these times, gloom and doom were being touted by such a large chorus of professionals that even the most jaded market supporters started to grow grizzly hair. In each case, the market seemed to laugh in the face of these gloom and doom calls. By now, you'd think these gurus would have figured out why their timing is typically so poor. Perhaps if they realized "it's always darkest before dawn," the fact revealed in Secret #10, they'd have a clue. But let me reveal why the market almost has to reverse if a large number of these professionals start yelling "fire in the theatre" at the same time. Wall Street market strategists have a responsibility to inform their firm's major clients of their views ahead of time. In fact, responsible market strategists would not dare go public with a bearish market call until most of their clients have either sold out or at least repositioned for the expected event. In other words, these gurus only go public with their bearish calls after they feel their clients have prepared for the doom. No wonder the market always seems at odds with these guys. All the selling from their big clients (mutual and hedge funds, etc.) has already taken place. Who do they think is left to sell, my grandpa Bill? Maybe it's the warm-hearted custodian in my office building who owns two mutual funds that they fear. They just don't get it. My grandpa and the hard-working custodian I know don't listen to them. They don't even know they exist. They simply stay put in the market. And even if they didn't, don't these "experts" realize it's their clients they need to fear? I guess they don't. That's why the market is always laughing at them. Can you hear it? It's still laughing?

MASTER TRADING TIP

The master trader knows that whenever a large group of Wall Street's most-watched analysts start looking for trouble, the reverse will likely take place. We know some traders who profit enormously by betting in this contrary way using S&P futures contracts and Equity Index options. The nature of fear and greed works the same for the gurus as it does for the novices. It's just that the gurus will be less willing to admit it. This is why the market laughs especially when it proves them wrong. Learn to always look for the reverse when Wall Street, as a whole, is thinking in one direction, because if and when the professional crowd is proven wrong, the move in the opposite direction will be violent. When the big boys are forced the scramble, the market really moves.