Where the Public Go Next?
Even during a strong bull market, you have to do your homework. Many stocks will go up while the public is interested in trading the markets, but not all stocks are equal. Some will go up dramatically while others will barely move. If you want to trade like a master trader, you must closely study the markets to find stocks that are likely to go up.
Despite the necessity of studying the fundamentals of a stock, mass psychology is also important. A stock may rise steadily, but people might not believe that the earnings are going to continue as strongly as they had in the past. The opinions of the public do matter, and it is vital to continually ask yourself, why would the public be interested in trading the stock?
There should be something new that attracts people to that stock. We see this principle work these days just as it did in the past. When Apple announces a new iPod, the extent to which the public will buy it dictates the price of the stock. The trick is in anticipating how the public will react. Will the public buy a new product? Will a different company come up with a better competing product? These factors are a matter of mass psychology, and the trader who knows how to anticipate what the public will do next, has an advantage.
This is sound trading advice. You must always look at the interest of the public and figure out how this interest will impact prices. When the public strongly believe in a company, the price is bound to eventually go up. Products and earnings are also important. We have seen time and time again that a hot product also has a major impact on earnings. The trouble is that it is hard to know what the latest hot topic will be. How many innovative products are now commonplace? Consider the iPod, cell phone, PDA or laptop computer. Hot new examples of these products may be forthcoming, but perhaps innovation in these areas may have ended. Your ability to guess what happens next will foretell how well you will do in the future. If you can figure out what the masses will buy next, you will profit. What is the next trend?