I have made my living for 34 years in trading “against the crowd.” What does that mean? It is when the prevailing market opinion is leaning too much one way. I like to do the other. One of the biggest rushes in adrenaline I ever had was when I would take out all 100 traders in the IBM pit on the CBOE out of their positions, only to see them beg to get back their positions five minutes later.
I use that tactic even today. Trading off the floor, the best way to gauge sentiment is to use StockTwits sentiment indicator, and then doing opposite the prevailing sentiment. As mentioned on StockTwits, their indicator is based on an algorithm that analyzes the tone of the individual “tweets”. I always use this tactic in conjunction with charts, and the overall market perspective. Here is an example.
On Friday, April 1st, I notice the overwhelming bullishness in Nike (NKE) on StockTwits. The bullish sentiment was 95 percent, which for Nike is an extreme. This week it has shrunk to 88 percent.
Many times, before I initiate a trade, I post an opposite opinion on StockTwits, and see how many hate e-mails I receive. Here was my post:
Within 10 minutes I received 8 e-mails. Here is an example:
Now I know I had the sentiment pegged perfectly. Now the charts had to agree. As seen, Nike (NKE) formed a beautiful bear flag. I shorted it around 61.77.
The trade was good for over 2 points in 1 Day !!!
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