ETF Trading Strategies: Dangers of Following The Crowd

ETF Trading Strategies 101

Updated Feb 2023

The article below highlights how the masses are always on the wrong side of the market. They allow fear and paranoia to govern their actions. When a movement is controlled by emotion, the outcome is always negative. Hence the solution is to sit down and look at things around calmly. You need to understand we are in a new paradigm, a paradigm where the main driving forces are hot money, and until fiat comes to an end, all corrections ranging from mild to wild should be viewed as opportunities.

Bond rates are almost negative, and instead of putting some of this money to work in the markets, the crowd prefers to hold onto it and take a neutral position.

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When investors are holding more cash, it can be a signal that the crowd is nervous, and it might be a good time to buy. This is particularly relevant now, as hedge funds are also building up cash reserves in response to the uncertain future, which they plan to use to buy securities in various markets such as stocks, bonds, commodities and currencies.

Hedge funds are selling off positions in securities bought with borrowed money, which is known as “de-grossing” on Wall Street. According to a report by Morgan Stanley, Wednesday saw the biggest one-day run of such unwinding since 2010. These actions by hedge funds may indicate that they are taking a contrarian approach and going against the crowd, which could potentially yield benefits in the future.NYTimes

The fear of a market downturn is causing investors to shift their focus towards cash-like assets. According to data from Bank of America and EPFR Global, inflows into cash-like assets reached a record high of $137 billion during the five days ending on March 11. Meanwhile, investors put $14 billion into government bonds, also an all-time high, and sold off $3 billion worth of gold. This trend reflects investors’ uncertainty about the future of the market and their desire to protect their investments. Bloomberg

While the crowd is busy cashing out of various grades of debt and equities, shying away from sharp volatility, savvy investors know that this is the perfect time to jump in and buy. The biggest collective outflow in history from investment-grade, high-yield, and emerging market bonds, with more than $34 billion being pulled from the asset class, presents a golden opportunity for those willing to take a contrarian approach.

Hope is the fool’s weapon of choice.

As the financial sector saw $3.3 billion withdrawn, breaking yet another record during the chaotic five-day period, investors who can think outside the box know that this is precisely the moment to enter the market and capitalize on the panic selling of others. The shift towards safe havens and stable assets may seem like the safe bet, but going against the crowd and making strategic investments in the midst of volatility has proven to be a lucrative move time and time again Business Insider

Hope is for fools that have plenty of time on their hands with an inordinate desire for pain. Sol Palha

In the jungle that is the stock market, hope is a commodity for fools with an unhealthy tolerance for pain and a wealth of idle time. Adapting to the ever-changing terrain is key to survival, and simply hoping for a change while sticking to old ways is nothing short of insanity. In the face of central bankers’ determination to erode the value of the dollar, holding onto cash is not the most effective solution.

That is precisely why this Bull Market will soar higher than anyone could anticipate. The more that investors fret over trivialities, the more room the market has to grow. Only when these fretful individuals finally take the plunge will the final feeding frenzy be within sight, followed by an inevitable market crash.

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The sell-to-buy ratio is a measure of insider buying, with a reading of 2.00 considered normal and below 0.90 being exceptionally bullish. Currently, the sell-to-buy ratio is at a very bullish 0.35, indicating that insiders purchase large quantities of shares during this massive pullback. This suggests that insiders see great value in the market at these levels and believe there is a strong chance for a future rally. It is worth noting that insider buying has historically been a strong indicator of future stock performance. As such, investors may wish to consider this as one of the many factors when making investment decisions.

According to Vickers’ benchmark NYSE/ASE One-Week Sell/Buy Ratio, the current reading stands at 0.33, with the Total one-week reading at 0.35. These readings are based on heavy transaction volumes, suggesting that insiders are not only buying shares but are also aggressively accumulating them.

This pattern of behaviour by insiders was observed during the 2008/2009 Great Recession correction, the 2016 market correction, and the 2018 Christmas Eve market crash, which all turned out to be excellent times to buy stocks. https://yhoo.it/2TV0cE2

The current market downturn due to the pandemic panic will eventually subside and create a feeding frenzy in the stock market. This will be driven by zero interest rates, huge injections of money by the government to stimulate the economy, and a large portion of individuals on fixed incomes being forced to speculate due to the low rates. This will result in a market that reaches unimaginable heights.

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These articles explain that ETFs can provide investors diversification, liquidity, and flexibility during market panics. They can also help investors to stay invested and avoid making emotional decisions.