How To Play The Current State Of Mind Of The Market

If you really think about it, the stock market closely resembles a living, breathing entity.

It’s like an organism composed of millions and millions of cells, where each cell is an entity, a person, or an institution that makes investment and trading decisions.

While individuals make buy and sell decisions, the pulse of the market and the general movement of the market, one way or another, is often driven by the collective psychology of the organism.

If you understand how the collective psychology that’s moving the market works, you can be exactly where you need to be, almost all the time, and reap extraordinary profits in up and down markets.

Here’s how to read what the market’s saying, and how I recommend playing the current state of mind of the market…

The Trend is Your Friend

Never forget, the trend is your friend.

When you trade and invest based on the trend – meaning you play stocks from the “long” side (the buy side) when the trend of the general market is solidly up, and you play from the “short” side (sell and go short or buy put options) when the market’s trending down – you’ll find it’s hard not to make money.

Take the current state of the market; we’ve been enjoying an extraordinary – make that historic – bull market since 2009. The trend has been solidly up.

There are lots of reasons you and analysts can come up with as to why the trend has been up, but it’s not those reasons that reinforce each of the individual metrics that we look at and say, that’s a positive for stocks, that defines the trend; it’s the broad, collective psychology of market participants.

Investors, traders, and analysts don’t all look at the same metrics, and even when they do, they don’t all interpret them the same way. But the trend is irrefutable; it’s the one metric that matters, always.

The trend only changes when the collective psychology changes. Those changes can be for some short duration, or they can be huge changes that last for years.