Trend-Following: Your result is .

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
~ Charles MacKay (1841) Extraordinary Popular Delusions And The Madness Of Crowds
  • Trend-following refers to one's tendency to follow the crowd, relying on others for leadership and critical thinking. Trend-following can be profitable for investors (though many contrarians would disagree), provided that they recognize signs of trend formation and dissipation. Momentum investors are an example of trend-followers.
  • "Never, Ever Listen to Other Opinions.
  • To succeed in the markets, it is essential to make your own decisions. Numerous traders cited listening to others as their worst blunder. Walton and Minervini lost their entire investment stake because of this misjudgement."
  • ~ Jack Schwager, Stock Market Wizards, Wizard Lessons #29
  • Contrarians score low on trend-following. Contrarians tend to bet against current trends or opinion when they are identifiably incorrect. Contrarians typically view the market consensus with suspicion, and are sometimes described in the same sentence as value investors.
  • Because the many market opportunities are created by the misbehavior of the mass of investors, an understanding of crowd psychology is useful for investors.
  • "If your mind is not in gear with the markets, or if you ignore changes in mass psychology of crowds, then you have no chance of making money trading." ~ Alexander Elder (1993) Trading for a Living
  1. Consider using a trend-following strategy in your investing, such as momentum or growth strategies, since these may be more congruent with your personality.
  2. Avoid listening to financial media, colleagues, or market gurus (such as on CNBC) for investment ideas. High scorers are more susceptible than most to chasing the media or "stock tip" bandwagon (which is typically a very bumpy ride).
  1. You have the innate advantage of searching for opportunities away from the crowd. Investing in overlooked markets or sectors may fit your personality. Low scorers are often value investors.
  2. Beware of betting against powerfully trending markets. Fading trends may be appealing to low scorers, but doing it well requires patience, vigilance, and knowledge of the signs of market reversals. Timing is key.