Momentum trades powers the market, and if you want to benefit from whatever happens in the market then, you do need to master the art of getting in and out of momentum trades. It is not easy, but it can be done. I learn from people and watching nature at work. And I do try to apply my learnings in whatever I do.
If you want to learn to ride the momentum waves better then do watch professional surfers @ play. And also talk to them, to know them better. By understanding how they hone their skills, you will learn to develop a big picture understanding of how moments inside a momentum are crucial in deciding what happens to you when you are coming out of a momentum, and especially when to come out of it.
By studying the waves in an ocean or a sea, you start getting good at spotting a good wave, and then learn to ride it better and better by getting the moments and your decisions right. Momentum in markets are mostly powered by underlying human psychology. And people do tend to use their predisposed bias to make investment decisions or any decision for that matter. Trends do work as moments and prevailing market sentiments inside a momentum.
When you get good at riding a wave, you have a good understanding of the external factors that will influence what happens to the wave, and you ride the wave knowing well that it will eventual crash at the shore or simply lose the intensity and die off. And this understanding has relevance in how you ride a momentum trade in a market. When the sea or the ocean is calmer, it’s looks more predictable, so your ride will be smooth, more or less. But when it’s busy, the waves will tests your tolerance to the limit, and you may get hit by a rogue wave that you couldn’t possibly see or predict. Volatility is that turbulent ocean that can throw you out off your boat, and you may even capsize if you get hit by a rogue volatility wave that you couldn’t see or predict.
Sometimes all your experience and expertise won’t be enough to save you, and you will simply be riding on your good fortune. Markets like ocean can humble anyone. Even in good weather conditions you can’t avoid turbulence. Market events are like gravitational waves that flows through the market, and sometimes it’s quite hard to project the entire journey and also the overall reach of the waves or a specific wave.
As I see the Covid-19 pandemic as an event that resembles the merger of a supermassive black hole with smaller black holes that already existed in the ecosystem. And my sense is that, the ripple effect of that merger will last for sometime. The merger will change the ecosystem, as in, the landscape and the larger surroundings.
The global economy as we have come to know it, is changing, and although some of the changes may not be that visible and viable yet, but nevertheless, the changes will flow through the economy over time. And when talking about change, it is imperative to note that no change is ever permanent, because change is the only permanent. So some of the changes that happening inside the economy may not be viable, but they will still have a disruptive value. And people may lose money on investing in these disruptive changes, because there is no way of knowing the overall viability of these changes.
Momentum trades and the underlying trends as well as the overall market psychology powering the moments within the momentum are the inherent features of a market that allows people to either create a profit from it, or make people lose their pants. So when someone is winning, there are those who are losing, that’s how it always works.
The question is, what do you do if you have benefitted from the momentum trades? Do you wait and watch for the next event, or actively deploy part of those winnings into stories ( a team building a business ) that will become the next big event ? I don’t know about others, but I do tend to invest the winnings in people running businesses that will shape the economy of tomorrow. And yes! Some of these investments may not result in creating or building a long term viable businesses, but you can still position yourself appropriately to create some benefits, even if the journey is short lived.
Nature is not emotional, it has allowed species to die off, and those species have played a role in building the larger ecosystem. It is always at work and looking forward, making changes. Otherwise it runs the risk of ceasing to exist by getting trapped in an unsustainable journey. I continue to learn from nature everyday about wealth creation, and how to build a sustainable business that will create long term value for the larger society.