The Ultimate Net
Do you remember when ETH was at $2K during the bear market of 2022? You will recall that at exactly the same time, news broke out about BlackRock entering the Crypto space. Everyone was zapped and fell prey to the snare of overconfidence. Hindsight always provides so much clarity, doesn’t it?
However, clarity from the position of hindsight is useless, it merely serves to vindicate those who were positioned according to its perspective. The trick is to gain that perspective in the present, so as to later benefit when it is revealed to the masses. Overconfidence in the marketplace can be equated to “pride goes before a fall” in everyday life.
In a time when confidence was soaring and everyone was bullish, especially on ETH, I went short on Ethereum at $2K. Oh yes, I was “taken apart” by Achille, but I was holding him by the heel. What followed was a correction of almost 50% on ETH. Overconfidence can also operate in reverse. However, more often than not, it’s on the bullish side.
This is primarily due to greed being the dominant factor between fear and greed. Essentially, greed pushes further than fear can push. However, fear can often achieve a faster arrival to the point of exhaustion. Ironically, overconfidence acts as a distributor of wealth to the patient, who have managed to gain a bird’s-eye view.
The Symptoms Of Overconfidence
Diagnosing overconfidence is not really that difficult. However, it does require an understanding of the market hierarchy. Overconfidence often latches onto true indicators that are at the bottom of the structure. Even though they may be true and accurate, in the grand scheme of things, they offer little weight. Whales and institutions (Smart Money) know this and simply go on to exploit the ignorance of the average retail investor.
Some people may find the term “average” offensive. However, the average athlete doesn’t win gold medals. This is reserved for the disciplined and “skilled” athlete. Are you skilled? What have you done to ensure that you are? Being “around” the markets for years doesn’t make you a skilled investor or trader.
Ironically, it is often those who do not even have that behind their name who go around hurling insults on Twitter and other avenues. If 90% of market participants lose money then what do you think the “average investor” experiences? Correct… loss!
Financial markets devour average investors as a stable diet. The term “Smart Money” is very applicable, as being smart usually refers to being educated and knowledgeable. Having a deeper understanding and insight provides you with an edge over your competitor.
Overconfidence always seems to lay a snare. Remaining with the data and actual facts is most important. However, this needs to be a comprehensive “basket of data”. Relying on isolated indicators is another move that Smart Money loves to prey on. If you are going to win trades, then you need to swim with the whales, which essentially implies that you are going to have to think like them.
Thinking like the average retail investor is like swimming with the fish… who eventually end up in a net!