Hey trader,
You may have heard your parents ask, or maybe you’ve asked your own kids, “If everyone was jumping off a bridge, would you?”
The warning, hyperbolic as it is, makes an extreme example of why you shouldn’t follow the crowd and give in to peer pressure.
As a teenager, I didn’t need “everyone” to be doing something. I just needed my best friend to be doing it.
A simple comment, an issued dare (maybe that’s why his name was Darren), or even an unspoken action would often compel one of us to do what the other was doing or suggesting.
One late November day, Darren and I went on a 5-mile run up Provo Canyon. Snow covered the sides of the trail, and the air sat in the high 30s.
That was the perfect temperature for a brisk run to Canyon Glen and back.
As we finished the round trip, we paused at a bridge and looked down at the icy water of the Provo River flowing beneath us.
We’d been friends since the age of 5. It didn’t take much coercion to get us to act.
We talked about how cold it was. We wondered whether the river would freeze if it weren’t moving, like the local lake.
Still staring at the water, Darren said, “I’ll jump in if you do.”
Before he’d even finished saying “do,” I had climbed over the rail and leaped, aiming for the bank that would be easiest to exit.
Darren, being a man of integrity, followed me over the rail and into the icy current below.
The drop was probably 10 to 12 feet. If the fall didn’t take your breath away, the water surely did.
When I reached the bank, I realized my hat had come off. I had to go back out to retrieve it, which added to my time in the water.
We climbed out and walked two blocks back to Darren’s Bronco.
I’ve been cold before. I’ve winter camped and taken other polar plunges.
I don’t think I’ve ever been that cold, before or since.
My skin felt as though I’d become the test subject for an acupuncture school. Every inch of me was a failed cryogenic freezing attempt.
When we reached the Bronco and cranked the heater, the pain slowly eased. We were left with a shared memory for the ages.
That memory, and many others, is bittersweet because my dear friend passed away this week.
I could write a book about the things we did that we probably shouldn’t have. As I write this, I’m grateful for the fond memories and once-in-a-lifetime experiences we shared.
(We were at least smart enough not to repeat our shenanigans.)
Now for the market comparison. If everyone bought here, would you?
If everyone sold here, would you?
Peer pressure and herd mentality can push us into a trade on a chart.
Don’t ask whether you would jump off that bridge. Ask whether you should, and whether it’s worth the risk.
Just as our parents warned us, when everyone is doing something that’s clearly a bad idea, the crowd’s participation doesn’t make it reasonable.
When everyone piles in on a breakout through a high or a resistance level and price quickly reverses back inside, that may be the wrong moment to follow the crowd.
They’re jumping in when the risk is high and the reward is small.
Conversely, “everyone is doing it” doesn’t automatically make something a bad idea. Sometimes the crowd keeps you in the trend and safe.
If everyone is driving north on the northbound road, would you? I hope you said yes.
If traffic is moving in the same direction and you can merge safely with managed risk, then yes, you should do what the crowd is doing.
You need to understand whether the crowd is behaving consistently and safely or recklessly and dangerously.
If you can define the trend, your risk management, and a safe entry, you’re going with the traffic.
If you’re simply copying everyone else, chasing the trade, reacting too quickly, and skipping the risk assessment, you’re jumping off a bridge into frigid water.
Pause a little longer on that bridge and think it over.
Take the time to assess market behavior and decide whether this is a trade you should be taking.
That extra time can turn your results into profit and progress rather than a memory of stinging cold water that still chills your bones 30 years later.
Blake Young
Senior Market Strategist, TheoTRADE
