Written by Katie Gomez

“Two roads diverged in a wood- and I took the one less traveled by, and that has made all the difference” -Robert Frost 

Some of the most beautiful things can be found when one leaves the herd to follow a new path. As you gain more experience as an investor or trader, you realize the trading paradox: once people are buzzing about a stock, it is usually too late to profit from it, but how do you know of its existence if no one is talking about it? 

The Trader’s Paradox

Many traders begin their journey with the help of other traders, webinar groups, mentors, or actual brokerages to receive information. Having the support of fellow traders makes sense because we can only trade based on current information, and if we are out of the loop about what’s going on in the market, how can we expect to trade on it? However, depending solely on others for information can be detrimental. This reliance means that your trades are essentially secondhand, which often results in lower profits. This is what I call the ‘trading paradox’.

Now, this is not to say that the only way for you to succeed is to be the first to discover stocks and invest in them. However, there is merit in being one of the first groups of people to see its potential. While this may be more difficult for part-time traders who have full-time jobs, as a full-time day trader, discovering untapped areas should be a priority to uncover the hidden gems in the market. Day traders have the power to find information much earlier and be at the front of the line, while all the other traders line up behind them once the same information finally reaches them. 

Unfortunately, retail traders are often the last to know, the bottom of the stock trading food chain, ignorantly waiting their turn at the back of the line. Retail traders are forced to rely on the information presented to the public long after the time has passed to join in on the profits.

For instance, CNBC and people like Jim Cramer are notorious for giving retail traders “insider” information, advertising it as the juiciest, most exclusive breaking news of the trading world.

In actuality, the information is rather old news that is now being regurgitated and pushed onto the public so the professionals and the 1% who already own it can sell it for a higher profit. By the time these news outlets start talking about a stock (with the exception of some lesser-known social media pages), it is most likely just a manipulation tactic for those already invested in the stock to increase their profits. 

Be aware of the information prescribed to you.

Therefore, if you are a newer trader, you must be wary of where you get your information, understanding that when you listen to the media, you risk being used as a pawn for someone else’s profit. That said, people like Jim Cramer have lost a lot of followers lately as retail traders are starting to wise up and notice the agenda he is pushing with his “free insider info.” People like Cramer may be advertising the “right stock,” but at a time that is way too late.Instead of helping, they manipulate the public to increase the number of buy orders, ramping up the price to favor those who invested early, only to sell it days later once the retail traders have shot up its value with buy orders. This is also known as the classic “pump and dump.” 

The most successful day traders are not waiting for information to be presented to them; they know the market inside and out. Therefore, they are typically the first to recognize when something seems off like Michael Burry did with the housing market or Ryan Cohen did with Gamestop.

In Burry’s case, his extensive research led him to discover that the entire housing market was based on unsecured loans, leading him to predict an imminent collapse. Conversely, a handful of retail investors, including Cohen, noticed the Gamestop short float was over 100%, an easily recognizable piece of data (one that so many other traders ignored) indicating a potential short squeeze. Either way, both examples prove the importance of doing research and trusting your instincts to uncover hidden gems, whether that means turning over every stone or just looking a little harder under one stone in particular. 

What untapped market is one to look out for in the future?

Artificial intelligence is still in its infancy but has instigated some monumental changes in the economy with the introduction of chat GPT and its effect on jobs in education, journalism, coding, and more. 

Get ahead of the curve by researching what companies could be made redundant with AI tools like ChatGPT and what stocks are thriving with the help of AI and will benefit from its progress in the future. This research can guide you on which stocks to avoid and which ones might warrant closer attention and potential investment.

The best traders can spot change before it happens and know when to cut and run before they are stuck with damages. This detachment allows for more adaptability and frees them up to discover new opportunities away from the public eye. This perspective reset will enable traders to zoom out and see the market with fresh eyes, as they are no longer distracted by the stocks everyone else is hyper-focused on.

In conclusion, having a community to rely on as a stock trader is essential. You can share ideas, tools, and compare learning styles and lessons learned. However, we must learn how to trust ourselves, use our instincts, and do our own research because, at the end of the day, it is our money we are risking, and we have to take responsibility for both our wins and losses. 

Therefore, it is crucial (especially for retail traders ) to be wary of the motives and manipulation behind the advertisements for the “hottest stock to buy right now” and to take any information with a grain of salt. If you’re feeling a strong sense of FOMO about a stock that everyone is talking about, it’s usually a sign that you shouldn’t buy it. Suppose the stock is already being discussed, especially in the major public media channels. In that case, the profit ship has likely set sail long ago, and hopping on the bandwagon now would be the equivalent of showing up to the party of the century moments before the cops show up to shut it down.