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Tulipmania theory: The first thing they teach us in trading

Discussion in 'General Discussion' started by Arpit, Jun 12, 2018 at 1:40 AM.

  1. Arpit

    Arpit Contributor

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    When I started my career in trading, the very first class involved an introduction to The Tulipmania theory.

    Here is what it is according to Wikipedia:

    "Tulip mania was a period in the Dutch Golden Age during which contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels and then dramatically collapsed in February 1637."

    Well the concept is not to explain any sort of speculative bubble. It was to generalise and instill the concept which Warren Buffet reiterates as his philosophy:

    "Be fearful when others are greedy. Be greedy when others are fearful"
    That was to indicate the timing in the market which is equally important as to what to buy, when and where to sell.

    Look into this interesting theory on Wikipedia.

    The takeaway is 'timing' the market.
     
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  2. xyzzy

    xyzzy Master of None Staff Member Super Admin

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    It's typically a general rule in trading to do the opposite of what the masses are doing. If the majority of the market is selling, you should be buying, and vice versa. Good reminder. Thanks Arpit!
     
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  3. Arpit

    Arpit Contributor

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    There are multiple points where the intraday trader is just a small fish in the sea and they have to swim in the direction of the flow.
    Going against the flow isn't an option there. However, in investment, it is!

    This works well in case of medium or long term investment.
     
  4. xyzzy

    xyzzy Master of None Staff Member Super Admin

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    True. To go for quick gains in short time frames you have to ride the waves with the rest. For example, jumping into a pump as the price drives up due to buying pressure (and then, of course, selling after you've hit your targets).
     
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  5. Arpit

    Arpit Contributor

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    That's a good example! Exactly!
     

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