TL;DR

John, a successful trader, cashed out, believing a market crash was inevitable. His story highlights the dangers of overconfidence, market timing predictions, and the human tendency to chase quick gains, even when it comes at the cost of taking on significant risk.

Story

Another year, another near-miss. John, a seasoned trader, thought he’d dodged a bullet. He cashed out, boasting about his 280% gains, ready to park his money in SGOV (a supposedly safe government security) for the winter. He saw the market as a house of cards, about to collapse. But was he really safe?

John’s story is a microcosm of many. He is convinced the bull run is over, a belief echoed by others online. They’re all convinced that a crash is imminent, but this time, he’s prepared. Yet, this very conviction might be the trap. It reveals a pervasive belief in market manipulation and timing, and highlights another kind of risk: the risk of missing opportunities by clinging to predictions.

The mechanics are simple: Over-confidence, fueled by successful past plays (credit spreads on earnings and NDX), creates a false sense of security. The belief that the market is rigged pushes individuals toward extreme positions, while the desire for quick, huge returns blinds them to underlying risks. It’s the same human greed that fueled the tulip mania in the 17th century, the dot-com bubble, and the 2008 mortgage crisis.

The impact? For John, it might be a missed opportunity. But for others caught in similar traps, the impact could be devastating. Remember, the market doesn’t always follow the script.

Lessons? Always question your predictions. Diversify! Never put all your eggs in one basket. Beware of overconfidence—it’s often a precursor to disaster. Even if you successfully predicted previous market swings, this is no guarantee of future success. Remember Enron? Even experts can be wrong.

Conclusion: John’s story serves as a stark reminder. While he might have made significant gains, his decision reflects the risky gamble of trying to time the market. This gamble, fueled by pessimism and a belief in manipulation, could easily cost him dearly in the long run. It is a story that repeats itself through history, a cautionary tale of how even experienced traders can succumb to their own biases.

Advice

Diversify investments, avoid market timing, and never trust predictions—especially your own.

Source

https://www.reddit.com/r/wallstreetbets/comments/1mpl4t6/think_im_done_for_the_year/