The second half of 2020 was filled with symptoms of excess and disregard for risk management in many markets, particularly in US equities. Possible bubbles, insane valuation metrics and meteoric price climbs devoid of rhyme or reason were just some of the side effects. Many traders, both new and old, tossed strategy aside to chase profits and ride speculative waves. While such an approach can occasionally prove fruitful in the short term, it is almost indistinguishable from rolling the dice in Vegas.
As a result, consistency is lost and accounts can be blown up on a single trade. To any serious trader or investor that is looking to be successful over many months and years, it would be wise to steer clear of such speculative bubbles and price-chasing. Instead, it may be prudent to identify and adhere to a strategy or investing thesis that incorporates patience and a cool head. It may not produce mouth-watering returns overnight, but most activities that do are either unreproducible or illegal.
--Written by Peter Hanks, Strategist for DailyFX.com
