How to Never Lose Big in the Markets

There’s one way to become a better investor overnight…

It’s not as tricky as you might think. In fact, it’s as simple as figuring out what NOT to invest in. And if you’re able to put it to work yourself, you’ll never lose big in the markets.

You see, when investors fall in love with an asset, you can expect a reversal in the near future. The idea is simple… When investors are “all in” on a trade, there’s nobody left to drive the price higher.

Avoid those situations, and your returns will improve. It’s really that easy.

Today, there are three assets that investors absolutely love. That means you should avoid these parts of the market today. Even more important, they’re a perfect example of this idea in practice.

Let me explain…

For today’s example, we’re looking at three commodities you’ve probably never considered betting on before.

Still, they perfectly reflect today’s idea… If you can avoid what others love, it’s much harder to lose big when investing.

One of my favorite ways to measure investor sentiment is through the Commitment of Traders (“COT”) report. It’s a weekly report that tells us what futures traders are doing with their money.

It’s also a great contrarian tool. That’s because when these traders are all betting in the same direction, the opposite is likely to occur.

For example, when traders are all betting on an asset to continue higher, it often signals a top in prices is near. That’s what we want to avoid.

Today, futures traders are going “all in” on three commodities. Take a look…

Corn, soybeans, and sugar have all been rising in price in the last few months. These commodities are up 40%, 41%, and 57%, respectively, since late April. And after an impressive move higher, futures traders are betting on that trend to continue.

You can see that in the chart above. Futures traders are loading up on all three commodities, making wild bets on further gains.

History shows that’s not the smart bet to make right now. Instead, it’s a great way to lose big.

Similar instances have led to poor returns for all three commodities. Check out what happened to corn prices after the three previous extremes…

Futures traders went all-in on corn prices at exactly the wrong times. The same is true for soybeans…

Again, soybean prices tanked after futures traders were all betting on them to continue higher. And it’s the same story for sugar…

I know I’m throwing a lot of numbers at you. But the message that these tables tell is important…

Buying when investors are all-in is a terrible idea. It doesn’t signal more gains ahead. Instead, it’s a flashing red light telling you to run in the other direction.

These assets are just a few examples of this idea at work. To make real money in the investing world, you need to be a contrarian investor.

Said another way, if you want to avoid losing big… you can’t follow the crowd. That means avoiding the overly loved trades that everyone already knows about.

It’s simple, but effective. Make sure you’re choosing the contrarian path whenever you put money to work. If you do that, you’ll never lose big in the markets.

Good investing,

— Chris Igou

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Source: Daily Wealth