Crowded Trade

A crowded trade is the most popular trading idea of a particular time period.

The popularity of the trading idea makes the upside limited since all the traders and investors a rushing in and pushing the price up when they are buying.

The profitability of the trade may also be limited by investors who want to sell quickly when the sentiment changes. The trading idea may also be on flawed fundamentals that can not last. When the time comes to sell the price may fall quickly since everybody is rushing to exit.

Crowded trades can happen in all markets; stocks, bonds, currencies and commodities. It can also in specific sectors or geographical regions.

Examples of crowded trades; IT stocks in 2000 and FANG stocks 2018.

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