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How to find trading ideas?

Good business ideas don’t come around often. Conventional wisdom says that you need to do a lot of research and some deep analysis to find trading opportunities, but in reality, it’s more about waiting for opportunities to present themselves.

In the book “Hedgehogging” by Barton Biggs, the author interviews a large hedge fund manager and at one point asks him where he gets his investment ideas.

Hedgehog by Barton Biggs

The hedge fund manager says the trick is to build up a knowledge base (mainly by staying on top of world events and news). Then, out of the blue, an event or new information triggers a thought process and you suddenly discover a trading opportunity. You can’t force it. You have to be patient and wait for the light to come on. If not, stay close to shore (preserve your capital).

So you just need to get into the habit of reading world news and being curious. By doing this, you will start to see the big picture and build some theses. At some point, a great business opportunity will present itself and the only thing you need to do is grab it.

Stanley Druckenmiller recently gave another good example. In an interview he explained how he invested in Argentina. He saw Argentine President Milei’s speech in Davos and immediately thought of investing there. He asked Perplexity AI to provide him with the five most liquid ADRs in Argentina and he agreed. Later, he did some more research and increased his positions. For now, the investment is doing well.

Interview with Druckenmiller (image by @marketplunger1 on X)

Novice traders believe that trading opportunities are based on a technical analysis setup. I would caution against this view. Technical analysis is only a risk management tool, it does not tell you what might happen in the future. And markets evolve based on future expectations.

A chart can give you trading insight if you look for the reasons behind certain notable moves. For example, let’s say you find a stock that bounces around a lot in one day or is coming out of a long consolidation. You may want to research the reasons for this rally. This research could potentially lead you to a business opportunity.

In the foreign exchange market, it’s the same thing. You first construct your overall view based on the economic cycle, risk sentiment regime, central bank monetary policy, etc. Then you just have to wait for the catalyst to give you the opportunity to position yourself on the new trend.


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