How to seek out buying and selling concepts?

Good trading ideas don’t come often. The conventional wisdom says that you need to research a lot and dig deep into some analysis to find trading opportunities, but in reality it’s more about waiting for the opportunities to present themselves.

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

Hedgehogging by Barton Biggs

The hedge fund manager says that the trick is to accumulate a knowledge base (basically staying up to date with global events and news). Then, out of the blue, some event or new piece of information triggers a thought process, and suddenly you have discovered a trading opportunity. You can’t force it. You have to be patient and wait for the light to go on. If it doesn’t, stay close to shore (preserve your capital).

So, you just need to make it a habit reading about global news and be curious. By doing this, you will start to have a big picture view and build some theses. At some point, a great trading opportunitiy will present itself and the only thing you will need to do is to seize it.

Stanley Druckenmiller gave another good example recently. In an interview he talked about how he invested in Argentina. He saw Argentina’s President Milei’s speech at Davos and immediately thought about investing in it. He asked Perplexity AI to give him the five most liquid ADRs in Argentina and just went for it. Later, he did some more research and increased his positions. As of now, the investment has been doing great.

Druckenmiller’s interview (image from @marketplunger1 on X)

Beginner traders think that trading opportunities are based on some technical analysis setup. I would caution against this view. Technical analysis is just a risk management tool, it doesn’t tell you what might happen in the future. And markets move based on future expectations.

A chart can give you a trading idea though if you research the reasons behind some notable moves. For example, let’s say you find a stock that rallies a lot in a day or it breaks out of a long consolidation. You may want to look for the reasons behind the rally. This research might eventually lead you to a trading opportunity.

In the FX market it’s the same. You first build your big picture view based on the business cycle, the risk sentiment regime, the central bank’s monetary policy and so on. Then, you just wait for the catalyst to give you the opportunity to position for the new trend.