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Ross Cameron on Reading the Herd and How Traders Can Gauge Market Sentiment

Ross Cameron
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It can be a confusing conundrum for day traders: What does market sentiment mean for the stock you’re tracking? How will the herd move and what can you glean from it? Experienced day trader Ross Cameron shares his thoughts.

When he’s sitting down to trade, Warrior Trading founder Ross Cameron thinks carefully about the collective mentality of the so-called herd, and what it will mean for his trading.

“Obviously, I try to think about what stock is the obvious today, what stock is everyone looking at? Because that’s the one that’s generally going to have the most volume — which means it’s got better liquidity, which means it’s going to be more predictable,” says Cameron.

Work With the Herd When You Can, Says Ross Cameron

Cameron tries to trade with the herd in the same direction that they’re trading, and he tries to focus on the same stocks that interest the herd, because those are the stocks he expects will be more predictable.

“Having said that, I do sometimes notice that the herd is on stocks that I don’t have a lot of interest in. Maybe it’s a lower price — a penny stock. Sometimes those become in favor, [and] people are trading these penny stocks. Or maybe it’s stocks like Bed Bath & Beyond or AMC [Theatres] — ‘meme stocks,’ which are not really great for day-trading,” says Cameron of popular stocks that people buy and hold. “To try to day-trade them is really quite difficult, because they don’t have enough range intraday to really give you a lot of opportunity.”

Ross Cameron Warns: You Can’t Trade a Stock All by Yourself

It can be a dilemma, Cameron concedes, because there are times when he sees what the herd’s focusing on, but finds he doesn’t like the stock.

“So, I venture off into uncharted territory, trading a stock that other people aren’t interested in,” says Cameron. But then he realizes that he can’t trade a stock all by himself. “You have to be trading a stock that other people recognize is a good opportunity. Regardless of how much you like a stock, if other people don’t care about it, it’s not likely to experience much volatility.”

Yet if you search for stocks just by volume — a measure of how much of the herd is following a particular stock — there are times where the leading percentage-gainer isn’t the highest volume stock of the day.

“The highest volume stock might be AMC. It’s a meme stock that people are interested in. And they’ve maybe been holding for days or weeks or months. But it’s not one that I want to trade,” he says.

This is when Cameron feels conflicted about what he should do.

“I’m like, well, you know, it’s sort of where I feel like trading is best. When I’m in alignment with the herd. Where I like the stock too. This makes perfect sense, because you have a lot more volume and a lot more attention,” says Cameron.

Yet serious day traders like Cameron can’t really build a strategy just on volume and need to be careful about what the herd is interested in.

“But usually I would say I’m only really going to be in alignment with the larger herd for maybe no more than a few trades a year,” he says. “It may only be on a couple of days that that stock is even really viable for my strategy. And the rest of the time, even if it’s going up generally, it’s not something I would really day-trade.”

The Key Is Volume and Volatility

As an example, Cameron mentions GameStop and the stocks that were famously climbing and falling quickly in early 2021 due to massive hope and trading.

“That was the best week I’ve ever had, and it was sort of a perfect combination of the herd plus also successful hedge funds and retail traders all on the same stock,” says Ross Cameron. “But that’s rare. [Usually] I want to make sure I’m trading what I think is fairly obvious for other active traders.

“I really want to buy something that other people see already. I’d rather jump on something that’s already moving — the train that’s leaving the station, rather than trying to [start the train myself]. It’s better to be on a train that’s leaving the station than try to guess which one is going to be next.”

Beware the Feckless Market

The market can be very fickle, warns Ross Cameron. And so can the herd.

“Everyone’s on it. And then people are like, ‘Nope, I’m done with it.’ And it starts to reverse. And all of a sudden, the crowd moves to something else,” says Cameron. “There’s definitely an army of traders out there — institutional traders, retail traders, amateur traders — who are jumping on whatever’s moving and trying to capitalize on the long/short. So, looking for volume is important. But volume is not the be all and end all, because you also need volatility.”

The key, he continues, is having the patience to wait for the alignment of volume and volatility, where you have the market sentiment.

“But I don’t really like calling it ‘herd mentality,’ because it has a little bit of an old, negative connotation,” says Ross Cameron. “When trading sentiment is strong, you start to see better, bigger moves. You can get the start of interesting shifts from hot to cold — and it can shift quickly.”

The herd can be volatile, says Ross Cameron, but it cannot be ignored. In fact, it can be a source of great information about the potential of a target stock — as long as you read the herd right.

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