The bulls dodged a bullet today. Frankly, I was expecting a bigger selloff at the close.
So, here we sit, on pins and needles, in front of our computers and plasma HDs, carefully weighing all the numbers and “spin”. Did it ever occur to you, that this all could be a conspiracy to get us addicted to CNBC and subscribe to Bloomberg, Thompson One (or some other data service of your choice)? Far fetched? Most likely. But, don’t rule out that we might be living in The Matrix.
No matter, my sense is that most of you out there are slaves, yearning to be free from vile servitude to this worldy endeavor of market trading, once your net worth achieves “The Number”. As you consider that sobering thought for a moment, think about what matters to you most in life, and how really important “The Number” is to your existence. (Some of you might take a while on this).
Would you rather be wearing sun glasses, sitting on some white sand beach, guzzling Mojitos during Spring Break? Or would you rather keep trading in TNA from a sleazy back office with track lighting? Or perhaps, some other form of distraction?
If you’ve been daydreaming about some other life, filled with garbage bags of cash, snap out of it. You’re probably not there yet, since you’re dreaming about it.
Time to get to work. Focus on the task at hand, and recognize that you may soon be separated from the dollars in your trading account on any given day.
You see, my friend, the market thrives on fear, greed and deception, or at least, the average person’s lack of control of these emotions and their lack of perception. Mr. Market is adept at extracting the most money from the most people who are the most ill-informed and the most undercapitalized. Most egregious, but comical to those who understand how this all works.
Case in point: the average trader or investor predicts by extrapolation. That is, they assume that the recent past will continue into the future. This is not necessarily so. It is not derived from logic. It has no real basis except in the way that person perceives the world around him. This is the Achilles heel of trend following. And, technical analysis. At some point it works, until it doesn’t. However, the mistake many make is to keep applying trend following systems and other methods thinking that those things represent reality. It just ain’t so.
I believe that the key to clarity in this environment, is to resist overweighting recent history, which has been bad, in estimating the future. Reversion to the mean is not a concept the average person embraces naturally. However, it is a law we must all give creedence to if we wish to be successful at trading markets.
Another pitfall for traders and investors is their lack of emotional control. Take fear for example. most people have a pure dislike for losing money, which borders on terror in some instances. There’s nothing wrong with that, if you’re a old, wimpy or an accountant. But I gather that since you’ve ventured out from the herd and landed smack dab at IBC, you ‘re somewhat of a character, all mavericky and such. You cowboy up. You embrace risk. You don’t let your emotions paint the picture of the future. You control your fears. Bravo!
Truth be known, we all love winning stocks more than we probably should, and we all hate losing stocks more than we should, treating them like some spawn of the bubonic plague. The problem is, if we are of that ilk, we don’t notice the changing landscape as readily. We don’t notice when situations improve and yesterday’s failures morph into tomorrow’s comebacks and successes. We fail to take advantage of things like BAC going from a low of $3.00 to $4.93 in three days (a 64% return, or 7,786% annualized).
What I am trying to say, is that the future is uncertain. All options must be considered in the analysis. We cannot rule out that just because the market has lost over 58% or so from it’s peak, it will continue to do so. Or, that a 379 point rally will start a new trend.
What we do is one of the most difficult, challenging and fascinating endeavors in the world of finance. I am amazed at the depth of knowledge and dedication from many of you that post on the IBC blog.
No doubt, I have become better at what I do, thanks in part to your generosity in sharing your knowledge here.
Keep it real, one day at a time.
Have a good night.
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