The "Experts" Get it Wrong - Example 1

Complex systems are rarely predictable. For this reason, I focus as much on risk in my trading systems as I do stock picking and setups.

In most disciplines that try to predict the future, the so-called experts aren't much better than a novice. This series highlights this point.

Example 1:

In the 1979 NBA draft, Larry Bird was drafted 6th overall. Considered of the the greatest players in NBA history, he lead the Boston Celtics multiple championships, was a 12 time All Star and helped revitalize the NBA with his rivlary with Magic Johnson.

Many of the experts said he was too slow, could not jump, and his college game would not transfer to the NBA. Only one of the five players selected ahead of him made an all-star team, and none are in the Hall of Fame. Obviously, the experts go this one wrong.

Trades and Thoughts

All of my oversold bounce indicators are now flashing buy signals. However, I do have some concerns and am not taking on any huge positions here. While I have made some trades to the long side to try and capitalize on a bounce, they are all average or small in position size. Why am I not trusting my usually trustworthy indicators?

The reason is the bounce play hasn't passed the "gut check" test. Basically, I have not got to the point where I just feel sick to my stomach about the markets. I haven't sensed any fear yet. In fact, what has caused me fear in my bounce positions is the fact that everybody is expecting a relief bounce.

As I stated earlier today, I made one index play, one ag and one energy play. I also entered TRLG and EWZ yesterday, and both are still above stop levels.

As I stated earlier this week, POT was due for a pullback, and we are now at a good entry position.



SSO (short S$P) is testing lows and is extremely oversold. The fact that we are close to the support/breakdown level provides a low risk entry. I will lose little if I get stopped out, but could make a nice gain.



SWN is still riding above support. This is either a topping formation or a pullback that will continue the trend. If it is a topping formation, I will lose very little.



Off Topic:
I'm a diehard Timberwolves fan and can't believe Kevin Mchale did not screw up the Wolves pick in tonights draft. I am ecstatic that the they picked OJ Mayo. He is going to be a star, and a perfect compliment to Al Jefferson (who at 23 is already better offensively than KG).

For the first time in years, I actually see hope for the Wolves!

Elite Traders Are Not Afraid to Fail

I received an e-mail from a reader who has been gun shy since starting the year off with a couple of bad trades. Here is a post going back to September 2006 that hits this issue head on:

I just had an IM chat with a trading buddy. After listening to me whine about my two losing trades this week, he asked me a question: How many times did Babe Ruth stike out? Then he signed off.

Well, I had to look it up. The answer is one thousand, three hundred thirty times. I'll say it again, one thousand, three hundred thirty times. That's what it took the Babe to hit 714 home runs and drive in over 2200 runs. Interesting. How about some other sports?

Michael Jordan made 12,192 shots, including some of the most clutch shots in the history of the NBA. Guess what? He missed even more, 12,361 to be precise.

My all-time favorite quarterback, Joe Montana threw 1,982 incomplete passes and 139 interceptions. He also completed 3,409 passes, 273 of which were touchdown passes.

What did I learn from this little exercise?

1. Elite players/traders fall down and get back up. The cliche is very true.
2. Elite players/traders are not afraid to fail.
3. Elite players/traders manage risk.
4. Elite players/traders love crunch time.
5. Elite players/traders learn from their mistakes
6. Elite players/traders control their emotions (Montana was often called Joe Cool).

I don't remember many of Montana's interceptions or Jordan's air balls, but these two plays are forever etched in my mind:

Watchlist and Lebron James

Here is a list of stocks added to my watchlist. All of these stocks are 3 percent breakouts from Thursday or Friday. I am looking for pullbacks to support.

MW: pb 48
GGL: pb 21
SNCR: pb 24
AMTD: pb 19
CIEN: pb 32.50
JCG: pb 42-43
BIDU: pb 130
TS: pb
CEN: pb 34.50-35
VT: pb 39-40
FTK: pb 47.50
NTGR: pb 36
YZC: pb 60
DXPE: pb 45-46
GES: pb 43
TNL: pb 27.50
BYD: pb 50-51
EWZ: pb 58
NFX: pb 50
KSU: pb 40
CASY: pb 2
ESL: pb 46
IPAR: 26-27
KR: pb 30
MT: pb 60
HDNG: pb 30-31
ITU: pb 44
CYNO: pb 30-32
MTOX: pb 25
GGB: pb 22
BBD: pb 24-25
CBD: pb 34
CIG: pb 38.50

Off Topic:
If you are a basketball fan and are kicking yourself for not watchlist Game 5 of the Eastern Conference finals, give thanks to youtube. Lebron's performance, at only 22 years old, placed him in the Jordan, Magic, Bird category of greatness.

Michael Jordan Trading Quotes

As you may have noticed in my "inpirational photos" post, I am a big Michael Jordan fan. Not only was he one of the most talented players to ever grace the hardwood, he also was one of the most hardworking and mentally prepared. Growing up, I watched and listened to everything Jordan related that I could get my hands on. What I took away from Jordan, more than anything, is that you must have confidence in your abilities, strive to continually make yourself better, be determined and outwork your opponent. Here are a few quotes, that as traders, we can all benefit from.

I never looked at the consequences of missing a big shot... when you think about the consequences you always think of a negative result.

I play to win, whether during practice or a real game. And I will not let anything get in the way of me and my competitive enthusiasm to win.

I've always believed that if you put in the work, the results will come. I don't do things half-heartedly. Because I know if I do, then I can expect half-hearted results.

I've missed more than 9000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed.

If you accept the expectations of others, especially negative ones, then you never will change the outcome.

If you're trying to achieve, there will be roadblocks. I've had them; everybody has had them. But obstacles don't have to stop you. If you run into a wall, don't turn around and give up. Figure out how to climb it, go through it, or work around it.

My attitude is that if you push me towards something that you think is a weakness, then I will turn that perceived weakness into a strength.

Some people want it to happen, some wish it would happen, others make it happen.

The game is my wife. It demands loyalty and responsibility, and it gives me back fulfillment and peace.