When markets get uncertain it seems like the headlines and talking heads feel obligated to be more exaggerated in their predictions. There is a great way to leverage their “guesses” and use them to your advantage.
I was at dinner with a group of top traders years ago. If you haven't been around people who have been in the pits before, even dinner conversations are like being in a swarm of bees. As I tried to politely focus on the person I was speaking to, I noticed the din of a room of voices quieted and everyone seemed to be listening to one person.
This trader was a legend. His book had paved the way for computerized trading systems and he had started explaining what he felt was the best system out there. This group of pit bulls all leaned in.
“When I worked at the desk about 20 years ago,” (mind you the dinner was close to 20 years ago now) “there was a guy that used to sit next to me. Quiet fellow, and particularly odd.” A plate clinked and even that drew scowls from the listeners. “Real time data was a new thing and there were these FM antennas that would hook to a computer to pull in data. Cost a small fortune to subscribe to but it was the best way to get an edge at the time.”
“This fellow would come in every day and set a soda bottle on his desk, stick a thin piece of metal in it, wrap a wire around it and then hold the wire in his hand and close his eyes.” Scoffs murmured around the table. “I watched him every day, sit there for about 20 minutes and then enter his trades. Of course, you can imagine the reaction from everyone else…”
“The other traders would walk up with tinfoil on their head, make UFO sounds. It was awkward, but kind of funny. I was next to him so I could see his trades each day. I figured with that kind of conviction, he had to be on to something.”
“I started tracking what he was trading and I was shocked. He was losing with almost complete perfection. I double checked my notes over and over and there it was. Probably the most consistent losing record I had ever seen.”
“After a few weeks, another trader came up to me and asked me why I was following this crazy guy's trades. 'Surely the ET Phone Home system can't be working. We all know this guy is losing his shirt,' he said.”
“Actually, his approach has given me the best winning streak I have ever had. I have totally cashed in.”
“What??? Where do I get a Coke bottle and some wire?” the mocking trader said.
“You don't need that at all,” I told him. “Just trade exactly the opposite of what he does.”
Of course the table roared, but there is some important truth in that tale. Some times, listening to the people making mistakes is more important than listening to the ones who think their right.
I had the privilege of reviewing Ian Cooper's Trigger Point Trade Alerts book when it was first released and I have revisited it multiple times. He has mastered how to spot when the market is listening to the wackos how are clearly getting it wrong and buy into lemming coffin builders as they all go off the cliff. It lays out how to read the herd mentality, even if you aren't sitting next to them. Check out his approach here.
Keep learning and trade wisely,
John Boyer
Editor
Market Wealth Daily
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