As a dyed in wool basketball fan (how could I not be - I grew up in Lexington,
Kentucky, home of the Kentucky Wildcats, and I graduated from Duke University), this
is my favorite time of year for sports. March Madness occurs with the NCAA
basketball tournament, where like the markets, you should expect the unexpected.
What I love about the NCAA tourney is the fact that passion drives success. Teams
that play with passion tend to beat more talented but less inspired teams.
This provokes thoughts about lessons from March Madness that you can apply to your
trading success:
1) The Power of Belief - Do you ever notice how good teams can go on a cold streak,
while even mediocre teams can get on a roll? Why do these streaks happen? I believe
it has to do with the feedback mechanism similar to how stocks trend: when the ball
is going in the bucket, you believe more strongly that the next one will go in too.
When the rim seems to have a lid on it and shots aren't made, this breeds a doubt or
tentativeness that takes the shooter out of the zone and increases the odds that the
next shot won't be a score. As a trader or investor, I'm sure you join me in having
experienced the feelings of both hot streaks and cold streaks. But both can be
dangerous to you due to the swings in emotions. When traders are hot, they can tend
to overcommit their capital after a series of wins only to give much of the profits
back too quickly. Or when traders are cold, they tend to move to the sidelines out
of doubt and fear, and often watch in disbelief as the trade they didn't make proves
to be a big winner. What would happen if you could take the mindset of confidence you
feel when things are going well, and have that same level of belief and self-esteem
consistently? If you can apply a sound trading approach with confidence and without
emotion, you will be able to follow your rules when most other traders are getting
blown out by their emotions.
2) Winners Are Defined by Survival - The reality is that some days will be better
than others. The key to success is not just profiting from the good days, but it is
also about not blowing up on the bad days. When a good team is not hitting its shots
on offense, it makes up for that by playing better defense. For traders, this means
you must keep your stops reasonably tight so that you can come back to play another
day. It also means that you should not react passively, but must resolve with
determination to control what you can instead of feeling resigned and out of control.
This will allow you to survive the tough days to stay in the game for the profit days
to follow.
3) Winning Teams Have Great Coaches - Sure, some teams have more skill as a sum of
the individual parts. But the teams that advance have outstanding coaches who know
how to take the individual pieces and make a better team. As a trader, you want to
identify your unique strengths as well as weaknesses. Consider getting a trading
coach or investing in resources that can help you maximize your unique combination of
trading skills and allow you to win against any competition or any market
environment.
4) Bet Against the Obvious - I've seen too many examples where the expected best team
did not win it all. The obvious pick is more and more likely not to go all the way
because expectations run too high. This puts pressure on the top team while also
increasing the desire of the underdog to pull the great upset. Relating this to
trading, you have to be careful that the trade you are making is not too obvious
already. If it is widely expected that good news is coming, then most traders have
already reacted by buying that stock in front of good news. This reduces the future
upside while at the same time increasing risk in the position upon even a mild
disappointment. Remember that the stock market is a supply and demand game, and if
the demand dries up as everyone is already in the market, then you have more risk of
selling once the news comes out that you do of any new buying. Applying this to
current events, one of the great concerns I see here as we head into the Iraq
conflict is that most investors expect a big rally in stocks once the war breaks out.
This is the exact opposite expectation of what investors thought in January 1991
when the Gulf War broke out. Most thought stocks would plunge sharply then once war
broke out, so the sellers had already moved to the sidelines. So once the war broke
out and the market started to rally, the built-up selling was worked off with heavy
buying. Now if stocks start to drop soon after the war breaks out, don't be
surprised to see heavy waves of selling pressure as this "war rally" hope results in
a disappointment for most investors.
KEY SUPPORT AND RESISTANCE LEVELS
SUPPORT RESISTANCE
Nasdaq Composite 1320 1360
S&P 500 815 850
Dow Industrials 7760 7960
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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