I officially entered this business in 1999. Sure, I had traded for years before that time, but it was small potatoes and I was still pursuing a higher education. But when given the chance, I jumped at it. I was bright-eyed and optimistic. I was going to help people do well financially and, in return, do well myself.
It didn't take long for the harsh realities of this business to become, well, reality. Over time, most in the industry will develop a defense mechanism ranging from humor and sarcasm to anger and aggression. Egos are built, often out of a need for survival rather than from success. Success simply allows them to grow out of control.
Over time, mostly through media interaction, we develop biases. We like this person and we don't like this other person. Those in the spotlight, we quickly either like or dislike and then look for reasons to support our opinion. A bad trade call here or questioning someone you've decided you like. And those biases are hard to change. A prime example of this is the recent letter from Cannell Capital addressed to Jim Cramer. I'm not going to cover the lack of substance in the poorly written letter here as I already touched upon it last night, but the reactions in Twitter (TWTR) can teach us an important lesson that we often fall victim to when trading.
The letter was retweeted over and over with many folks chiming in with an instant reaction. Some called it a smack-down and others called it epic. I would guess those folks didn't actually read the letter or check any facts, but simply loved reading the insults. Why? They had a bias. For some reason or another, they already had a negative option toward Jim or toward TheStreet, Inc. (TST) in general. The substance of the letter did not matter one bit. It was negative. It supported their personal bias and made them feel justified about their opinion. We do the same thing in trading and it is a dangerous trade. We use confirmation bias to support an opinion.
It didn't take me more than 15 minutes to tear Cannell's letter apart and I wasn't alone. But I can assure you those who loved the letter, disagreed with what I wrote. Factual or not, Cannell's letter "confirmed" their opinion, so they agree with it.
This is dangerous, especially when it rolls over to trading. Maybe you shopped at Amazon (AMZN) for the first time this holiday season and they screwed up an order. Or maybe you bought something from eBay (EBAY) and it didn't work out. Suddenly, you begin to get frustrated with the company. You think to yourself, this company is awful, why is the stock price so high? It's got to be a short!
Then you read and research some more, finding every negative article you can to support your opinion. You buy puts. The stock begins to move higher. You find a few technical analysts who think both stocks could be headed for a big fall and ignore strong interim reports or product rumors. The stock runs higher. You buy more puts after seeing a few more articles bashing drones or rumors of a threat to Paypal's model. The charts are showing breakouts, so you switch to longer time frame charts where the pattern is less bullish, perhaps even neutral. And you buy more puts.
You're personal bias takes control. People spend not just days, but weeks and months doing this over and over. You see it now with folks who have been calling for a huge market pullback for years. Earlier this year, they worried about inflation and how it would derail the markets. Now they point to disinflation. They pull charts from previous market crashes and force the current pattern in some way, somehow. They will cite this expect and that expert who have been wrong time and time again all while making fun of experts who have been correct.
There's information everywhere and a lesson in everything. Make sure to view both sides with open eyes to avoid falling into the trap that we are all predisposed to fall into.