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I used to have a football coach who would always drawl in his Southern accent, ‘Son, winnahs nevah quit and quitahs nevah win.” He would drum this into our head constantly to motivate us and while the value of that advice may have been dubious at best, I’ve been thinking about coach Fish (yes that really was his name) a lot lately.
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The subject of quitting is near and dear to anyone who has ever traded for more than a month. Markets are unbelievably fickle, execution can me maddenly poor, resulting in massive losses and puny wins and the depressing nature of watching your account balance dwindle by the day has led many a wannabe trader to pack his toys and leave the playground.
That is exactly as it should be. Speculative markets are unbelievably competitive and they spend most of their time redistributing money from the suckers to the pros. Yet within that ruthless dynamic lies a possible exploitation of these same markets since it is at the point of “maximum quitting” that one often finds the best trading opportunities.
Think Warren Buffet in 2009 and you get the idea of what I am talking about. But as retail traders we cannot hope to emulate the sage of Omaha because we have neither the resources nor the intellect to pull the trigger at the right time. However, as day traders we are presented with myriad opportunities throughout the year to take advantage of these points of failure. And for that I have thank another great thinker – George Costanza.
I often joke that if I ever meet Jason Alexander on the street (alas I believe he lives on the west coast now, so little of chance of that) I will kiss him on both cheeks as a sign of my gratitude. In one of the iconic Seinfeld episodes George Costanza, as played by Jason Alexander, decides that he will do the exact opposite of his natural impulse with the predictable outcome that everything in his life suddenly improves markedly.
While the Seinfeld premise is utterly hilarious, it has nevertheless provided me with an incredible insight into market behavior. I realized that some of the best opportunities to trade arise from failed setups. Think about it for a minute. If logic and reason worked in the markets then most of us would be rich beyond our imagination. But markets are never that obvious. In fact they often operate on a warped sense of logic that seeks to inflict maximum damage to maximum participants. And they only operate “reasonably” after most players “quit”.
This realization has allowed to design a very interesting short term set up that we trade in BK almost every day and now is yielding a possible longer term strategy that shows some very real promise for swing trading. So thanks coach Fish – even though you were kinda wrong in your premise – in the Alice in Woderland world of trading quitters often win.