Why do we still believe that magically someday we'll have some inside scoop or tip that alerts us to market tops and bottoms? As hopefully rationale adults we often get lured into a false sense of understanding in the financial markets brought on mainly by the media and talking heads. If you pay attention to this show closely I think you'll come to the realization that not knowing what's going on in the markets, and simply adjusting quickly along the way, is much more profitable.
Key Points from Today's Show:
- You can become 110% better at trading by not doing 90% of the things you are currently doing.
- There is nothing that someone can say in the media that really has any true insight into the markets.
- As an options trader, since you operate on a 30 or 60 day timeframe you have the luxury of not having to choose a direction as the markets change.
- The reality is, a lot of people do listen to the markets even when it serves no purpose at all.
- This is the definition of a "herd mentality" because people simply want to be in the know.
- The media is in the business of attracting attention, and keep your focus there.
- When you stop listening to the markets, it frees you, makes you more creative and a lot more patient.
Example:
- The Fed is the premiere example of why you should not listen to the markets.
- In May of 2007, Ben Bernanke gave a speech that had a significant impact.
- However, to this day, the Fed has never correctly picked a market top or bottom.
- In his speech he said:
"Importantly, we see no serious spillover to banks or thrift institutions from the problems in the sub-prime market. The trouble lenders or for the most part, have not been institutions with Federally insured deposits." — Ben Bernanke
"All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the sub-prime sector on broader housing market will likely be limited and we do not expect significant or any spillover from sub-prime market to the rest of the economy or the financial system. The vast majority of mortgages, including even sub-prime mortgages, continue to perform well. Past gains in the housing prices have left most homeowners with significant amounts of home equity and growth in jobs and incomes, which should help keep the financial obligations of most households manageable." — Ben Bernanke
- If you read this four months before the market collapsed, you would have thought everything was fine.
- Bernanke pointed to the fact that most of the loans done were still done in prime lending.
- However, the sub-prime market led to a broader collapse in real estate, prime lending, job growth, etc.
- This shows, again, that even the people who seem to have all the information still cannot predict the market.
Takeaways:
- Not watching the markets can actually be better for your trading.
- Disconnect yourself and go cold turkey on it if you really want to see a difference.
- Make your own assumptions and your own opinions based on the facts you gather, and stay systematic.
- Don't assume that you know more about the markets than anybody else.
Strategy to Stay Up to Date:
- Glance through the headlines to get a feel for the market, without getting sucked into the rabbit hole.
- Realize that you have no ability to change the market outcome.
- As an options trader you have the luxury to quickly adjust and adapt your portfolio to the market.
- So if you want to become a better options trader, cut 90% of the market watching out of your life.
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