One of the blogs I follow is The Financial Philosopher. He doesn’t post as frequently as many others, but when he does it usually is worth reading. His post yesterday, Delusion, ‘Non-Bottom Callers’ & The Afflictions of the Investor’s Mind, definitely falls into that category. In it he talks about how it’s just as foolish to say we aren’t going to see a bottom as it is to be a bottom caller. I totally agree.
Along the lines of the bottom callers, last week’s Commitment of Traders report blows my mind. In the mini S&P 500 futures the small speculator group – which basically includes most individual traders – was 70% long as of last Tuesday’s data. Are you kidding me? That’s the highest reading I think I’ve seen in the last year. That’s a perfect example of how the individual trader so often gets it completely wrong. In this case it has to be largely a function of traders thinking a bottom had been put it. Yikes!
Lesson of the day: When most people are doing one thing, and you know that most traders lose money, it’s probably best to be thinking about being biased the other way.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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