Tips Are for Waiters and Waitresses.  Make Your Trading Decisions Based Upon the Facts.

I was seven years old when I discovered that professional wrestling matches were staged. The experience was quite traumatic. Up until that point, the drama embedded in a wrestling match was as perfect as anything that I had ever experienced. There was a good guy. There was a bad guy. There was a physical battle between good and evil and a narrow path to make the world right again. At least to my seven-year-old mind, the storyline was perfect.

I am continuously reminded of this whenever I tune in to the financial media for any period of time. It always strikes me as very peculiar to see traders worship selective financial dogma or messaging created by slick-talking financial gurus. It doesn’t matter if the markets are volatile or calm, many see these financial celebrities as financial prophets who hold the keys to the kingdom of heaven with their trading tips and suggestions.  The problem here is that the storyline evangelized by these gurus tends to become a trading reality for newbies, and as you might imagine the results are disastrous.

When these fund managers show up on your favorite financial network and say it’s time to buy Google or dump Intel, these knights in shining armor would never be on tv to create a liquidity event so they can create better trading opportunities for themselves?!  Or would they?

Do you actually know anything substantial about these people?

Have you ever done a Google search and looked at some of their previous forecasts, appearances, or watched any of their YouTube videos? Do this for a few days and you will quickly come to see that they might as well be cartoons.

At least once a year, I reread the book, “Reminiscences of a Stock Operator by Jesse Livermore.”  This financial classic was written before the creation of the Securities Exchange Commission and illustrates some powerful lessons on what it takes to be a successful trader.

Livermore lived in an age where “trading tips” were everywhere and usually offered by people with nefarious intentions.  This book is filled with powerful stories about how human nature never changes and that once we overcome the battle with ourselves we understand what we need to do to be successful.

Livermore was not an investor — he was a speculator. He traded stocks on huge leverage. And he did a great job of it, building a million-dollar fortune during his twenties. But then like all great stories he lost everything, multiple times. In fact, he built — and lost — several million-dollar fortunes between 1901 and 1921. And each time he made a mistake, he extracted a powerful trading lesson.

Think of it this way:  tips are for waiters and waitresses!  They always have been and always will be.  But human nature is so hungry for the entertainment value contained in a hot tip because the storyline within the tip plays to our fear, greed, hope and vanity.  Here are just a few of my favorite passages from “Reminscences of A Stock Operator”:

“I always found studying my losers to be very profitable.”

“There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”

“The only thing to do when a man is wrong is to be right by ceasing to be wrong.”

“A prudent speculator never argues with the tape. Markets are never wrong, opinions often are.”

“Always sell what shows you a loss and keep what shows you a profit.”

“It takes a man a long time to learn all the lessons of all his mistakes.”

Livermore clearly learned that great trading is all about exceptional decision making.   I know that if he were alive today, Jesse Livermore would be using Artificial Intelligence to refine his trading processes.

Greed, hope, fear and vanity always play to the imagination.  Meanwhile technology speaks the cold, hard statistical facts based upon thousands of data points and computations to arrive at a best move forward with no emotion or ego. Today all traders still need to confront fear, greed, hope and vanity and the best way to do so is through the cold sober truths of artificial intelligence.

If fame is a factor in your market trading choices—call in to your favorite financial broadcast, honk the horn and yell, “Booyah!”  As far as I can tell, it’s just like championship wrestling. The bad guy is the evil market fluctuations. The good guy is the slick talking financial commentator who you get to interact with and assures you of prosperity.  And it is certainly great entertainment value watching the battle unfold.

I always ask myself, why do people listen to talking heads making predictions all day long? Are they thinking, “He’s on CNBC, Fox Business or Bloomberg; so he has to be right!”

Think of it this way: A guru comes on and says buy this stock. Isn’t he saying that to the whole world? What kind of tip is that?

Worse yet, if you allow yourself to buy on a guru tip, does the guru call you up when it’s time to sell? Or are you just assuming when he says buy, this stock will go up forever and you’ll never need to sell?

The basics are regularly overlooked by inexperienced traders when they hear a story about a company that has all the elements of the next superstock.

It is very sad, and unnecessary in today’s day and age of machine learning and artificial intelligence.

A stock may have an alluring story.

A stock may have a very effective management team.

A stock may have incredible earnings.

A stock may have infrastructure, partnerships, uniqueness, etc.,

But, if these elements are not reflected in price you are focused on what “SHOULD” occur in the market.

And the word “SHOULD” is responsible for more losses in trading than any other.  SHOULD is the most harmful word in a trader’s vocabulary.

Bad Traders Obsess on the SHOULD.

But, when “SHOULD” and “IS” meet, some pretty explosive things can happen and that is exactly where we want to be as traders!

That is why artificial intelligence for traders is so indispensable.

Mistakes are financially costly but for machine learning, it is the pathway to mastery and excellence.  The real education in trading always lies in learning from the losers.

Most humans have a really hard time learning from bad experiences. The ego gets in the way, each and every time.

Since artificial intelligence has beaten humans in Poker, Chess, Jeopardy and Go!, do you really think trading is any different?