3. It's Friday. We've had a big run in the market. Weekends have been a crapshoot, and we're seeing consistent selling this morning. It's a good time to take our foot off the gas in the constant chase for a trade, and discuss something I want you to avoid while reading me as of late or any trader that's out there.
Although I haven't put out a ton of earnings plays this season, but with seven pre-earnings and two-post earnings trades, only one name emerged a loser. Granted, if execution or timing varied on an entry or exit, it is possible one of the eight winners wound up being nothing to write home about, but overall this has been the best earnings season for me ever. Two-plus decades of trading around earnings, so that's saying something. Throw in a fun, luckily timed Tesla (TSLA) skip-strike put butterfly and you have the makings of a decent run over the past few weeks.
Does that mean you should toss aside everything else and consider my thoughts more now than ever before?
No. Heck no!
Do not fall into the trap of the hot-hand fallacy.
We hear about this a lot in sports. Give the ball to the guy with the hot hand. This describes the cognitive belief that a person experiencing a successful outcome will have a greater chance of success in the future. Their winning streak will continue.
It's simply not true. While confidence is a huge driving factor in trading and can help make you better, it will be by a few basis points, small amounts. The market has the great equalizer to the hot-hand, and it's called reversion to the mean.
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