Cherry Picking

What is Cherry Picking?  Cherry picking is the act of pointing at individual cases or data that seem to confirm a particular position, while ignoring a significant portion of related cases or data that may contradict that position. [web definition]

Second Opinion To carefully sort through an offering, looking for opportunity or hidden value.

Traders, specially novices, will often make the mistake of cherry picking some information and assuming that what they have seen will occur again. But, You cannot make valid inferences from one prior case. 

Traders will believe they are smart enough to do what the Second Opinion definition is doing – select gems from a list of offerings. Thus: I have found xyz pattern in the chart of ABC stock. This pattern has given excellent results earlier, therefore I am going to trade it with big stakes. BUT: has the trader looked at other occurrences of the pattern which did not work out? Or, worse, was there only one earlier pattern of this kind? If this is so,  then the pattern has no forecasting ability.

Trading MUST be based on probability. If this has happened a 100 times earlier, was successful 50 times, then there is a 50% probability that the pattern will make money. Our skill lies in maximizing profits and minimizing losses.

Writing a Trading Journal

Here is one more reason to write a trading journal.

Mercenary Trader writes on the-benefits-of-written-expression.

Quote:

…..self deceit and self suppression both have surprising costs. In other words, if you lie to yourself or bottle up a harsh experience and don’t talk about it, there is a measurable negative impact on health.

This is relevant to trading because, as all traders know, markets deliver unsettling experiences from time to time. Writing about these experiences — expressing one’s self in a journal, even if only briefly — is a form of psychological release for body and mind.

There were already extensive benefits to writing about (journalizing) one’s trading experiences for the sake of objective improvement (what’s measured gets managed, what’s managed gets better). This is yet another reason to do it…

Different Agenda

In the Big Picture:

Important observations from Doug Kass about FinTV:

“By and large, the media have an agenda that is different from yours. It doesn’t make them bad guys — their objectives of a growing audience and higher ratings are inherently dissimilar to your objective of making money.

Moreover, as I have recently chronicled, the media’s reaction to events of the day (e.g., the sovereign debt crisis, the Presidential election, the fiscal cliff, etc.) is often hyperbolic and simply wrong-footed (from an investment standpoint).

Always remember that they are in the press box, and you are on the playing field.”

Too many investors forget this.