One of the most frustrating things in trading is the persistence of idiocy, which holds traders back.
The chart below or a variation on it regularly appears on my social media feeds—generally posted by someone who trumpets the initial CMT or CFT after their name. I’ll tell you more about them in a minute.
The chart has two fundamental problems.
- It is completely oblivious to the problem of survivor bias. An index naturally drifts up over time because, in simple terms, dud stocks are thrown out, and new ones are added. Just because the index goes up doesn’t mean your stocks will, and this leads to Point 2.
- As research has shown, the majority of gains in stock markets come from only a handful of stocks—this rule applies to every market—and most stocks within a market do very little.
So, on to people who display the letters CMT and CFT or some variation of these after their name. This means they have gone to the effort of obtaining a “professional” qualification in technical analysis. That is, they passed some pseudo-exams that asked them to explain why a 13-period RSI was better than a 14-period RSI. Such people know a lot about indicators but very little about the dirty practicalities of trading. You can consider them the plane spotters of the trading world.
For those unfamiliar with the term, plane spotter refers to people who sit at the end of runways at commercial airports and slavishly log the arrival of each commercial flight. They will note down things such as the aircraft type, the airline and the tail number. Each of these is recorded in little notebooks to be shared, I imagine, with other plane spotters at the annual plane spotters’ sad bastard convention. I doubt the majority of plane spotters have ever been on an aeroplane, let alone be able to fly one, but as with most armchair experts, they could tell you all about them. The smartest bloke among these plane spotters is the guy who parks his chip van among them and probably does very well. The chip van owner has the mind of a trader.
