Unmasking The VooDoo: Failure

Most of the time, failure is not a good thing. We do whatever we can to avoid it. We don’t talk about it when it happens to us. And, at times, we are glad when it happens to our rivals.

However, when it comes to trading and investing, failure can be a very good thing.

Think about this. In baseball, the leading batter hits for perhaps a .350 average. The great Ty Cobb hit for a .420 average in 1911. Bringing is a little closer to home – well, very little – Pete Rose took the crown in 1973 with a .338 average.

Forget his other antics, Rose was a good hitter. But when he led the National League that year he got a hit one time in three at bats. That’s one-third success and two-thirds failure.

I think you see where I am going with this. Even champions fail. What’s LeBron’s record in NBA finals? He’s three for eight. That’s a 37.5% success rate but who can say that King James in not one of the greatest players of all time?

OK, you argue that even getting into the finals is success. Well, not to world-class athletes.

And as long as we are on sports, Barry Sanders, Deacon Jones, and Tony Gonzalez never even got to play in a Super Bowl. Great players. Failed goals.

Now let’s take this to investing and trading. You wondered when I’d get to that, didn’t you?

The biggest critics of chart reading will say that chart patterns are meaningless. The market breaks out and then turns around. Put another way, the breakout fails.

Well, if you just look at the buy signal, for example, the percentage of correct calls is not perfect. I’d venture to say it is better than the baseball batting champ’s average but, say, one in two is still fodder for haters.

Use the Failure, Luke

How do we take this failure and win trading championships?

Take a look at this chart of the Russell 2000 index in 2017. It was a roaring bull market year and in July, the index broke through resistance to a new high. A buy signal, for sure.

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Disclosure: No positions in anything covered.

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