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Archive for September 30th, 2011

Embedded in the one of the greatest collapses in sports history this week are two critical trading lessons. 

We’ll begin with excerpts from Jackie McMullan’s excellent piece today on the Red Sox 2011 collapse (largest September lead ever blown) on ESPN.com:

“While the Rays were young, hungry and edgy, the Red Sox were arrogant, complacent and, worst of all, entitled.  They took their baseball gifts for granted, and when those gifts abandoned them, as they almost always do during a long baseball season, they were either too lazy or too cocksure to recognize what was required of them to maintain the consistency that is so vital in baseball. 

So they complained about the absence of the designated hitter in interleague play, bemoaned injuries that robbed them of key players, even suggested their schedule was too grueling because they played too many televised night games.

Back in the good old days, the Red Sox famously dubbed the Yankees “the Evil Empire” because they were arrogant, complacent and, yes, entitled. When New York failed, it merely outspent everyone else to pluck the best players from free agency and rejigger its lineup.

Somewhere along the way, the Red Sox became what they once abhorred.”

Truer words have never been spoken … on the ball field, in the trading arena, or in life.

Or maybe they have:

Proverbs 16:18:  Pride goes before destruction, a haughty spirit before a fall. 

Yes, it’s one of the largest traps in this industry, especially for those of us who are fortunate enough to have been blessed with a number of industry innovations and accomplishments. 

So how do we avoid the trap? 

Perhaps being aware of it is a start … as well as the finish. 

For example, many of you know that when I re-launched this highly public trek three years ago after a few years in solitude to focus my market energies 100% on my own trading, I did so knowing all of the pitfalls and traps associated with pubic life in an industry where all of the worst human emotions can often be seen on display. 

Emotions such as ego, fear, greed, jealousy, anger, bitterness … and on and on.  

Fortunately, I knew much of this largely because of my prior public work as a trader, educator, and daily columnist in the late 90s and early 00s. 

So to try to counter this, from day one I placed the following words at the top of the blog:

I will not allow yesterday’s success to lull me into today’s complacency, for this is the greatest foundation of failure. — Og Mandino

It’s a lesson we all need to hear and heed, lest we fall into the same crevice that swallowed the 2011 Red Sox.

So call this lesson #1.

As far as lesson #2 goes, the last day of the major league season reminded us that with the exception of religious certainty in which there is no gray, there is no such thing as 100% probability.

And such is true even with the highest probability, rhythms, and tendencies associated that the current Jellie trading teams that often exceed 90%.

For example, prior to Wednesday night’s final Red Sox-Orioles and Yankees-Ray games – both of which decided the playoff pairings — consider these facts:

The Red Sox were 74-0 when leading after eight innings this year.

The Yankees had only come back from a seven run deficit twice in franchise HISTORY.

And there are a number of other mind-boggling stats related to those two games that – like the stats above – approach 100% … and they ALL failed simultaneously.

The chances?

There probably aren’t enough decimal places to quantify it.

So that’s lesson #2.

Which brings us to the Perfect Storm scenario, which would essentially reflect not paying attention to EITHER lesson at the same time.

So imagine taking a trade with statistical probability (whether based on actual stats or simply a professional trader’s experience and feel for the market), AND being arrogant enough to think your accomplishments are so great that you can’t/won’t be wrong.

That my friends, has ended many a trading career in a single trade.

Jellie Discount – In continuing celebration of the completion of Jellie trading team #9′s efforts, and in recognition of my upcoming prop firm expansion, I’m continuing the Jellie Webinar $250 discount for a limited time.  Simply email me at don@donmillereducation.com if you’re interested and I’ll email a discounted invoice.

Have a blessed and relaxing weekend, and look for my PivotPoint Advisors CIO Weekly Briefing over the weekend.

Categories : The Weekend Trader
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