Michelle B submits: Several bloggers have commented recently about CNBC's excitable coverage of the Dow Jones Industrial Average setting a record. Since a price-weighted index containing a very small number of stocks is fairly insignificant in the trading world, why did CNBC latched onto to this relatively unimportant event?
During the time of the technology bubble, traders in a chat room I frequented would discuss that they do not look at the Dow Jones Industrial Average. Some did not even know what it was. After all, it represented the 'old economy'. So we were taken aback when an experienced trader of around twenty years said that it is PERCEIVED to be the market. For that reason, he watches its price action and is aware of its support and resistance; while at the same time knowing it is not the market. However, from CNBC's frenzied reaction to the Dow Jones Industrial Average breaking a record, we cannot be sure they do know it is not the market, but that it is just perceived to be.
That experienced daytrader was a pure tape reader who ridiculed anyone who was not. He did not read Briefing.com, Marketwatch Newsfinder, and Bloomberg. He did not listen to CNBC, and Jim Cramer was the bane of his existence. He was not aware of economic calendars. He was extreme in this conviction, because he had a weakness. His weakness was that he was a combative chap; he would argue with an ant if he could only learn ant language. He confessed he was apprehensive he would take the opposite side of trades mentioned on Yahoo message boards just to prove that the other side of the trade was wrong. So, he stopped reading Yahoo message boards which was the right action but for the wrong reason.
He was focused on others trying to influence his trade and for 'talking their book'. He believed that no news was untainted by somebody else's opinion, and they were simply trying to contaminate his pure and perfect approach. Essentially, he barricaded himself behind his opinions. By insisting everyone follow his approach, he was in fact not practicing what he was preaching. He was talking his book.
I, on the other hand, do selectively expose myself to media coverage, and I manage to do some serious tape reading despite that. But, we all have varying levels of weaknesses where we can be swayed from our methodologies by being exposed to other ideas and approaches, and we do need to guard against that. When I come across something that I think is worth a try, I remind myself this will be a departure from my methodology. So I try the new method carefully, with smaller lots and with a stricter risk profile -- the amount I am willing to risk is a much smaller percentage of my trading capital than trades done via my methodologies.
But usually, I do not even try most suggestions. I can weed the chaff from the wheat quickly now, and I also have a good idea what new methodology is compatible to my existing daytrading style and worth a try. I do not want to re-invent the wheel. However, in spite of a structured approach, I am still open to discussion, unlike that pure tape reader mentioned above. I do not want my trading system to become a closed one, or else it could become stale and its edge blunted.
*Powwow: Any assembly characterized by noise and confusion; a noisy frolic or gathering.
