Measuring Regret

  • Posted by
  • on December 1st, 2011

“Winning is going to tap into the avoidance of anticipated regret.”  Denise Shull

Before going any further, read this great post on regret by Robert Sinn, citing some killer quotes from Dr. Brett Steenbarger.  I’ve experienced this emotion in the past, present, and will do so again in the future.  In all honesty it is the most debilitating and useless of emotions because it can push you into fighting yesterday’s battle instead of today’s.  I do not, however, think it is useless to be aware of it as an analysis tool.

When we consider market pivots, we’re essentially identifying the point of maximum regret aren’t we?  I’m not talking about daily pivot points, I’m talking about days we all remember for the way they surprised us…what trader can forget October 11, 2007 or March 9, 2009 or August 27, 2010 or August 9, 2011 to name a few recent examples.  We may have been on the wrong side of that move; only liars will tell you they’re not that foolish sometimes.

What separates consistent winners from losers is the ability to quickly move from awareness of personal regret to awareness of collective regret.  We may think we have a unique perspective, but let’s be honest…when we see things as “overdone”, so do 90% of our fellow traders but somehow the move keeps going beyond our expectations.

I’ve learned to not short big gap ups like I used to, but it’s still very unnatural for me to buy them and I rarely do.  So I hate days like Wednesday; you can never be long enough on a day like that and it’s easy to look back and wonder why we didn’t own more.  That’s fine for as long as it takes to write it in our trading journal.  After that, we need to move on with studying the evidence as it unfolds.

Being aware that others also couldn’t resist “taking some off” into the early ramp means recognizing a source of collective buying power has been built.  Those that didn’t buy, or sold, or even shorted, will look back with regret for doing so.  Some will carry that regret for 2 minutes, some for 2 days, some for 2 weeks…safe to say the ones with the shortest period of regret will be part of the 10% that takes money from the 90%.  I’m pissed that I took my favorite analysis tool and used it so timidly I might as well have had no position.  I regret spending so much time this year watching ripples and trading my “wave” setups like they were just another ripple.  Every now and then I need to remember this paraphrased George Soros line to Byron Wien:

“The problem with you is that you come to work every day looking for something to do.  I come to work only when something exists worth doing.”

Technical analysis is still strangely mocked in some circles, but I’m mystified how someone can’t believe the impact these pivot or inflection points have on market outcomes.  They are different than the daily noise that shouldn’t hold our attention but does.  They represent clearly defined moments when a large number of participants were caught off-guard and needed a new plan of attack…like on Nov 28 when half of my universe left behind an island of 21 day price lows the day after Thanksgiving.

More importantly, those lows stand out as major signs of regret and are likely to stand firm for months as this underlying source of demand slowly builds.  Identifying those memorable moments, and sticking with that tailwind until the collective regret has been “fixed”, is how we can try to get on the right side of the money flow and stick around for more than a quickie.

Read: Robert Sinn on Regret

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Derek Hernquest Blog