There are a lot of people out there who would rather fight trends than take advantage of the ones that are already in place. The idea is they are always looking for the reversion to the mean. And while some think prices always come back to the mean, it’s often forgotten that the mean can also catch up (or down) to price. I learned this lesson the hard way in 2013 and it has served me well ever since. This episode is short and sweet but I think adds a tremendous amount of value.
When I asked Phil to comment on the subject, he said, “Give me someone who can adapt, someone who is flexible over someone who is a rocket scientist any day because I can teach him to ignore that voice inside his head telling him that breakouts must revert.
The mean reversion heuristic is just one more example of how conventional thinking styles, that come hard wired in most of us and which serve us just fine in most environments, require suspension in the trading turret.”