Fading Stock Market Losers

Perhaps “loser” is too harsh a term? I use it as a catchall for those annoying people at cocktail parties, holiday events, family reunions, etc., who talk about the trades they’re making – the ones that are invariably 100% wrong.

These people are like “Bad Luck Schleprock” when it comes to the market.

For those under a certain age, Schleprock was a character on the “The Pebbles and Bamm-Bamm Show,” a spin-off from “The Flintstones.” Everything Schleprock touched went bad. He was a loser’s loser and an all-together downer, as evidenced by his favorite catchphrase;

“Oh wowsie wowsie woo woo. Miserable day, isn’t it?”

A standard story line featuring Schleprock went like this;

Pebbles’ attempts to help Schleprock shake his bad luck omen lead to disaster after disaster, including getting the gang trapped in a mine with a crackpot professor searching for a lost city.

Friggin Schleprock!

In typical Schleprock fashion, once his TV series was canceled he married a stripper named “Rock Candy” who took him for all he was worth, then fell into dealing meth and ended up in a two-hour slow speed pursuit with the LAPD, at the conclusion of which he offed himself on live TV.

Friggin’ Schleprock!

So the question is, can you make money fading “Schleprock traders?”

My (virtual) friend and former pit trader Jeff Watson thinks you can. From his blog….

Fade indicators are not just identifying and fading losers in the market. Fade indicators have many variations and identities, and one should look around, as they will always show up, every day. The key is to recognize them for what they are.

I’ve found many excellent sources of fade indicators to be physicians and dentists. Since they are smart people and have disposable income, many medical professionals play the market, mostly unsuccessfully. Medical doctors have big egos in many cases, and massaging their egos will provide many nuggets of information that can put money in your pocket. I look at doctors as the best kind of fade indicators as I’ve never met one who knows how to trade, invest, or really make any money in the market save what the drift offered them.

Another very accomplished trader I know doesn’t actually fade these types of losers but avoids stocks they are in, indicating that their participation has put the “black death” on the trade.

This concept may seem funny and out of line with the type of objectivity needed to trade successfully, but if you think about it, it actually makes sense and is quite logical.

Imagine for a moment that someone is a fantastic trader. Then think of the attributes and characteristics that make them so;

  • Objectivity.
  • Discipline.
  • Full-time market participation.
  • Lack of ego.
  • Ability to tune out extraneous noise.
  • Years of real-world trading experience.

And the list goes on.

Now imagine someone who has the exact opposite traits;

  • Subjectivity.
  • Sloppiness.
  • Part time trading.
  • Egomaniac.
  • Takes every word that the financial talking heads say as gospel.
  • Thinks that external experience translates to the markets and trading.

And the list goes on.

People with these traits have an uncanny ability to consistently lose money in the market.

Obviously, using a person as a fade indicator does not provide an exact trade entry spot, nor does it provide objective risk/reward criteria, but using these “Schleps” for idea generation on potential fade trades can be profitable if done right.

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