LESSONS FROM LIFE AND “CFIT”
Contrary to popular opinion it is impossible to divide our attention between two conscious activities. Under certain conditions we can consciously be aware of two things at one time (such as driving and talking at the same time or walking and chewing gum at the same time) but we can never make two conscious decisions at the same time. The next time you are at a drive thru window, for instance, try carrying on a conversation on your phone while trying to decide what you want to eat. No wonder there are signs that ask us to please not use our cell phones when ordering.
Now take, for instance, the experience of flying a perfectly functioning airplane into the ground. This activity, believe it or not, is so common that engineers at Boeing coined a term for it: CONTROLLED FLIGHT INTO TERRAIN (CFIT for short). Under the conditions of CFIT, an airworthy aircraft controlled by a pilot inadvertently flies into an object such as a hill, water, building, etc. While there may be several different reasons to fly a perfectly good aircraft into an object, the most common cause, according to the Air Force, is loss of awareness inside the cockpit due to “task saturation” or trying to do too many things at one time. An example would be focusing too much time on a malfunctioning piece of navigational equipment at the expense of the overall airworthiness of the plane itself. This exact scenario was played out in the deadly crash of Eastern Airlines Flight 401 near Miami on December 29, 1972. No less than the captain, first officer, and flight engineer had become so fixated on a faulty landing gear light that they failed to realize that the autopilot had been switched off! The slow descent into the Florida everglades killed 101 passengers and crew.
LESSONS FOR STOCK AND OPTIONS TRADERS
Now, you ask, what does this have to do with stock and options trading? Just as in every day life and in the case of CFIT, stock and options traders must remain focused on the current trade or risk opening themselves up to any number of mistakes. These mistakes can include (but are in no way limited to)the following:
1) allowing impulsiveness to take over your trading rules, thus taking a trade that does not meet your criteria
2) not taking a trade signaled by your system because your focus is elsewhere
3) trading several different systems or instruments simultaneously and getting the trades confused
4) risking too much on a trade
5) ignoring an exit strategy because you have not predesigned one
6) getting sidetracked by a report or an analyst recommendation on CNBC
THE CROSSHAIRS TRADER has developed what I call the INTELLIGENCE REPORT to help the trader remain focused on the task at hand: entering the battlefield with a high probability of a successful attack. My INTELLIGENCE REPORT (works in conjunction with COORDINATED ATTACK) is a simple checklist of pre-trade questions and includes the following:
1) Does the chart indicate a trade based on my rules for entry and exit. In other words, can I draw a CROSSHAIRS on my chart?
2) Have I properly assessed the BATTLEFIELD TERRAIN and the DIVISION?
3) Have I considered the 21/50/200 TANKS and the MAB effect?
4) Am I trading one of the stocks that I follow?
5) Is there any stock related news that could affect the trade during the time period I expect to be in the trade? [The most important of which is the earnings date]
The lesson here: consider all details but focus on what is most important or you could suffer a CONTROLLED FLIGHT INTO TERRAIN. In other words, you could crash and burn.
“The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.”
T. Boone Pickens
