Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades

CONCLUSION

This trade illustrates the significance of reading the behavior of traders who get trapped on the extreme edge. If you can find these conditions, you can gainfully exploit them.

Most traders learn expensive lessons when they fail to realize that the word “usually” does not equal “always.” Consolidation triangles, for example, usually resolve in the direction of the incoming trend, but not always. The large short interest ratio, combined with the bullish technical picture, produced a rare opportunity to take advantage of a reversal. Unfortunately for the shorts, profits came at the expense of those who were leaning too far to the one side.

Looking at this sequence of charts brings back the memory of my son's “fish in the ditch” experience. It teaches the value of simplicity and unconventional options. We don't always have to be sophisticated in our approach to trading to be successful. I learned that even when you feel like you're right, a child can prove you wrong.