Every profession has its own idiosyncratic superstitions. In honor of tomorrow being Friday the 13th, I thought this would be a good time to discuss this topic.
Actors performing MacBeth will refer to it only as “The Scottish Play” for fear of being crushed by a stagelight. Sailors never set foot on a boat with their left foot first. The baseball player is perhaps the most tormented by ritual, from tapping the bat on home plate to never stepping on a foul line to the prolonged use of a lucky bat or glove way past what its condition warrants.
Traders and investors have their own set of superstitions, and these can seem every bit as silly as those we see in other walks of life. That said, trading superstitions are very tough to let go of, even for the most logical and circumspect of market players.
Let’s look at a few of them:
Never Sell a Stock Crossing 90 – There is a widely held belief that you never sell a stock you own as it crosses $90 per share because they almost always go straight to $100. This concept is demonstrably specious, but I know 20-year veterans who will never be convinced otherwise.
The Maiden Sacrifice to the Volcano - In times of market turmoil or in the midst of a heavy sell-off, many portfolio managers and investors believe that they have to blow out one position to appease the market gods, tossing a maiden into the volcano so that the island will be spared the wrath. This thinking is as primitive as you get, but sometimes it feels good to toss out some AK Steel on a down 200 point day only to see the market rally. If this happens once or twice, logic aside, you will swear by it.
Options Expirations/ Triple Witchings - “Never buy or sell on the third Friday of the month which is when monthly stock options expire. And no matter what you do, stay away from everything on the four Triple Witching days of the year, when stock option, stock index options and stock indexes futures all expire together.” Obviously absurd, but deeply ingrained in many investors.
Don’t Go Back Into a Stock the Third Time – This is a variation on the old “sticking your hand
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.