Slicing and dicing the top news stories each day (a process that takes less than an hour, thanks to mad ninja keyboard skills) has the bonus side benefit of comic relief.

Actual content aside, info-surfing the wave of headlines is helpful in developing a gestalt feel for sentiment: Where Mr. Market’s head is, what he is paying attention to, and so on.

And some of those headlines are just damn funny in their own way.

For example, one that crossed the radar screen recently: “Crude oil declines on Irish debt talks.”

Is that why crude declined? Really?

It’s amusing to think how far you can take this. Just pick two events that happened on the same day, concoct a vague correlation, and presto! Instant news wire:

• Frozen OJ declines as Israel-Palestine negotiators skip breakfast
• Asian markets firm on Bristol Palin’s “Dancing With the Stars” contention
• German DAX retreats 0.27% as ABBA reunion rumors quashed

Financial reporters, God love ‘em. They work super hard to “feed the beast” every day — but that’s part of the problem.

When you’ve got column inches to fill day in and day out, you become susceptible to Sitcom Syndrome: the habit of assuming every single trading day is its own self-contained world, in which whatever happened can be clearly wrapped up in a 21 minute plot sequence. (Don’t forget room for commercials!)

Side effects of Sitcom Syndrome include breathlessness, indecision (aka “analysis paralysis”), and the habit of running around like a chicken with its head cut off (at least in print).

Among members of the chattering class (reporters etc.), a clear and unmistakable sign of Sitcom Syndrome is the tendency to go nuts with superlatives:

Markets didn’t just fall on Tuesday, they were CRUSHED… then on Wednesday they SOARED… before getting DESTROYED yet again… and so on.

Jack Tripper (R.I.P.) had some righteous roommates. But truth be told, he probably would have made a lousy trader.

Why? Because when you’re in the markets with real capital on the line, it’s no good being constantly flustered and surprised all the time — and that’s exactly what Sitcom Syndrome leads to.

So here are some tips on how to avoid it:

1) Ditch the superlatives (and check the charts). When you come across a breathless headline, put the price action in context with a daily bar chart — preferably one that goes back six months or more.

Does the price action stand out on the chart? Was a key level violated, a new high or low established? Did something happen that you can see? If not, there is no reason to get worked up. If the S&P is up 1% one day and down 1% the next, so what!

2) Cultivate a feel for inflection points. Why are financial pundits prone to breathlessness? In part because they have no context. They observe the markets but do not participate, and thus have less sense (and sometimes zero sense) of what counts as a ‘big deal’ and what does not.

Cultivating a feel for inflection points is a matter of 1) recognizing they are infrequent by definition, and 2) Actively studying and tracking in concert with routine operations.

Based on a well established array of inputs and experience, some traders intuitively ‘know’ when something important is happening. If you lack this ability, it is one you can at least partially pick up.

3) Develop a meta-narrative. Whether you are macro, micro, or both, there is a coherent thread of reasoning as to why you do what you do. (Or at least there should be!) Thinking in terms of larger structures and extended plot lines allows you to step back and create a buffer from the noise.

Out of every 100 news items that come your way, perhaps a mere handful will prove noteworthy or important. Remember not to “lose the plot,” i.e. lose the forest for the trees, and make a concerted effort to know and track the plot’s progress (how it is developing, how it might be shifting) at all times.

4) Let it breathe. Unless you are a day trader, your positions need time and room to come to fruition. Think of a trend like a romantic relationship: The beginning is always tentative, with commitment growing stronger over time. Also like a relationship, no trend goes from “casual” to “serious” without a series of “tests” along the way. As with standard retracements on a chart, this is perfectly normal and okay.

5) Cut away distractions. Sherlock Holmes: “It is of the highest importance, therefore, not to have useless facts elbowing out the useful ones.” Different traders should be paying attention to different things. Your particular determination of what is “useful” will depend on individual factors like methodology and temperament. Regardless, you should have very clear mental distinctions as to which inputs are “useful” — for you specifically — and which are not.

Another key aspect of cutting away distractions is properly managing information flow. In the never-ending quest for efficiency, this is key.

One advantage of the Links Roundup, for example (and the reason it evolved in the first place) is that the majority of news flow items can be quickly scanned, insta-processed, and then mostly set aside, leaving more time and room to drill down on ‘core’ items only. The point is not to read all that stuff — an impossible task! — but to have a fast, clean synopsis (which also functions as an archive).

Now get out there and make Mr. Roper proud!

JS

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