Trader Lesson: What You Can Learn from Smoke Signals

09/21/2017 3:51 am EST

Focus: TECHNICAL

Jackie Ann Patterson

Author, Truth About ETF Rotation

Often a solid-looking signal turns into a false alarm, which requires standing down. When it becomes clear that an investment isn’t what we thought it would be, it’s wise to exit it promptly, asserts Jackie Ann Patterson of truthaboutetfrotation.com


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As a volunteer fire look-out atop Martis Peak near Lake Tahoe, I find the time and mental space to contemplate market lessons we can learn from the fire department.

1. Mostly no signal and nothing to do but stay alert.  That’s why I don’t look to fire duty or investing for excitement.

2. It’s critical to stay alert in order not to miss a signal.  Missing a smoke could let down my community.  Missing a market exit could let my portfolio go down in flames.  I look for major investment signals once a week.


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3. Many false signals need to be investigated but not acted upon.  Dust devils look like smoke and must be watched for changes in case the people or wind bring flames. Mt. Lassen, 114 miles in the distance, has three vertical snowfields that resemble smoke.  I do not want to be the volunteer who calls in a fire which turns out to be a stationary mountain.  It’s important and worth a little extra time to let the situation develop.  Does the smoke build?  Does the stock or ETF move in the indicated direction?

4. Risk assessment drives the choice of actions.  The helicopter crew waits for the right loading, wind, and location to rappel down to the fire line. The wise trader waits for low-risk entry, too.

5. Once a reasonably solid signal comes in, prompt action is required.  I report smoke and record lightning strikes immediately after discerning the nature and location.  On the investment front, I usually get my orders in and shepherd them to execute the same day.  Rarely do I put in a limit order far from current price.

6. Often a solid-looking signal turns into a false alarm, which requires standing down. I hear that a lot on the radio.  When the dispatcher announces a false alarm, does the fire engine keep going?  No, they turn around to head back to station. Likewise, when it becomes clear that an investment isn’t what we thought it would be, it’s wise to exit it promptly.

7. Panicked people make mistakes.  Again, from listening to the radio, an excited reporting party garbles the location, doesn’t assess injuries, and provokes confusion.  The responders may be left wondering if an injured person fell or met a boat propeller. Are they in the water, on a beach, or on a cliff? Similarly, if you enter a trade out of panic – either trying to get in on a big move or rushing to get out in a hurry – you run a high risk of making a typo, getting the wrong size, ticker, or even direction.

8. Training and practice make it easier to remain professional and perform competently under stressful situations. Firefighters, even volunteers, spend an incredible amount of time building skills and mastering equipment. Likewise, traders and investors have plenty of opportunities to learn how to practice their chosen craft.

In summary, considering the full work cycle of a professional fire department can help you avoid all-out fire drills with your finances.

Read more about Jackie Ann Patterson’s ETF Rotation strategy here

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