- 1998: Volume 7, No. 1 The Surprise Index

Traders over the years have become more and more technical. These traders stare at their computers looking for divergences. Now of course one trader's divergence is another traders trend confirmation. They whip up a technical soup of RSI, Stochastics and Elliott Wave. They scream out that the system told you exactly what you should have done yesterday. They stare at their computers to see if the dotted blue line just crossed the heavy red one. If that happens along with a divergence from the yellow dangling particle line and, wow, we have a key island reversal... or maybe Gilligan's Island.

These traders change from one minute ticks to two then four. They change the width of the Bollinger bands and now they have it, the perfect system to trade yesterday.

I have yet to meet a rich computer. Only Bill Gates got rich by selling computer operating systems. It's just like the 1849 California gold rush. Did the miners get rich? Most did not, but Levi Strauss got rich selling them pants.

Today's trader relies on the computer do the work and forgets that God gave him a personal computer called a brain. It can be used to take on the markets without electricity. When today's trader has a bad trade, he starts changing the program instead of looking in the mirror.

Us old white heads were trading these markets when Steve Jobs was still in the garage inventing the Apple computer. Did we always have winning trades? Of course not, bet we knew we were the problem... not the machine.

Technical traders throw away your crutches and come back to the real world! What happened to basic trading tools like trading the news, fading the strength, trade a good stop, and, my favorite, the Surprise Index?

The Surprise Index is an old trading tool. It says, "if you are surprised, then so is the market." If the market does the opposite of what you are sure it's supposed to do, follow the market instantly. A good example was a couple of months ago when a bullish corn report came out and the corn market started falling. Corn dropped 20 cents in three days on bullish news! The veteran trader quickly sees the surprise while the computer trader is waiting for a divergence.

On Monday, October 27, 1997 the stock market fell so hard that the stock and futures markets closed early. Again the surprise index was a great tool. The previous Friday we opened 75 points higher after a big down day on Thursday. This was not surprising as our three-year bull market has met almost every sell off with renewed buying. However, by noon the surprise index went off as we gave up the 75-point gain and were now down 25 points. Surprise, surprise! 

Dick Crews publishes a hotline under the title of "Dr. Dick the Day Trader."