The Trend It’ll Become

One of the big challenges in trading is envisioning the all of the possibilities. Can you imagine all-time highs in the stock market five years after the worst crisis in 75 years? Can you envision 10-year Swiss government bonds yielding -0.60% like they are today? What about Crude Oil losing 70% of its value in two years?

At the start of these trends, suggesting any of these now-realities may have seemed crazy. But a wild imagination may just help you stay on board the trend.

When you enter a trade, you have no idea what will come of it. If you’re buying, you hope it goes to the moon. If shorting, you want it to plummet towards zero. Sometimes this happens. Most times not.

The hard thing is to stay on board the trend without knowing why it’s moving the way it is. To medicate this feeling of uncertainty and not knowing, traders seek out information that confirms what they want to be true. If they buy some stock, they prefer to only consume information that reinforces their own opinions. When we do this, we limit our imagination, can no longer think logically and, as a result, we sabotage performance.

One way to combat this psychological pitfall is to risk the same amount of money when putting on all of your trades. This way you do not play favorites. After you initiate some positions, some will move in your favor and some (probably many) will not. After that, you cut the losers quickly and let the winners ride while adjusting your exit price to lock in profits as the trend develops.

Today, we have many stock and government bond markets in uncharted territory; stocks at all-time highs and yields at all-time lows. The human in us wants to understand how this can be and where prices will head next.

I encourage you to recognize that this feeling wants to keep you safe; it wants you to figure it out why; to come up with explanations for every little price movement; to over-analyze and consume mass media; to make predictions and reinforce them by telling friends, etc.

Instead of going down this path of confusion that’ll likely only lead to investment losses, I recommend going with the flow; understand that you cannot know everything all the time; to ride the current trends wherever they choose to go. Keep things simple and stay out of your own way.

Disclosure

Past Performance is Not Necessarily Indicative of Future Results
There is always a risk of loss in futures trading.

This communication is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product, an official confirmation of any transaction, or as an official statement of Melissinos Trading LLC. All information is subject to change without notice.

These charts show examples of trends. Inclusion of a chart as a trend example does not imply any kind of recommendation to buy, sell, hold or stay out.