It is officially the one year anniversary of Capital is Scarce, formerly known as Trading Crude Oil. It's been an interesting year with some unbelievable market events. We have seen $147 dollar crude oil and the subsequent collapse, the credit crisis, the bear market, and all that government intervention in the economy. Don't get me started on that.
All of that plus a little trading has provided some good blogging material, although I'm not sure which was more entertaining the news or the trading.
I'm now questioning where I go from here with the blog? More of the same? It seems most of the interest in the blog comes from people who want me to tell them how to trade. I'm not going to do that because you cannot trade someone else's plan.
Is there any point in my continuing to blog? I feel as though I've said all I have to say in my 313 posts over the last 12 months.
If this is my last post I should have some brilliant trading wisdom to leave you with. The missing link you have all been looking for, that magic indicator, the holy grail. However since I don't just watch this video over and over.
There are two things I've seen in my trading over this past year that really stand out for me, money management and consistency. One I'm good at, the other I'm not.
Technical analysis is not the key to success. The key is figuring out what size of stop you need to capture X number of price points if the trade goes your way. I think this simple concept is the most important and the most difficult to find. How can I take the smallest amount of risk to capture the largest amount of reward? Finding that number is a must to have any success in this business.
Risk reward, expectancy, R multiples, however you categorize it, you have to trade a pattern with a positive expectancy. That doesn't necessarily mean more winners than losers, it means bigger winners than losers. That is money management for traders.
Knowing all that why do I still struggle with consistency? Humans suffer from a condition known as recency bias. We place more meaning on the most recent events, no matter if they are good or bad. This causes traders to think they have it made after a good week, actually a good day will do it, and causes traders to abandon the plan after a bad week, or day.
The only way to know if you have a trade with a statistical edge is to trade it without fault for a period of time. Then believe in it.
This is a hard business, if it was easy everyone would do it. What makes it so hard? The machines do the math for us so it's not that. The human brain does not appear to be naturally wired for trading success. The fight or flight impulse is wrong for trading, we have to reverse our natural fear and greed complex. This is very hard to do, it's like someone who loves sugar and hates salt trying to change those taste buds to do the reverse. We must be aware of our emotions at all times and work to keep them in a place that allows us to succeed in this business.
I will say good bye for now and continue to mull over if it's good bye forever. Thank you to all who participated over this last year. If you are new here have a look through the archives, you may find something of interest, or not.
Blessed is the man who finds wisdom, the man who gains understanding, for she is more profitable than silver and yields better returns than gold. She is more precious than rubies; nothing you desire can compare with her. Long life is in her right hand; in her left hand are riches and honor. Her ways are pleasant ways, and all her paths are peace. She is a tree of life to those who embrace her; those who lay hold of her will be blessed. Proverbs 3: 13 - 18