3/24/2009

Good Bye?

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

24 comments:

J the FX Wizard said...

You can't leave! Who would I live vicariously through?

davidjcairns said...

This was a very elegant post, I hate to muddle it with a comment -- but even though I am not the poster-boy for blog commitment (rather the opposite), I think you have a good thing going here.

I like hearing a voice on the economy that I don't hear in the Arts Department of my University that often. I come to your blog for the humor and intellectual stimulation as you pose questions to the world.

As far as trading goes, I don't understand any of it...I still look at the charts oddly enough and feel some sort of success when I see the blue bars go up after you got into the trade. But I really don't know. For me, on the trading side, I'm interested by the psychology of it. In the end I think that your right with this post. Stats and the Law of Large Numbers is counter intuitive to phony "Law of Averages" that most people believe to be true. In a "one million coin flips" simulation a professor noted all the times that 5 heads were in succession (HHHHH) -- it happened around 8000 times. Now, the Law of Averages (not a real mathematical principle) leads most people to say that after 5 heads it is more likely to get a tail than a head (HHHHHT is more likely than HHHHHH). In truth, the simulation showed that 52% of the time it was a head. Over the whole simulation there were around 50% heads and 50% tails. The large numbers work, but samples that are too small rarely reveal anything.

I understand the counter-intuitiveness of what you do. And if you keep blogging about the trading experience I will keep reading because it's fascinating...to me at least.

This is a great blog, take a break if you need one, but I don't want to see it die.

Solfest said...

J you can live through yourself.

Not sure what that means but I'm sticking with it.

Solfest said...

Thanks DJC, you should be a trader, you're better at math than I am.

Rocky Humbert said...

Solfest:
I'm always late to every trend.

I just started reading your blog ... and now THIS ???

But, if you're burned out, mute, or just tired of trading crude...there's more to life than crude. Maybe start a blog about trading Pork Bellies !!

Regards,
Rocky Humbert

Solfest said...

Pork Bellies are Scarce

Pork Belly Trader, I like the sound of that. Solfest at dinner party: Non trader person says, what do you do for a living? Solfest responds with pride, I'm a Pork Belly Trader. Non trader person responds with slightly stunned look, Ah.

Jules said...

Solfest,
I've said all I wanted to say..well...almost all, but not exactly...anyway, I shan't make you feel bad. Trading is not easy, and it seems that writing isn't either. What has made writing easy for me is that I ignore the fact that there are actually people reading.I write coz I don't talk that much. And I actually like the friends I've made via my blog. Your comments always made smile/laugh.... I'm starting to sound like a talking hallmark card. I should stop. Whatever that makes you happy, Solfest.
Just know that I'm going to hate you forever for leaving!
By the way, I have been staring at your avatar for the past 10minutes, and I still can't believe it's a living thing.

Solfest said...

Jules in April there is this strange Canadian ritual, you may remember, where all the furry little Canucks come out of their igloos and stare up at this large orange ball in the sky. We blink several times and then stumble around in our long johns wondering what that brown stuff is we can now see beside the dirty snow.

After a few moments we begin the we think winter is finally over happy dance. This continues for several months and has the unfortunate side effect of way too many white men in shorts.

I digress.

I will take a look at blogging again in September. By that time I will know if I miss it, and maybe via comments if anyone else misses it.

uncertainfutures said...

Wise & Concise. If I added anything it would be neither of those. UF.

Solfest said...

Thanks UF, I'm sure you could add something.

This business is funny as you can read and study for years and then ultimately wind up only using a tiny fraction of that information in your actual trading.

Yet if you try and skip all that work and just take someone else’s your chance of success runs about zero.

That is in my humble opinion, of course.

barth said...

Hi!
I don't know if is a coincidence or
not but these days stared to have a strong conviction that oil trading might be my keys not to the riches but to start doing something for some extra income after my fall from the forex market.However I am sadden
by your decision to shut the blog down(Still hope that you will post
somewhere in the future).Meantime will read your 2008 posts.You stated that ones trading method can not be applied by others.I don t know the future will tell .I have a very small capital for trading an intend to use a single indicator from theoilbiz.com which is derived from the stealth forex system and hope that two accounts for hedging my position during news releases isn't a very bad idea(I am looking for 2 fast spot oil brokers or spread betting for that) .If anyone can help me with some links books and advice to avoid pitfalls for newbies I would
appreciate it.Regards and thanks for this great blog Bart

Solfest said...

Don't be afraid to sim trade for a while Bart. Watch, read, and look at other's trading, then find your own way, the way that suits you.

Good luck.

Anonymous said...

come back Sole... miss reading the blog.. Are you done trading? I love to ask you questions as you took time and effort to answer. Come back.. James

Solfest said...

James, I'm still trading, nothing has changed there. The blog is, shall we say, on hiatus for a while.

I need to come up with a different format, theme, or something for the blog if I am to continue.

Not sure what that is or would be, so for now, we have silence.

Stop and listen to your own heartbeat for a while. :)

thelonelytrader said...

Sol, nice post. I've enjoyed my hiatus so much that I wonder if I'll ever go back. I know you must be doing something productive with your new-found time. Someday we have to meet. We should have a bloggers meetup somewhere central to the crew. I'll ride my bike up there, wherever "up there" will be.


First round is on me...unless you drink diet Coke or something -- in which case you're on your own!

Solfest said...

Thanks LT.

How's it going, eh?

The diet coke quip is quite a faux pas on your part, eh.

A learned international man of mystery such as you should know better, eh. All Canadians, men, women, children, dogs, cats, and seals, drink beer while wearing toques, eh.

Have a good one, eh.

thelonelytrader said...

You know, I completely forgot that Canadians know their beer. Now I'm sure I must relocate. I may even smear a little Alberta crude on my face as war paint and dance around in a toga just for you.

Solfest said...

Albertans don't wear togas.

Too drafty.

thelonelytrader said...

well I'm not albertan so there it is...and i can produce quite a draft under my own power as it turns out...but you already know this.

THERE...did you feel that? That was my work. :P

Alan said...

Seems just as I start following blogs the writers go on a hiatus.

What is that exactly? Sounds painful, kinda like a hernia...

Solfest said...

Hiatus:

A long period of stale donuts, bad coffee, uncut hair, and..... just think of Howard Hughes lying in bed in a Las Vegas hotel room scared of every germ he can think of.

Ya, that's it, a hiatus.

Alan said...

That sounds great! I think I might have one before I start!

Anonymous said...

how has the trading been going.. James

Solfest said...

The crude oil trade has gone dry, not many signals. I have started trading soybean futures and that has been going well.

How are things with you?