The “What-if” trap:: Do you really want to live there?

I’ve had my share of “what if” back in the old days.

“What if there is no QE3?”

“What if Spain default?”

“What if the Greek coalition fail?”

“What if there is solvency issue?”

“What if the market is over-bought?”

“What if I buy now and the market tank tomorrow?”

Well, I guess you get the thrift of what I’m trying to say here.  You can “what if” all you want; but all that is going to do is to freeze you from taking proactive action to grow your portfolio.

I know there are a lot of bears out there just waiting for the market to “tank” because they have all the logical reason for it to tank.  Well, maybe the market WILL tank; but it just won’t be tanking according to your time frame.  Maybe it will tank early next March?  How ’bout that?  No, wait, the market may even tank tomorrow or next week.  Or maybe not!

Regardless, if I follow the price action and the price starts to tank; guess what I’m going to do?  I’ll start liquidating my positions, locking in profit (probably give back some), and cutting my losses (if I buy late).  And then, if price continues to tank unabated, guess what?  I’ll start to initiate short position to commensurate with the continuing falling market until price action tell me the fall is over.

Meanwhile, your mind (and even mine!) will be developing thesis of where the market is heading based on the “lagging” information that is already out there.  No wonder that by the time you decide it is time to buy; you may be buying when the risk is much higher because the market already run enough for a correction to take place.

All this fundamental information we ALL can see, to me, are stale information.  Market is a forward looking machine.  It looks forward based on where all the big money is looking forward to.  We, the retail investors/traders, usually do not the fire power these big money players have.  Therefore, our prediction based on stale information can only have a 50/50 of being right because the big money prediction may be different from ours.  And even then, you may be right but way OFF in your timing.  Lo and behold when these big money becomes irrational in their way of prediction!

So, what should we, the retail investors/traders, do?

You guess it!  Forget predicting and just follow the price action.  When you follow price action, you are flowing with where the big money is going.  Meanwhile, while you are following the price action; ALWAYS think of protecting yourself.  ALWAYS think safety.

If you’ve been reading my posts; you knew that I traded both sides last week when the market was going thru the yo-yo sessions.  You also knew that by Friday, I saw price action began to show strength and began buying.  Thus, instead of wasting my time trying to predict where the market is going, I follow the price action and ended up being long from Friday to now.

Of course, I trade my own style and temperament.  Therefore, I really cannot tell you that my way is better than yours.  And I am definitely not advising you of anything here.  I’m simply typing my thought here for my own review later.  My whole point is that it is much more productive to spend more time learning the mechanism of trading (profit target and stop loss, option strategies if you preferred, etc) and then implement your trading plan based on price action.

Like some of you suggested here at iBC before, trade more (start with small positions) and think less.  In time, trading actively with a plan (this is very important) will help you develop good habit and overcome your emotional hindrance, mainly fear of being wrong.

When you trade actively (in a small way), you will learn that it is OK to be wrong.  In fact, you HAVE to be wrong in order to trade successfully.  Being wrong is no difference than losing a Black Jack hand.  You know you will lose some at the BJ table and win some with your basic strategy; why can’t you approach the market the same way.  It is OK to be wrong!  Just admit it QUICKLY so you can cut your loss QUICKLY!

Prediction is fun to write and even entertaining to read especially if ones tend to agree with the thesis.  But on its own without following the price action, you can watch the market run away and leaving you in the dust…

You know how I know?

Because I’ve been there and done that!

Good Hunting!

Categories: Trading philosophies and thoughts


2 replies

  1. Having recently left some easy coin on the table on $OSIR and $VRNG, I echo your sentiment.

    Both served as valuable practice for eyeing movements and making quick guesses based on fundamental catalysts, but it would have been more fun to learn and get paid for it.

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