Originally published by Chamber of Merchants
So you’re a trader now. You’ve told everyone around you that you’re trading the stock market. Images abound of Leonardo Di Caprio / the Wolf of Wallstreet, lots of button-pressing, shouting, champagne, laughing, lot’s of laughing and money (Usually money on a bed, in the air or on a person).
Except, it’s nothing like that really. Today, for instance, I am 100% into gold and silver miners/explorers. As I said before, we’re in the retracement cycle for the next 3-8 days and there’s no trade to be made for me. The initial shock of the gold pullback sent everyone rushing to get out (wrong move). Especially on the pre-market auction there were emotional traders dumping hundreds of thousands of shares. I suppose the thinking would be that you’d sell first then get back in cheaper. But it’s a poor and emotional move.
Yesterday morning started me out with a loss of $30k AUD… by the day’s close I was 23k AUD down. So between morning and afternoon I had regained almost 30% of my loss. Today I have recovered an additional 3k taking my loss only to 20k. Now there are traders that sold Millennium (AX:MOY) at 29c, Silver Mines Ltd (AX:SVL) at 18.5c, Blackham Resources Ltd (AX:BLK) and Ramelius Resources Ltd (AX:RMS) around 42c. Guess what they’re doing today?
They’re hoping for a bigger pullback.
They’re sweating, checking the numbers, hoping it…willing the market down with sheer mindpower and forceful thinking. That’s what happens when you sell at a low in a panic. By simply doing nothing, I have recouped a large part of my losses already.
Look at the 1 hour chart below of Silver Mines Ltd (AX:SVL) :
The box shows where the trading range is. It’s like a magnet, pulling the highs down, pulling the lows up. Yesterday’s panic got many traders in a frenzy. The share gapped down, opening around 18c. and then every hour the price inched back toward the trading box. Pain when you experience a loss, more pain when you sell at a loss and then regret as it returns to where it was previously. I skipped out on all that. I think I was listening to Spotify and eating something.
Remember, when every novice trader tries to exit at the same time, it becomes a wonderful buying opportunity for the guy on the other side of the fence waiting to enter. Additionally, always remember that the one or two panicked traders that dump their shares also activate stop losses that make the situation worse. Silver Mines Ltd (AX:SVL) is on 20c as I type this and my holding is 290,000 shares, so imagine what the movement looked like. Meh.
On average, the emotional trader has an insatiable burning desire to feel better and feel successful. So most likely, he or she would take the cash from the terrible bottom sale of a share like SVL and look at what’s trending next.
Most likely they’ll zip over to a crude stock like Santos Ltd (AX:STO), Buru Energy Ltd (AX:BRU), 88 Energy Ltd (AX:88E) and then hope and will the crude price hope. Well… that’s just dandy. And when the pullback happens there… Of course they’ll sell. And probably move back to gold or silver when the bull trend resumes.
Rinse. Repeat and refill your account as you lose money, lose confidence and the idea of money under a mattress becomes more attractive than the idea of money on a bed or on a person.
But that’s not itchy fingers. Itchy fingers is when the reality sets in that the day is boring on the ASX and there’s no fireworks.
Itchy Fingers
You’ve told everyone you’re trader. Family members admire you. Friends talk about you. Whispers of adoration… So you get itchy fingers when nothing is happening, because you have to trade. Traders trade right?
“If you’re not buying and selling then you’re not a trader.”
No. Do you want to make money or just buy and sell stuff? Open a lemonade stand if you must. But I don’t get dominated by my itchy fingers or the mental release it gives me when I make a trade.
A Merchant seizes opportunities and today I don’t see any opportunities with high probabilities of success that interest me.
As I said, my exit will be when gold hits $1370+. If I had itchy fingers I would be checking the next big thing or hot tip. But, that would be silly if I actually believe my original thesis about the direction of gold and the price action we should be seeing over the next 4 weeks.
Remember my post about following the leader? The leader is price and everyone runs after it following the the direction of now. But if you do that your account balance will look like everyone else’s too.
Take a break. Learn something. Reflect on your emotions and examine your thinking process. It is far more profitable than repeatedly checking your account balance repeatedly, all day.