Sunday, November 27, 2016

Personal Notes Series 011 : The Dissonance of A High Risk Trader

This word was something that hit me a few years ago when I was starting to rake in those profits from the market.


I have always made it clear to everyone that I am a firm believer in Technicals and Technicals only. Not to speculation, brokers or Insiders. And most specially not to Fundamentals. I have embraced this truth and will most likely die with it.

I am not saying that believing in Fundamentals or market insiders is wrong and that there is no money in it, because there is. What I am saying is that out of the 3 Truths I experienced, [Fundamentals, Technicals and Funnymentals] only Technicals has proven to be consistent in making me money in EVERY season - be it a bull, sideways, or a dreaded bear market.

(Exhibit A)


"Cognitive Dissonance"

This might be confusing for those who are new to it. So to further expound on this lovely term, I'd like to introduce Bob. (He's a bit shy)

Bob has been studying and trading the markets for a few years now. He believes that stocks with good fundamentals, when timed with technicals, will yield him a fortune in a relatively short amount of time vs if he only believed in one truth.

"Why not get the best out of both worlds, ya know what I'm sayin?"

So in August of 2015, Bob bought TEL on the grounds that it was fundamentally sound and that techincally, it was at good levels and holding supports.

On the next month however, TEL broke down from it's supports and hit Bob's technical cut points at -5% to -8%. He was faced with a dilemma. It's a good stock and it pays good dividends. In a fundamental perspective if the price goes any lower, Bob will greatly benefit from it because he would be able to buy more shares and that would translate to more dividends. But on the technical side of things, he had to sell because TEL was already showing signs of a downtrend. 

There was dissonance. A chaos and disharmony boiled within Bob. Does he hold or does he cut?

So he starts thinking about the time he spent researching about the company. He computes the tax and the paper losses he'll incur if he sells. And after eating his favorite happy meal, he came to a decision.

"I'll hold and average down. Someday, this will go back up. It is after all, a fundamentally good stock. Ya know what I'm sayin?"

In order for Bob to alleviate his anxiety and find peace within himself, he had to choose to firmly believe in one truth and in this case, it was Fundamentals. A year passed by and he found himself with deeper losses. But that doesn't affect him anymore.

You just cannot serve two contradicting truths. 

If you're still new in the markets, there will come a point in your trades where you will have to decide just like Bob.

"Will I choose Fundamentals? Or will I choose Technicals?"

Remember, there is no middle ground. And now that I think about it, this truth reflects a lot about life and the decisions we make.

"Am I still serving God or am I serving my own interests?"