I Get Them Wrong Too!
May I have your attention please:
THIS IS NOT ABOUT BEING RIGHT. THIS IS ONLY ABOUT MAKING MONEY
Guys, if you are a market participant for any reason other than to try and profit, then I'm not sure what you're doing here. We are not analysts, we are not journalists, we are not economists. We are not here to, "be right". We are only here to make money. So that means defining and managing risk appropriately by setting parameters that dictate where we are wrong.
And we will be wrong. No egos here.
In other aspects of our lives, most of them in fact, there are other more important reasons for our actions and decision making. It's not just about making money. For example, I have friends who are doctors. These guys do what they do every day because they want to help people. It just so happens that they get paid to do it and they can pay there bills with that income. Great, but money is not the only reason why they do what they do; far from it. In other professions it's the same thing. You want to do what you love to do, and it shouldn't be for the money.
But in the case of the Stock Market, Bond Market, Currency Market, Commodities Market, etc there is only one reason and one reason alone why we are here in the first place. It isn't to have fun. It isn't to help other people. It isn't to make us feel good. There is only one reason why we are here: To make money. Period.
There is a lot of noise when it comes to the market. More and more every day in fact. A lot of people write and say things for many different reasons. Why are there thousands of articles written about $AAPL and $TSLA every day? Because people click on them and the people writing these articles get paid based on the amount of clicks, not to make money in the market. If they wrote about the Palladium to Silver ratio thousands of times a day no one would click. Why? It's not sexy. It's boring. But as market participants, this has been one of the cleanest and most beautiful trends over the last couple of years. We're not here to be sexy. Boring is fine, thank you.
If I wanted people to come to my blog more I would just write about Alibaba all day. But that's not my goal. My goal is to look for risk/reward ratios that are skewed in my favor. That's all I care about. Why? Because the only reason why I am a market participant is to make money for me and my partners. I don't have any other incentive.
The decisions that I make throughout my week are for many different reasons. I go for runs along the river because it's fun, makes me feel good and it's good for my body (I also like the views of the bridges). I drink beers after work sometimes with my friends because it helps me wind down the day and it also allows me to chat loosely with buddies in the business about what we're trading and moving around these days. Often times I'll write a blog post about how I look at Fibonacci and Momentum in order to help people understand what I'm looking at and maybe they can start to incorporate it in their own analysis. I'll organize and attend charity events that help raise money for different foundations. These are great causes, it's great networking, we help people, it's fun....Again, a lot of different reasons for my actions.
But when it comes to putting money to work in the market there is ONE GOAL and ONE GOAL ONLY: To make money.
I'm not trying to be "right". I'm not going to keep averaging down a losing position. Only losers average down losers. Good risk/rewards. That's it. We as market participants are not sell side analysts who get paid to be right. We are not economists. We don't have to "be right". We just have to make money.
Sometimes I get asked,
"Hey JC how come you talk about your winners but rarely follow up on your losers?"
And there is a very simple answer to this. Because if the price of whatever we're discussing breaks the level that I said all bets would be off, "if this" happens, then there is nothing left to say. Trade/idea is over and we move on. What is there left to talk about?
The 1% or 2% or 0.50% risk that I detailed on TV or in a blog post or on Stocktwits/Twitter was hit and now we're talking about something else. I follow up on winners because there is either an opportunity to add to positions or perhaps take profits if certain targets have been met. So there is something to talk about there.
Guys, I get them wrong all the time. That's the whole point. I don't try and avoid it. In fact I pride myself in being wrong and then managing that risk appropriately. It's part of the business. But if I take a low risk/high reward shot on XYZ and I can look back at that trade and say to myself that I would put it on 100 times out of 100, then I did my job. The outcome does not make it a good trade. The process does.
So don't forget what our goals are as market participants: To make money. That's it. Other people have much different goals and it is important to understand why they are saying or writing what you're listening to or reading. In some cases, it's for clicks. In others it's to sell TV commercials. Others try to get the buy side to trade through their desks for commissions. There are a lot of different business models out there. It doesn't make one business better than another. They're just different businesses.
But us market participants? No commercials, no clicks, no trading commissions, MONEY. TO MAKE MONEY. That's the only reason why we're here.
# 1 - Keep the money that we have
#2 - Make more money
Those are the goals. Let profits run. Minimize risk.
If we are stubborn and hardheaded and think that we are smarter than the market, what are we going to do? Continue to average down losing positions until it comes back? No, of course not. Think about it, in order to make up for a 50% loss, you would need a 100% return just to get back to where you started. Isn't making up a 2% loss or even a 5% loss a much easier process? Then why would we ever put ourselves in a situation to lose more than that. Any idiot can pick a stock that up. It's what you do with the ones that don't do what you think they're going to do that separates the winning market participants from the losers.
Being wrong is part of the process. I've been wrong before and I promise you that I will be wrong again in the future. So not only should we not be surprised when we're wrong, we should expect to be wrong before making any decisions and calculate the risk involved with that potential outcome. If that risk fits our personal tolerance and time horizon, then and only then, can we take a position. If it does not fit our parameters, then we simply stay away and look elsewhere.
I get them wrong too.
And not only do I pride myself on recognizing that, but I embrace it with a smile on my face.
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