💬New Philochat
Story time: Oil. Precious Metals. Memory & AI.
This is one of those investing lessons (or investing wisdom) that is very hard to understand, not to mention apply.
Story Time
A fellow trader who made some good money in Silver this year called me in late April to talk about Precious Metals and the setup. We touched on technicals, Trump, the broader setup and Silver as a derivative of the Gold and debasement trade.
He said, "I am down and the technicals look broken but if I sell now I betray my thesis"...
His Thesis
And if you know the Precious Metals trade you know what his thesis was – a bankrupt US, a weakening US Dollar, skyrocketing deficits.. You can throw in financial repression in the mix too.
But almost no one really trades a thesis, everyone trades the market – because they are forced to. Price is the only truth when trading.
If you trade a thesis, you eventually go bust.
It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change. – Charles Darwin
I stress this as Memory/AI is totally taking over markets – with those in the money now moving with a sort of cult energy.
Don't say I didn't warn you 🔻
Philoinvestor
Back to trading a thesis: So, even if you are a Central Bank building long-term reserves and no one really pressures you, guess what, you are still trading.
I told him to kill the idea of a thesis and trading it. Don't let a bias infect your thinking when trading. Trade the market, not your thesis!
If you think about it, that was George Soros's big advantage. Put to the side complicated theories of understanding markets and economies.
Complicated theories that, as I've said many times, no one really understands even though they cite them very often.
Reflexivity wasn't his big edge.
George had no trouble adopting a narrative and trading the market accordingly, to make a profit. He didn't want to be right, he only wanted to make money.
MAKING MONEY > BEING RIGHT
And when you cultivate that mindset – it's easy to cut losses when you are wrong, and jump on the next trade.
Besides, who do you think you are knowing what the market will do on every turn?
“Scientific method seeks to understand things as they are, while alchemy seeks to bring about a desired state of affairs. To put it another way, the primary objective of science is truth, - that of alchemy, operational success.”
-George Soros, The Alchemy of Finance
Operational Success
I touched on the use of technical analysis in a podcast interview earlier this month here.
There is still a bias against technicals – mostly because everyone thinks they are smarter than the market. Again, making money is more important than being right.
The market is not here to serve your ego and your complexes. If you want to be a great trader – you need to lean out all your weaknesses and optimise your whole psyche to trade markets as optimally as possible.
Note that this does not mean that you should never have a thesis – it just means that you must know when to trade your thesis, when to abandon it for another emerging one and when to risk manage when things aren't going your way.
Breakout by Philo
And this is where technicals and Breakout by Philo help, tremendously.
In the last issue of Breakout we touched on the technicals in Gold and Silver – and pointed out their attempts of creating bases to continue the move higher.
It's true that you cannot write off a potential move higher, but at the same time the narrative was changing. Gold just couldn't maintain its bullish momentum and started to break down.
At $4,500 it broke a sideways triangle down and never looked back. So did Silver, after breaking down from $72.
"It's all about bucks kid, the rest is conversation." -Gordon Gekko
For more on how technicals can call major reversals – check this Breakout issue from last year where we clearly point out the reversals in Ethereum and Bitcoin. Both in the doldrums right now.
Oil
Same picture in Crude Oil, prices were hovering below a key level of resistance but failed to break higher and collapsed. I'm not necessarily saying you could take a short on the breakdown, but couldn't you risk manage better?
Anyway, we expanded on Oil and the narrative around energy and the war after UAE exited OPEC here.
Oil may be down now and energy bulls are in pain (check FinTwit) but Oil does have the Donald Put to rely on!
Conclusion
Don't see yourself as someone trading a thesis and making money from it. See yourself as primarily a liquidity provider, your thesis comes second.
Philo 🦉
