Discover more from Thoughts from Enjoy the Ride (Tom Basso)
Predicting is so Compelling, But
That's Not Helpful in Trading
This Wednesday, I have a TV crew descending on my home in the mountains 90 minutes northeast of Phoenix to create some video of “a speculator” (me) in order to cobble together what I gather is a 30-35 minute piece for Channel 6 in France. The goal is an educational piece on the price of wheat and all the players involved in the process of delivering a loaf of bread to the consumer. You have the farmer, shipper, the flour mills, the speculator, the baker, the final selling of the product and the consumer.
In the initial conversations, the producer was hoping I could speak about the wheat market, how much money I made off of the war breaking out in Ukraine, and could I tell them how much money I made this year off of wheat totally?
I responded that the job of a speculator like me is to take on the risk of price movement and control that risk by spreading it across some 40-60 positions at any point in time. I use 8 daily strategies, 4 different time periods and multiple indicators to attack the risk that I have taken from the hedgers out there. They finally decided that my description of my job still fit a small slice of the educational program since I did provide price discovery and risk transfer for others in the process.
Heck, I have no idea how much I’ve made in just wheat for the year. Why would that be useful? I’m concerned about the portfolio’s success, not what one market of 40-60 positions did over a finite period of time. My profits or losses are tied to what the markets did and how my strategies responded to the movements.
But, as I reflect on the what the TV producer wanted initially and what we finally settled on, I noted why it seems that so many traders want to predict. They get fed a steady diet of that every day on their business news. I was watching Varney and Company this morning while having breakfast to see a summary of the news of the day and noticed that every single guest was asked to predict where the market was going to go; up or down? Every guest dutifully responded with their individual guess.
There was not a single guest that talked about taking on the risk of a market, staying in now, trading in the direction of the trend, diversifying over 40-60 positions, multiple indicators, multiple time periods and managing risk in the portfolio. It’s like they’re participating in some contest and they are rewarded with more appearances if they happen to guess better than other guests.
That process may be entertaining for TV, but I believe it to be dangerous for traders out there. Staying flexible in the now, managing your risk and volatility, and keeping your mental state of mind conducive to good trading is what leads to consistency and success. That would be boring on most business shows and if a trader said that, they would never be invited back. Being right about where a market will be in 6 months may be a fun exercise and I may even do it while discussing the economy with friends, but it has nothing whatsoever to do with my daily process of trading.
Data, indicators, numbers crunching, staying even-keeled is the total focus of my trading day. Then, after my daily process is done, I can sit back decide if I want to leave my desk to enjoy life and the ride.