In the world of applied finance, you will meet the “line”.
Though the line is an abstract phenomenon, it is very real.
Whenever you connect to Mrs. Market, you do so through the line, which comes into existence (you guessed it) when you put your money “on the line”.
Please be aware of the capabilities of the line. If you allow it to, it grabs hold of the emotional switches of your brain. When the price of the scrip you’re trading plunges, the line can turn on your depression switch. As the loss multiplies, the line makes you go into freeze mode. On the other hand, it can also make you go on a spending spree with your notional profits, if your scrip is doing well. If you allow it to, the line then controls how you interact with your family and for that matter with everyone else.
Why give it so much power? Let’s keep the line in its boots. When you’re flying a kite with strong winds prevailing, and the kite plunges downwards and out of control towards some electricity wires, what do you do? Obvious answer, let the string go. Well, not so obvious when you’re holding the string (substitute string for “line” if you wish). You could try and save your kite, or for that matter, your trade, at the cost of being electrocuted, or, in trading jargon, burnt.
When you’re holding the line, common-sense often goes out the window. You start thinking emotionally. Our society doesn’t teach us to embrace failure. We are taught to win. Thus, we want to turn every trade into a winning trade. Big mistake. We are not able to let the line go while any loss is still bearable.
Wins come. The fact remains, that in applied finance, many transactions will be failures. You’ve won if you can then let your line go at a digestible failure level.
When a win does come along, again one is completely misled by the teachings of modern society. “Book your success now, put it on your resume”. An even bigger mistake in applied finance.
A winning trade needs to be allowed room to win some more. After struggling with failures, you’ve finally identified a winning horse. Aren’t you going to let it win more (races)? Aren’t you going to continue holding the line to let a multibagger emerge, instead of letting the line go while you’re showing a small profit which doesn’t even cover your failed trades?
The line is an enigma concerning the discernment of befitting moments for attachment and detachment.
We need to let it go when it threatens to burn us. Also, we need to hold on to it, contrary to any public opinion, that “XYZ can’t possibly go any higher”.
There’s no way we’re playing the line according to public opinion or society rules.
Also, there are times when it doesn’t make sense to get a line going, because the kite just doesn’t take off. At other times, you need to put out one line after another into the sky, because your kites start to soar, one after another.
In the world of applied finance, you need to put your money on the line. There’s no other way to connect to Mrs. Market.
The “when” is up to you, when to get it going, when to let it go, when to hold on, when to scale it up.
And at that level, trading becomes an art.