One-Way Bias

I know, I know…

…but am not getting cocky, please believe me. 

There is something about a one-way bias,…

…so let’s discuss this one today.

When we’re only focused in one direction,…

…we’re not second-guessing the market. 

We have a set strategy, whatever it might be.

We don’t abandon it, suddenly, to go reverse. 

That saves us a lot of trouble, time and money. 

How?

No looking over the shoulder, as to when the market is reversing, saves trouble and time. 

Reversing during a set trend fails, fails, fails, till it succeeds.

Thus, money is saved, since all these failures are avoided. 

Money is made by not reversing, if reversing is to be a failure many times. 

Brokerage is saved. 

Yeah, bucks are saved, and perhaps made, owing to a one-way bias, let’s face it.

One might argue, though. 

Here it comes.

What about the huge profits to be made when a market reverses fully and finally?

Ya, I knew this one would come.

Pipe-dream.

Firstly, how would one know when a market is fully and finally reversing, before the event has set in fully and finally?

The truth is, it’s not reversing, not reversing, not reversing, till it’s reversing fully and finally. 

Does one really want to keep going contra till one is proven right, breaking an arm and a leg on the path?

NO.

Canning the argument. It’s a fail. 

Let’s say the market has fully and finally reversed. 

Now what?

Does one change one’s bias?

Or what?

I knew this one one would come too!

Changing bias is detrimental to a long-term investor’s strategy.

No-brainer, right?

So what does the long-term investor do when the market reverses fully and finally?

As a market over-heats, the long-term investor has been busy. 

He or she has not been not buying, but selling, unwanted stuff at first, and then freeing up wanted underlyings, such that what remains in the markets is free of cost. Ideally.

Thus, when a market reverses fully and finally, such an investor is not afraid of letting underlyings be in the market, since they are “freed-up”.

Now comes the full and final reversal. 

For the long-term investor it’s a valuable time to pause, giving the nerves and the system much-needed rest.

Liquidity has been created and pickled.

It’s a time for research, reading and reflection. 

Activity will resume upon the next bust. 

For someone with a short bias, like for the “Bears” in the Harshad Mehta TV show, though, now is an active time. 

Positional traders change bias after long-term trend change. 

Personally, I find going both-ways pretty taxing, so mostly, I stick to a long-long bias.

I say mostly, because once a downtrend has set in, the punting-demon does emerge, and I might trade a few puts here or there for the heck of it, if there’s nothing better to do, but not to the extent of contaminating my long-long bias.

Living in a country showing growth, active in its markets, we will do well with an upwards bias.

Short-circuiting poison will emerge from time to time. 

Control it…

…till you can’t.

At that point, trade a few Puts, or a Put Butterfly, or what have you, just to see what the other side feels like.

It’s just recreational, you see, not enough to contaminate one’s main bias.

Investors whine, and traders cry, when they try the other’s Art

In a breakaway bull market,…

…one starts to find faults with Trading in general…

since, to make money, one just needs to sit, rather than actively trade. 

Almost everyone is happy with their investing,…

…in a breakaway bull market. 

What kind of factors does one start pointing fingers at?

Timing.

One almost always gets this wrong, specifically with regard to futures and options, which are time-bound.

Not having enough on the table…,

…yeah, yeah, heard that one before. 

While trading, one doesn’t bet the farm. 

When one’s trades run, one makes a bit,…

…which is not, by far, as much as any odd investment portfolio would be appreciating.

Second-guessing.

While investing, one is focused in one direction. 

While trading, one looks at both directions, to initiate trades, and the market-neutral trade is another trade in a category of its own. 

Hence, one is always second-guessing the market, and when one is off, it results in opportunity loss and brokerage generation. 

Time consumed.

Trading consumes almost all of one’s time. 

When markets are closed, one’s mind is not detached. 

It’s exhausting. 

Has many side-effects too. 

One doesn’t have time for many other things, because of trading. 

Whatever one does try to participate in, consists of half-baked efforts, because essentially, one’s mind is on the market simultaneously. 

Leads to a loss in quality of life.

Now, let’s reverse the situation. 

When markets slide downwards, the trader feels light. 

He or she cuts longs and initiates shorts.

It’s a superior feeling versus the investor, who is stuck with large holdings on the table. 

Feel-good factor is huge, and quality of life gets enhanced.

Good traders don’t have a liquidity problem. 

Also, they can shut operations and switch off from the market any time, if they are able to do so, in practice. 

Tappable markets are many for the trader. 

Trading leads to income generation. 

Investing leads to wealth creation.

What do you want from your life?

Both – is a valid answer, but confuses. 

If one wants to dabble in trading, but is basically an investor, one can think about initiating positional trades, which have a investing-like feel, and one’s time is less bound to the market.

If one wants to dabble in investing as a trader, hmm, this one will be markedly tougher, I think.

Don’t know what to say here, since I’m an investor who dabbles in trading…

…, but intuitively, I feel, that this one would take a lot of effort.