The market can be very unforgiving at times. Well, not just at times, always. If you make a mistake, it will not hesitate to take your money. What follows is my realisation of how I made a fairly large mistake over the recent weeks.

It all started with the falling oil price. Sasol kept trading lower. I recognised a trend, took a short and covered at profit. Job well done, except that it kept falling.

Agony.

After a brief attempt at a long, which burned me, I shorted it again, and again profited. The stars were aligned, Oil was tanking, there was no hope, Sasol was going to R300.00. Naturally, as soon as it bounced, I shorted again.

I was watching the Oil price like a hawk and figured that as long as it stays below $50, Sasol is dead in the water. Then my Sasol short started running against me, yet I remained convinced that it would tank because oil was going to $35 (in my mind that was obvious).

I shorted more Sasol.

I was ignoring all the signs that the Oil price could turn and focusing on only those factors that confirmed my view that Oil, and Sasol, were dead. I had built up an internal bias and didn’t want to accept any reality other than the one I had created in my own head.

At this point I should say that I am very grateful that I had put a daily close on the Oil price above $50 as my stop loss for the Sasol short, because one fine Friday night oil shot up 7% to close at $52.99. Monday morning arrived and I came out the gates storming  closing shorts like a mad man. Eventually I covered my entire short but the whole exercise had destroyed some 2.5% of capital.

What went wrong?

I felt that I had missed out on the short of the Century. One that I called, but never really traded as I should have. I was taking small profits here and there, but not really milking it as I so clearly could have. Then when the picture started changing and the ‘green shoots’ started showing, at the very depths of my subconscious, I was blocking these signs to confirm my own view.

In retrospect this is all fairly obvious, but at the time it is incredibly difficult to recognise. Next time I will be more vigilant. Some lessons are hard on you, but all of them are necessary. Managing these internal biases is definitely one of the things that’s on my list of things to improve on.