I suppose it’s time for me to touch on the subject of biases once again. Currently, I am so biased for the oil price to go higher that I am literally blocking out any and all information that tells me that I am wrong. Right now, I have an oil trade open that is not working, although I am not closing it because I believe that I am right. My bias has taken over, and experience tells me that trading with a bias is a bad idea. So what follows is no more than what is going through my head – call it an attempt at a justification regarding my current long position on oil (BRENT).
Firstly, I want to start by saying that I am aware of the fact that I am currently acting under a bias and that I am completely willing to accept the consequences of that bias coming back to bite me in the backside. I am long oil based on a few technical buy signals on the weekly chart and a potential inverse head and shoulders that is forming. Note, potential. My first mistake was entering the trade without proper confirmation. I was impatient and felt that I needed to get in before I lost the opportunity. That, in retrospect, was folly. I should have waited for the weekly buy signal to confirm before entering the trade. This would have saved me a lot of pain.
Secondly, I am aware that I am blocking out information that tells me that I am wrong and highlighting information that confirms that I am right. Just thinking back on the things that I have retweeted regarding oil over the past couple of weeks proves this. I am cherry picking the events and news items that tell me I am right. Again, this is folly.
The thing is, even though I know that I am acting under a bias, I am finding it very difficult to accept that I am wrong. I believe that the buy signal is still to come on the weekly chart and that I have just entered the trade too early. So instead of opting out, I have starting taking much shorter-term trades on the short side of WTI (a different oil contract), so that when the oil price moves lower I can at least hedge out some of the pain.
So, even though I have found a way to not have to accept that I am wrong, just yet, I am still allowing myself to keep breaking my own rule. This is probably the best example of how not to trade, that I can currently think of. I know that I am messing up here and I am confessing it. Had I stopped and moved on, I could have returned later and not paid such a huge opportunity cost by having capital tied up and paying Interest is how much it costs to borrow money. You can either earn interest when you lend money to somebody else or pay interest when you borrow money. Interest is the reason why debt is expensive. In addition the money you borrowed, you have to pay back an additional fee in exchange for using money that you didn't have. These More on a position that was not working. So yeah… don’t do what I am doing on oil right now. Trust me, it’s not fun.
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