Here we are eight months later, and we’re still in the LGC buy zone, effectively the doldrums of the lower band, and we perhaps find ourselves getting a little restless with this market. “Is the bottom in? Is the bottom not in?”, we naturally and anxiously ask as price seems to have been stuck forever in this range. We wait for that big move for confirmation, and continue waiting. We say the ‘trend is our friend’, something perceived by the passage of time, and yet all too often time becomes a constant irritant that gnaws away at the sentiment and psychology of the mass of market participants.
It seems a truism that trading involves time, but become more cognizant of the duration that underlies the more probable trade and you gain an advantage over many of your competitors. The fact is a chart comprises the ‘x’ axis of time besides the ‘y’ axis of price, and yet our attention is often unequally divided between them - we tend to focus on price at the expense of time.
And of course this is only natural [though I’d suggest not rational or technical] as our attention by its very nature is caught up in the moment. And when price fails to perform in that moment we become impatient - we have become habituated to instant results, and find it difficult to extract ourselves from a hyper-stimulated hyper-present state of mind.
And so the use of leverage correlates to the shrunken time-span, and the trade becomes all the more risky. Shrink the time-span enough and you drift from the sphere of trading, that deals more gravely with rational probabilities, into the dizzying heights of sheer gambling, which becomes one of pure chance [and one with more emotional engagement… beware the addiction]. You may strike it lucky on a trade, to only be followed on by a string of failures. This article will focus on the element of time, and how a constant appreciation of it [as opposed to its depreciation] will strengthen your odds in the trading/ investing sphere.
TA as Discipline
This is something I’ve covered in other articles, but further relates to the aspect of time, or duration. The crucial aspect of the chart is that it distances one from the immediacy of [daily] price action. Where we can be affected by the price of the day, and how it relates to the price of yesterday, from a technical perspective this is just random volatility. The chart exists in order for us to re-orientate ourselves away from this randomness and toward the possibility of a trend that unfolds over a period of time, over a period of duration. Where the volatility, often contrary to the trend, affects us one way, the trend serves to influence us the other way. You could say that the trend, as discerned by the technicals, enables us to en-dure [with time] the volatility. In this sense, TA functions as a discipline on our otherwise fickle emotional reactions to volatility. Those that subscribe to TA will always look at price action through the lens of the medium and longer-term charts. Of course this would not discredit altogether the activity of leveraged day-trading on the shorter-term time-frame, but would suggest that such an activity involves higher levels of risk. As I’ve always maintained, your longer-term trades and indeed investments are your [under-lying] bread and butter.
Don’t Just Sit There, Do Something
As Jesse Livermore once said;
“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
It’s a well-known phenomenon that traders tend to over-trade. And the primary reason for this, in my opinion, is this ‘perma-present’ state of mind. Where instead of just sitting there, we feel the need to do something [to trade]. In fostering a sense of duration and endurance, traders might instead find themselves slowing down and walking away from the screen instead of staring at it 24/7, where we can become spellbound as surely as the proverbial moth to the flame.
And then, in a more literal sense, it becomes indeed more beneficial to stop sitting there and actually doing something. Some ‘extra-curricular’ activity that is completely unrelated to trading [and monetary gain] will function to relax the mind, be it picking up a book, engaging in a hobby, enjoying the outdoors, or talking to a friend. I touched on this in another article, where I had in mind the quality of leisure:
In the spirit of moderation, where excellence is most often found, I thought I’d explore this principle as applied to the activity of trading. Too often, you’ll find traders hunched at their stations, surrounded by a myriad of screens, swamped in information from which they attempt to make their decisions. Their nerves are strained, their minds are frazzled, and their self-imposed work schedule is well into over-time. Little wonder that they are often stressed. With the work ethic in mind, and bolstered by the dominant paradigm of meritocracy, they’re assured that only if they work longer, harder, stronger, all the rewards will come their way.
The Compounding of Profit
Where a previous generation once waxed enthusiastic about the virtues of compounding interest [in an era of ‘hard’ money], the trader does well today to consider that of compounding profit. Enter a spot position, and even if it gets established the gains seem so little… especially given the contrary volatility. And yet factor in the trend, on a greater time-frame, and those gains start [potentially] to compound. Pull up a chart [the chart again] and you’ll see this phenomenon at work. Take for example ETH/ USD:
Assuming the bottom is in [for the sake of the argument], and also assuming a conservative target [a quarter of the previous rise, repeating the pattern], and drawing a line from current price to targeted price to function as a mean, you can see the compounding of profits [each 4 months] in just sitting on the trade. I call this the position trade. Notice that the greatest gains are at the end. In this sense, and relative to day trading and swing trading, you could consider the longer-term position trade an investment… and yet still a relatively short investment compared to more conventional ones.
This is why I often combine trading to investment like so -’trading/ investing’, insofar as these longer-term trades function like a hybrid of the field of trading on the one hand, and the field of investing on the other. Of course, one does not have to be a reductionist [either a day trader or a position trader], but could indulge in all manner of trades/ investments. For myself, I consider these longer-term position trades as my ‘bread and butter’ - with that lower level of risk in place, I can then indulge in more riskier trades [which may even function to hedge my investments].
A Maturing Market May Slow Down
In the above, I’ve focused on time as it relates to us, but the time factor may also have an effect on the market, as we know it, going forward. Where we may have become accustomed to see gains come quick in the past, those gains going forward may now come at a slower pace. The predictive and macro-economic idea here is a qualitative difference in the market - as the market matures into a more established asset class, everything diminishes in terms of returns. Though there may still be good gains to be had, the wild west days could well be behind us [where fortunes were to be made easily… and equally lost]. Further, if the market is to become increasingly stable [always a relative term to the past], this may require of the trader/ investor a savvier approach. With expectations towards the shorter-term accordingly reduced, we might re-adjust those expectations towards a more modest goal and over a longer time period, and thereby acquire that mental stamina to our competitive advantage.
If the various points made above could be summarized in a brief takeaway that would have to be ‘pace yourself’. The best outlook, that balances risk against reward [the least risky while still being potentially lucrative], for the market going forward has to be one of being in it for the longer haul - establishing first those longer-term trades for a pay-off in a year or two, while also looking for further trading opportunities in what will no doubt continue to be a volatile market.
In pacing yourself, you allow for those extended doldrums in the market, where the wind has seemingly gone right out of it. But of course, it picks up again when we least expect it. And of course we need to keep that longer-term distant target in mind, that ‘destination’ that might take years to reach… where one would do well to have the odd diversion at hand to help while away the time.