The first and foremost thing to remember is that the name of the game is money or atleast the acquisition there of. This is not only the name but the object of the game. If you have any other purpose in mind, then the game is not for you.
As in all good games there are two teams. There is the “we” team naturally enough, that’s our team. The “they” team can be a large syndicate or, more frequently, can be a group of unrelated professional traders acting in concert.
The object of the game is the acquisition of the available money which is used to fuel the game. The gambits, feints and intricate plays used are endless and would cause Knute Rockne to turn green with envy.
Technique number one is the lie or, to be charitable, the loose truth. Breathes there a man, woman or child in the continental United States who is not familiar with a TV picture of sad farmer brown holding a black ear of corn in his calloused hands? True, there was the corn blight of ’71 which saw corn rise from $1.40 per bushel to $1.67 per bushel for a 27 rise.
It looked for a while as though we would need ration cards to get corn but surprise. The production was a full third over anything seen before in history and corn went down like the titanic to the tune of 47 per bushel.
This is a principle as old as the hills, Brunswick and AMF Inc. in the late 50’s and early 60’s rose from obscurity to the $60 – $70 area and then fell back to 6 for Brunswick and to 14 for AMF. For a period, it appeared as though there would be a bowling ally for every third family in the world, including new nations.
Computers too. Levin-Townsend at 1-1/2 in 1965. Now the tom-toms are heard and it’s 1968. LTX is at 68-1/2. There is a good story going in computer technology, but two years later in ’70 LTX’S fortunes are at alow ebb. Also, the stock later dropped to $3.00 per share something to do with accounting procedures and dull pencils.
The point is that in all three cases there was a good story lie? going. No corn. Everybody’s bowling. Computer technology is the wave of the future. May be so. But the true facts were on the chart. The lesson to be learned here is to ignore all news, tips, garbage, etc., which are constantly being put out by the “they” team in an effort to deceive us. The only thing that counts is the tape. That is fact. That is the only truth.
A second basic truth in this activity is what I will call our risk threshold. Broadly defined this means the amount of proof required before the individual investor will move that is, act on the basis of his convictions. I know several very capable market technicians who couldn’t reach a decision even if a gun were pointed at them. One, in particular, will cite a number of astute observations relative to a given situation and then when pressed for a hard buy-sell decision will cop out by saying, “I don’t know. Let’s watch the pattern unfold.” By the time the unfolding has taken place, the opportunity is lost.
What this means in practical terms is that by the time our high risk threshold market operator has gathered enough proof to make a decision to buy or sell, the move is probably over. The lesson here is that when you see that something should be done do it; Don’t wait; Don’t even look back;
A third concept is what I choose to call money management and risk control. Remember that risk is absolutely the only thing we can control. I have found it useful to limit ay trade risk to 5-10% of total capital. That is, if I have $10,000 in a commodity account, I will limit the maximum adversity to 10-20 in grains. A stock account would, of course, limit the risk to 1-1/2 – 5 points in a $50 stock or the equivalent thereof. Risk is the only thing you can control. Control it.
A person may have all of the finest technical tools available at his disposal and yet be unable to make money at this business because of his personal psychological makeup. If one is to be successful in this business he must learn who he is, how he makes decisions. Personal financial decisions are highly emotional.
Take the case of a man shopping for a car. One person will decide on the spur of the moment to buy, another person will spend months studying designs, different makes, etc., before deciding and then he generally has to be pushed into making a decision. The same is true of commodity traders. You have the person who shoots from the hip, buys on the first whim. Then 15 minutes later, he changes his mind. The other extreme is the person who studies a given situation and waits until everything falls into place, including the move. He will enter the market after it has made its move, and it’s too late. One author calls this “risk aversion”.
Failure to transform into action the results of good speculative thinking is as fatal to success as a habit of hastily making decisions on purely emotional impulse.
Iron will power is at the bottom of all successful trading. Few men in any walk of life have this highly developed. Always the speculator must be on guard to maintain mastery over himself. Development of will power should be the undeviating aim of every speculator.
Another question one should ask himself is, Why am I trading commodities?” playing commodities is certainly different from gambling, and serves a very vital function in our economy. However, the players are not necessarily different. Of course, if one has not put forth time and study in any chosen field, be it commodities, selling, etc. he has less chance than throwing dice. There the odds are fairly predictable. What I am suggesting is that one should read books on gambling and the instinct of gamblers, to be sure he is not addicted to trying to “make the fast buck”. Compulsive gamblers want to lose to punish themselves, so some psychologists say.
Believe me, you must find out where you fit in and what your psychological makeup. is, if you want to be successful in this business. When you know your internal strengths and weaknesses, you can build on them.
To sum up the psychological aspects of trading, know who you are and why you are trading commodities. This combined with the technical knowledge presented herein should put you on the road to success.
