An old bit of pop psychology says that your level of optimism (or pessimism) can be gauged by how you read the above mash of words: “Opportunity is nowhere” or “Opportunity is now here.” Traders constantly have to look for opportunities to profitably buy, sell, and yes, stand aside.
Right now, there are opportunities to make money doing any of these things. So why do traders throw their hands up and say the markets are all bad or there are no good trades out there? Emotion.
Or to be precise, emotion badly managed. It’s like the guy who goes to a bar to meet women, tries out the one pickup line he knows, then announces that all the women are too stuck up or something worse. If you can convince yourself it’s impossible, then it’s OK to give up.
The problem is, there’s no profit in giving up. Especially when traders do the thing that’s the first cousin of giving up: self-sabotage. The “Market Wizard” Ed Seykota often says, “Everyone gets what they want from the markets.” People who want to feel sorry for themselves can create a reason to do so. People who want drama can get that. Successful traders want to be consistently profitable.
This starts with consistently managing your emotions, well enough to always know that opportunity is here, right now. One way to maintain such perspective is to look at the larger trend over time. Let’s look at the recent drop in the Russell 2000 Index (to 943) over 10 years, 10 months, and the last 10 weeks:
The point is not that you should see the dip as bearish or bullish. That’s really up to you. You might even do as Jesse Livermore did and erase “bullish” and “bearish” from your vocabulary. He just said a particular stock appeared to be trending up or down. Try it. It helps keep you from getting married to a particular outcome.
Good traders know that being right or wrong is not the goal. It’s watching your account balance go up and not down.
Back to the charts. You can see clearly that on the 10-year chart, the down move is hard to even see. (It’s that little red bar between two green bars where the arrow is. See it now?) On the 10-month chart it looks even more like a fluctuation within the boundaries of the prevailing uptrend.
That doesn’t mean you should go long and hold through all those dips. A buying opportunity for some is one short after another for traders who trade on a different time frame. Fading the rally, short-term scalping, even buy-and-hold—none of these is better than the others.
Side note: I’m not a fan of long-only commodity funds like the Goldman Sachs ETF. Commodity prices don’t go up indefinitely like Berkshire stock. A long-only commodity fund is like car insurance that only covers accidents you get while turning left.
Not to mention that in order to meet shareholder demands, Goldman had to artificially drive up food prices, causing the 2009 famine. For those of us who don’t like to profit by causing mass starvation and death, opportunity was somewhere else.
The 10-week chart looks different after you’ve zoomed out, the same way a bad week looks different when you think of how you’ll remember it 20 years from now. You might even notice that the drop ended right at the 61.8% Fibonacci level. Forget Nostradamus, that crazy Italian predicted this dip over 400 years ago! But I digress …
When I taught at the University of Florida, I often had class outside under a shady tree. Once I was talking about serendipity and gave the example of how hard it is to find a four-leaf clover. When class was over, Jennifer, a quiet student with perfect grammar, walked up and handed me a freshly plucked four-leaf clover from the spot where she was sitting. She looked at my surprised face and said matter-of-factly, “People don’t believe they can find four-leaf clovers. That’s why they never find them.”
I’m going to end without analyzing this story for you. I think you get it. Maybe this Independence Day we Americans and all who share our values can reflect on the people who came here and who still come to this country, looking bravely past an ocean of reasons to give up on their dreams, and say with unbreakable confidence, “Opportunity is now here.”
