Trade The Journey

Trade The Journey

High and Low Probability

Greetings and Salutations!

Its been an interesting couple of weeks with all the turmoil in the world. Sometimes I wonder if this is just the beginning of a long string of potentially catastrophic events.

I don’t remember the exact number of years we’ve been in this bullish stage but safe to say its over ten. The good times have carried year after year despite the arising of troubling events occurring across the world. Some say that the market is resilient, and others say it’s bulletproof.

There’s a select few that believe that a recession is looming. A slow and steady downturn would perhaps be the most dangerous type of recession. The American economy is built upon the sentiment of the public, meaning consumers are holding the economy up.

Slow and steady means long and painful.

Can you imagine an economy where the wealth disparity has been increasing, involved in a slow and steady downturn?

The title of this post is about Probabilities. Don’t worry I won’t be covering any mathematics. What I do as an investor, trader, income-earner, and human being is to assess the Probabilities or potential outcomes.

That is my job and your job, to increase the chances of a profitable/winning outcome. Easy to understand but hard to implement. As much as I believed that a winning edge cured all market dilemmas, I experienced continual losing trades that proved that hypothesis wrong. Although we like to think we are objective we most probably aren’t entirely due to our perspective.

Preparing for a trade involves many hours of research and critical thinking. I’m trying to assess the likelihood of a company becoming or staying profitable. Most of the trade is assessing what the public sentiment on the company is as the company cycles through stages.

I have no idea of knowing what event or situation may occur that will negate the research. This was tough for my ego to take. With the analysis, indicators, and hours of paper trading, I should be profitable!

Right?

You should, but that doesn’t mean you will be. Here’s a scenario:

As I circle through my portfolio, I take a glance at each chart of the stocks I own. Everything is looking good, and why shouldn’t my shares be up. One primary reason my portfolio is up is due to the prolonged bull run. Another reason is I believe I own stocks in quality companies.

Breaking News: A US airstrike killed a general in Iran. This isn’t the first time I saw the news event appear in the charts before I checked the news. No one knew what would happen next. Would Iran strike back? If they did, what would the US’s retaliatory strike be? How severe would it be?

The world was on edge. Luckily, this event simmered down due to Iran’s response being primarily telegraphed. Now, I’m wondering, what’s the next event that could cause stocks to take a dive?

I don’t know.

No one knows.

However, with the preparation, I put myself in the best position to reap a positive outcome. I increased the chances by placing an educated guess.

When you are aware of the probability and the uncertainty involved in an outcome, you become agile in thinking and action. You can quickly understand that the situation is not working to favor and make an exit.

As much as most have you believe trading is about indicators, charts, and fundamentals is more about how you think. If you are interested in increasing your understanding of probabilistic thinking, check out Mark Douglass here.

 

This week in Review:

It was a noticeably, slow week. This week marks the first in a while of frugal purchases and self-control. I was able to limit the amount of money that leaked out due to unwise purchases.

I’m starting to differentiate between purchases that are made from a place of boredom and relief. So now, I try my best to ignore the urge and walk away.

This week, I’d like to give myself a “C“.

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