A month ago I got the short entry trigger in the copper futures. The idea started to emerge this February, and I was watching copper closely from that time and posted updates for you. And you witnessed how I moved entry triggers higher and higher until the price has finally pushed below the last one. And this was the true benefit of avoiding simple guessing to wait for the signal.
In the chart below I would like to show you how that trade was managed and what the outcome was.
Copper Futures Daily Chart: Walked Away Without A Scratch
Chart courtesy of tradingview.com
The price of copper showed great volatility around the entry level (blue line) moving within a 10 cent range between $2.87 and $2.97. This happens due to a clash of opposite market forces at the extreme levels. Finally, the bears took the ball and pushed the price not only below the range but also below the crucial orange trendline support. Copper has hit the one month low at the $2.8345 on the 25th of March. At that stage, the short position had a profit of 3%, and I moved the stop to breakeven to enjoy the safe ride. This is a part of trade management as we should try to avoid risks as much as we can because we cannot control the market; we can only control ourselves and manage our risk.
The same week, when the new one month low was established, the price of copper started to consolidate. The shape of the consolidation looked familiar as it resembled the famous Bear Flag pattern by Thursday, March 28. The next day the picture changed dramatically as the price quickly climbed back from sub-$2.90 area into the earlier range and hit the breakeven stop. Some traders could feel sad about being taken out of the trade even at no cost as the price behavior could be considered as a classic pullback to the broken orange support. But as we can see in hindsight, the stop hunters briefly pushed the price beyond the former top of $2.977 to hit the new high of $2.9885 last Monday amid better than expected Chinese manufacturing data in March (PMI 50.5 vs. 49.6). This action was short lived as price closed below the orange support or 6 cents beneath the peak.
This situation again clearly illustrates the advantage of using trigger entries/trade management compared to just guessing, which causes the top/bottom seeking. We should always keep in mind that opportunities are unlimited, but our capital is not. Copper futures will be here tomorrow to offer us new trading opportunities.
There is also a strong psychological factor that traps traders – when the market moves against you, and the loss is tolerably small people don’t close position although they have the proper mindset to do so. But when the loss grows bigger then our “ego”/”beast”/”subconscious” unleashes with a slogan “I am right, always!” and we lose control. This could often result in a margin call on one single trade! Some people close their trading terminal as if this could help to escape them from the growing loss and it looks like an ostrich hiding his head in the sand.
We must know our psychological triggers first: at what amount of loss we lose control, at what amount of profit we start to gamble without a plan when we feel ourselves like supermen. This will make us real traders, not adrenaline seeking gamblers.
The statistics show that investors more often right when not, but 9 out of 10 times lose money. This statement sounds controversial, doesn’t it? But this is a natural outcome of human psychology. We tend to book gains quickly, but keep loses bleeding. It comes from ancient times when the price of a mistake was our precious life, no second chance. That is why average investors hurry to take profit as if they briefly came out of the shelter to seize the food and back into the safety. On the opposite side, losses trigger our physical need to be right, so we can’t admit the mistake; we will fight till the end, again because our subconscious thinks there is no second chance. And it’s partially true if we put all our capital on a single trade.
So, to succeed, we should go unnatural way, keep profit as it runs and cut losing trade before it grows big. The answer is a mechanical (inhuman) approach. Nowadays it is affordable to every trader as we have stop loss orders that are watched by a machine, we can place it and forget about it. This eliminates the fight with a natural need to avoid admitting the mistake as we don’t push the button, but the machine does for us. And in reality, this is the only part of the trade that we can control. I will share more about it in my future posts.
Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
If you are not in total control of an environment, you will be subject to the environment, when you are subject to something, you must protect yourself from what you are subject to as it is not in your control.
In capital market environment, aside from understanding your environment, you MUST cloth yourself with proper protection (proper layer of risk management), otherwise you will often find yourself naked in an unfavorable situation, unprotected and at the mercy of the condition of the environment; proper risk management acts as insurance to protect our investments from adverse uncertainty, which can happen either due to inadequate assessment or victim of luck, proper risk management gives you choices, allows you to wait out a volatile market and buys you time, and time is the most expensive commodity for us non-perpetual beings.
Short again
Dear Mr. Sivis, thank you for comment.
I think copper could first retest the former top of $2.9885 and even hit $3 area.
If this happens then watch the low established on 5th of April at the $2.8865.
Current range $2.8345-$2.9885.
So, let us wait for another clear signal. No guessing, wait until the market clearly reverses.
Best wishes, Aibek