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TFC Commodity Trading Forum

The Reality of Trading Asset Class Markets

In order to be successful at position trading you either have to not think at all, because you understand that you can trust the chart because price patterns and trends are created by nature, society and economics, or, think like someone who both has a lot of money, and makes a lot money.

One thing I've learned over the years is that the average retail speculative account holder has the entirely wrong mind-set for what they wish to achieve. The average speculative account holder reads a lot of newspapers and blogs, works very hard, but generally doesn’t make a lot of money. The line they are most attracted to decade in and decade out is that “the economy is going down the tubes and by positioning themselves correctly in their account, they are now finally going to prosper”. The fatal flow in this is that they are operating from a pessimistic thesis which is the opposite of that of institutional investors. Many small traders who subscribe to the “inevitable financial Armageddon theory” fail to understand the two golden rules of investing that every student of finance is taught from the beginning: 1. Dollar Cost Averaging, and 2. Compound Interest. This combination does not work on the short side.

This is why it is so important to either have no market opinion, or think like someone who has both big money, and makes big money. If you want to understand market movement think like an insurance company, or better yet like the pension fund arm of an insurance company. A pension fund knows their private sector clients run successful businesses, because they regularly recieve the retirement and savings deposits, which are a percentage of the salaries and bonuses from the employees of these companies. The insurance company knows to the nickel just how much money each company will collectively deposit with them for deployment into the markets every payday — generally every two weeks. They know how much goes into blue chip stocks, into fixed income securities, even into commodities. The insurance company also knows the demographics of its client’s companies — how the majority of the employees in blue chip firms are younger workers, who tend to put a higher percentage of funds into riskier investments such as growth stocks, and how these same employees hope for LOWER prices so they can accumulate more shares.

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The Reality of Trading Asset Class Markets