Leave Your Ego At The Door

On April 20, 2020, in the crude oil futures, came to 0$. Who wouldn’t want to buy crude oil at zero? After all, what is the risk?

As the history shows, a purchase of the expiring futures contract at zero looked more than ugly at negative $40 per barrel, the April 20, 2020 low.

Shorting an asset has the same ego dynamics. The market can take prices to levels on the up and downside that defy logic, reason, and rational analysis. There are many instances where prices rise to levels that make no sense.

Selling short and ignoring the power of the trend is dangerous and could be disastrous. Just because a market price rises to a high, does not mean it cannot go higher, a lot higher.

The annual chart of wood price has never traded over $493.50 per 1,000 board (1993 ATH) before 2017.

After falling to a low of $251.50 in early 2020 as the global pandemic gripped markets across all asset classes, the price took off on the upside.

At $660 in August 2020, it reached a new record high.

At $1,000 in September 2020, the price was irrational, and it more than halved in value, reaching a low of just over $490 in October 2020.

In May 2021, the price exploded to $1711.20 per 1,000 board before collapsing.

Following trends requires a special skill, which is no skill at all. Ignore expert advice, the news, and any other exogenous forces. The only tool necessary is a simple chart that displays the path of least resistance of the price.

The process is entirely objective, while fundamental analysis is completely subjective.

James Surowiecki argues that the many are smarter than the few and collective wisdom shapes business, economies, societies, and nations. A price chart is the roadmap of the crowd’s wisdom.

Eliminating ego from all investment and trading decisions starts with ignoring the news, experts, and any inputs other than the herd behavior in markets.

Prices rise & fall to levels that many believe are not sustainable, following trends allows you to take advantage of their mistakes. Make a conscious decision that you will end the quest to pick a high or low in any market.

Ignore those voices in your head that appeal to your ego. Never forget that your view has no relevance whatsoever. Approach markets with a clear risk-reward plan.