Trading Through This Crisis

At the recent Habits of Success seminar, one belief I had to counter was the belief that ‘if only I had the right system, I’d make tons of money’.

There are at least two limiting beliefs operating in that idea. The first is that there exists somewhere out in the trading world, the knowledge to create a trading approach that automatically returns large profits and small losses.

Sorry folks, there is no such method. To the extent that it exists is the extent to which our discipline leads to losses that are smaller than our profits. “I have seen the enemy and the enemy is me” (Pogo). Our success or failure is a function of our self-awareness and self-discipline.

The second limiting belief is the idea that a small capital base will lead to a large fortune overnight. It might but you’d be exposed to a large risk of ruin.

The fact is that while our knowledge may allow us to skew the risk/reward profile to some extent, you cannot totally divorce risk from reward. The failure of US prime investment banks and brokers is proof of this. At some point the piper has to be paid.

This is a lesson the world’s central banks and especially the FED appear to be ignoring. The massive injection of funds into the economy will result in massive and consistent increases in inflation. This is fact - despite the protestations and denials by some economists to the contrary. Their statements remind me of the one made by Jim Cairns (Whitlam Government Treasurer) just before Australia was gripped by an exponential increase inflation. He said:

“We have learnt the new economics; we can increase our (money supply) without the risk of high inflation”.

It was nonsense then and will prove to be nonsense now; at some time soon, the risk of hypeinflation will be so great that FED will have to raise rates in an already fragile economy. At that point, the piper will be paid.

So what can traders do to prepare for the inevitable? Hone your craft. If you have not yet internalised the art of risk management and creating the environment that leads to consistent execution of your plan, do it now. As traders, we live in the best of all worlds - as long as we have some savings tucked away, we can rely on the magic of compounding to build our wealth.

As traders, we really rely on our skills and habits of success. In the crisis yet to come, they will serve us in good stead. Take care out there. Remember there is always another trade tomorrow.

FOLLOW-UP ON TV SESSIONS BY IDKIT:

Sharanjit Leyl with Ray on BBC Sep 19 8.30 AM