Holy crap, it's 2011. No, I didn't just wake up from a coma. I just realized that I've gone blog-less for many a month. And it's absolutely amazing how fast time can pass by and how little money you can accumulate by working a normal job. Maybe I'm just way too much of an American, helping to sustain the economy with my imprudent financial decisions.
One such decision was to play the futures markets in February, when I felt that cotton was in for a major correction. Given the fact that one measly futures contract basically ate up my entire account, I had to bet the proverbial farm on cotton. Unfortunately, I was a couple of weeks off in my timing and faced a major drawdown. A couple of desperate attempts later to make it back by speculating on E-mini and Crude Oil, I was out of the game...again! Yeaaay! Back to the drawing (or more like saving) board. With gut-wrenching, teeth-grinding frustration, I witnessed the Goliath decline in cotton futures over the following weeks.
I've noticed that every time I fail, I acquire a few battle scars that will hopefully help me out in the future. It's not so much that I'm adding things to an instruction-like list of how to trade, but rather the failures are enabling certain thought patterns and realizations to become more ingrained. It's kind of like the difference between knowing the difference between right and wrong vs. actually acting upon those beliefs through more ingrained knowledge. Here are a few ideas I've formulated lately:
1) Only bet a small portion of your stash. Keeps you worry-free and allows for more flexibility should something unexpected emerge in the markets. Need to build up a substantial cash stash for this to happen.
2) After formulating an idea, keep with it without getting distracted until the idea is deemed fundamentally incorrect. In the case of cotton, there was nothing that disproved my idea- I simply violated #1 by betting the farm and ran out of cash. Ideally, if I had the ability to buy a mini-cotton future, I should have done that, kept at it with small bets, and eventually seen spectacular returns.
3) Patience truly does pay off. It sounds theoretical or something along the lines of delayed gratification at first, but it's really the ability to attack that great trade when the time is right. In the process, you may have to painfully see certain side trades you were tempted to enter pass you by.
3) I've somehow built up more confidence in my abilities through failure, probably by realizing that there's a distinct pattern to what's been going wrong. And the fact of the matter is, they're not that complicated to explain but are difficult to change in practice. Hopefully the battle scars make it easier in the future. I've also studied the effects of overconfidence (and seen it in myself at times), and am keenly aware not to become so.
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