Cash is a Position too
Cash is a Position too
When we have sharp declines in the market, there’s a common theme that 1 must be either “long” the market or “short”, and whilst this is generally the Trend Trading approach, the other option that is often over looked is the ability to sit tight and hold onto cash.
Not all market conditions are created equal, there are times where we have “Trends” and we can accumulate incredible profits, and there are times where it’s a bit more volatile and it requires more of a “Swing” style trade (which requires a different style of Management).
Not everyone has the ability to navigate news driven environments, and not everyone likes the tight leash that must be held on the positions taken in the market… you need to be incredibly accomplished in order to jump into trades (especially at the moment).
It’s all good and well knowing when to get defensive and maximize your profits, it’s quite another to be able to profit in a choppy declining market.
There’s a common misconception that you need to be in the Market and constantly Trading, but when you weigh up risk tolerances and the stress of it all, sometimes it’s best to just say thank you very much Mr Market, I’ll re-visit you again once it becomes a little bit more appealing because we oftentimes we have to deal with the likes of a Dead Cat Bounce (Caption Below) and we have to deal with Polarity, and when we have these mental barriers and the accompanying Volatility, sometimes the stress is just not worth the trade off.
The advantage of Cash is that it’s there… it’s not something that can be removed from your possession when you’re out the market, and you can just say thanks, I’ll revisit the Market another day.
When I observe my current Trading Group, as an estimate, I’d say around 50% of my guys have been sitting on cash for the last week or 2, and some are now choosing to Swing Trade with a bit of success here and there, but I think the key thing is, that everyone understands this is NOT a place where you want to be allocating Full Risk to your positions - it just doesn’t make sense to go “all in” on a particular direction.
For those that perhaps struggle in choppy markets, and for those that are not confident Traders… ask yourself it the stress is worth the trade off… or whether it would be better for the Market to present a clear direction?
I find that’s a good place to start when asking questions of yourself.
Stay safe out there in the Markets… It’s a tough environment at the moment for most.
If you’d like to explore the possibility of joining our Group, feel free to reach out.