Click Here for 150+ Global Oil Prices
Click Here for 150+ Global Oil Prices
Click Here for 150+ Global Oil Prices
Click Here for 150+ Global Oil Prices
Click Here for 150+ Global Oil Prices
Click Here for 150+ Global Oil Prices
Click Here for 150+ Global Oil Prices
Click Here for 150+ Global Oil Prices
Renewables Boom Pushes Australia’s Gas Power to Quarter-Century Low
Oil majors are prioritizing debt…
Heavy rare earth feedstock is…
Ultra-cheap solar power and falling…
It is often said that a very high percentage of individuals who trade in their own investment or brokerage accounts go broke within the first year. There have been several studies affirming that, so I don’t doubt that it is true, but to me the more interesting question than whether it is true is why it might be so.
If you are attempting to take on the pros and trade intraday moves, then I get it. You are at a huge disadvantage in terms of order visibility, trade execution time, trade size, and a whole host of other things. But if you are swing trading: buying and selling with multi-day, week, or month-long time frames, then a lot of those disadvantages aren’t there. You may not be quite as good at analyzing a stock’s prospects and predicting the next move as are the pros, but there are very few inbuilt disadvantages that hamper individual swing traders or short-term investors.
And yet the evidence suggests that the majority of those people also lose money consistently.
Based on my forty-plus years of experience, both in dealing rooms and working with individual traders, I believe the biggest difference between those who trade for institutions and those who trade in their own accounts is the two groups’ awareness of the tendencies of human beings, and their ability to go against them.
Basically, most of us are wired to fail as traders. We want to grab the good thing and ignore the bad, to celebrate success and be wary of failure. But trading demands…
It is often said that a very high percentage of individuals who trade in their own investment or brokerage accounts go broke within the first year. There have been several studies affirming that, so I don’t doubt that it is true, but to me the more interesting question than whether it is true is why it might be so.
If you are attempting to take on the pros and trade intraday moves, then I get it. You are at a huge disadvantage in terms of order visibility, trade execution time, trade size, and a whole host of other things. But if you are swing trading: buying and selling with multi-day, week, or month-long time frames, then a lot of those disadvantages aren’t there. You may not be quite as good at analyzing a stock’s prospects and predicting the next move as are the pros, but there are very few inbuilt disadvantages that hamper individual swing traders or short-term investors.
And yet the evidence suggests that the majority of those people also lose money consistently.
Based on my forty-plus years of experience, both in dealing rooms and working with individual traders, I believe the biggest difference between those who trade for institutions and those who trade in their own accounts is the two groups’ awareness of the tendencies of human beings, and their ability to go against them.
Basically, most of us are wired to fail as traders. We want to grab the good thing and ignore the bad, to celebrate success and be wary of failure. But trading demands that you do the exact opposite. You must recognize and acknowledge when a trade goes wrong and then cut quickly in order to keep losses at manageable levels. On the other side of the coin, you should not be too quick to grab the shiny thing and take a profit. Long-term profitability relies on making more on your winners than you lose on your losers, and that is hard to do if you do what your instincts tell you to do.
That same ability to go against those instincts is also important when it comes to stock selection. We have all said, or heard others say, “Why would I buy that? It has fallen X percent over the last week/month/year.” Or “I’m not selling now. This thing has doubled in just three months!”. Logically, it isn’t hard to understand that a big recent drop in a stock means we should be buying it, or that a jump should be a sell signal, but our brains just don’t work that way. We ignore bad things and focus on good, making us miss opportunities and hold onto profits too long.
So, if we apply that to today’s market, what should we be selling and what should we be buying with the proceeds? The answer lies in this chart that compares Exxon Mobil (XOM), to represent oil and gas stocks generally, and AMLP, the Alerian MLP ETF …
For most of us who invest or swing trade in the energy space, our account levels probably look a lot like the top line here, that of XOM. Energy stocks in general have been on a tear for three or four months as the realization has dawned that the restriction of traffic in the Strait of Hormuz isn’t going to be a short-term problem, and that production facilities around the Middle East and in Russia are just one drone wave away from being rendered inoperable.
Even as energy stocks in general have soared, though, MLPs have lost ground. Sure, the oil assets of many of these partnerships have appreciated, but rising interest rates as the Fed tries to combat inflation have hit MLPs hard. Most of the attraction of MLPs to an investor is that they typically have a good yield. Yield-bearing instruments tend to lose value in a rising rate environment, so the US 10-Year yield climbing from below 4% earlier this year to over 5% has put a lot of pressure on AMLP.
I am sure some of you are wondering if my belief that now is a good time to sell the likes of XOM and buy MLPs is because I believe that conditions are about to change. Is the Middle East conflict about to be resolved? Are Russia and Ukraine coming to the table to talk peace? Are prices about to stabilize, allowing the Fed to cut rates to address a slowing economy? Quite frankly, I have no idea if any or all of the above things will happen at all, let alone when they might…but that isn’t the point. This is a trade driven solely by a technical analysis of performance differences, not by fundamental factors.
That doesn’t mean that I believe a reversal in both of those moves is inevitable and/or imminent, either. It is just that XOM and other big oil stocks are at or very close to all-time highs, while the yield on AMLP is close to 8%, a historically significant level. It is quite possible that neither oil stocks nor MLP yields are at their absolute top, of course. However, at some point, a reversion to the mean will occur in both markets. I want to be positioned for that when it happens, not be chasing it after the fact.
So, as counterintuitive as it might seem, now is a good time to decrease your position size in the oil and gas stocks that have been doing well for months and use the proceeds to buy some sadly market-lagging MLPs. Fighting your instincts in situations like this isn’t easy, but if you want to avoid being a part of that depressing percentage of failed traders, it is necessary.
To access this exclusive content…
Select your membership level below
Already have an account? Sign in
How Elon Musk’s SpaceX Became a Gatekeeper of Modern Warfare
Egypt Moves to Defend Saudi Arabia as Iran War Threatens to Widen
Record Shipping Costs Force Oil Producers to Slash Prices
U.S. Oil Drillers Back Off Even As Prices Soar
Chevron Moves to Take Over Russia's Most Prized Iraqi Oil Field
Iran Faces Rising Threat From Within as Baluch Insurgency Escalates
America Needs 48,000 Tons of Rare Earth Magnets. It Only Makes 300
The materials provided on this Web site are for informational and educational purposes only and are not intended to provide tax, legal, or investment advice.
Nothing contained on the Web site shall be considered a recommendation, solicitation, or offer to buy or sell a security to any person in any jurisdiction.
Merchant of Record: A Media Solutions trading as Oilprice.com
Source: Oilprice