In traditional understanding, trading typically involves shorter-term positions, while investing is associated with longer-term holdings. However, the key differentiator between trading and investing lies not in the time frame but in the approach to managing positions, irrespective of the intended duration.
Even though investors may plan to hold their positions indefinitely, in reality, they often close their positions at some point. Investors generally perceive their holdings as having the potential to increase in value over the long term, as seen in the case of stocks or real estate.
On the other hand, when traders take a position, they actively monitor its performance on a certain time frame. Even long-term plays can be subject to trading strategies, where traders stay attentive to the asset’s performance relative to specific criteria.
A common approach for longer-term trading involves using a 200-day moving average. Traders enter or exit positions based on the asset’s price relative to this moving average or the direction in which the moving average is trending. Various metrics can be employed for such evaluations, but the crux lies in actively assessing the position rather than being passive about it.
Before initiating a trade, traders determine the viability of their speculation in the chosen direction. However, this assessment doesn’t end with the opening of the position; it needs continuous evaluation to adapt to changing conditions that may prompt liquidation.
Even for those expecting to hold an asset for an extended period, relying solely on initial expectations to determine whether to remain in the position is insufficient. The decision should be a combination of the desired time frame and how well the asset is performing within that timeframe.
Moreover, there might be instances where enduring pullbacks for an extended period is inefficient. In such cases, traders may exit their positions during these downturns and re-enter the market when it shows signs of progress later.
These considerations always influence any position taken, and every investment or trade requires ongoing evaluation, irrespective of one’s diligence. Failing to diligently manage positions can lead to suboptimal outcomes, even if the ultimate return is satisfactory. Improved position management could have significantly enhanced the overall results.
The Significance of Trends
Many investors tend to overlook the importance of actively managing their positions and may prefer a buy-and-hold strategy, focusing on long-term trends and going all-in over time. While this approach, commonly seen in stock markets, is not necessarily bad, it may not be the most efficient.
Ideally, a more effective approach involves being involved in an investment or trade when the prospects of it moving in a favorable direction are positive and staying out when the opposite is true. Bull and bear markets that occur in the stock market are evidence of investors shifting their money based on trends, although some may choose to ignore these trends and stick to their initial strategy.
Positions that respond more swiftly to changes in market trends tend to be more efficient. By doing so, returns can be accelerated, and risks minimized, as long as mistakes are kept to a minimum. Trading is inherently uncertain, and while trends have probabilities associated with them, success lies in being on the right side of these trends more often than not.
Market trends can manifest in different directions, with some periods being bullish while others are bearish. The key is to accurately determine the trend’s direction not just when entering a position, but throughout the holding period.
Trends can vary in length, meaning a downward trend may be observed in one timeframe while an upward trend appears in a longer one. Properly managing positions involves paying attention to trends of the desired length and nothing more.
Taking a longer-term perspective on stocks, we can observe an upward trend since 2009, with periodic dips that short-term investors or traders might capitalize on. Overall, the market has seen significant bullish growth of about 400% over nine years.
There are three types of markets: bullish, bearish, and flat. It’s essential to consider flat markets, which lack a clear trend in either direction, especially for those interested in both long and short trades.
Profits can be made in both long and short positions since all markets experience downward trends. Shorting an asset involves betting that its price will decrease during a period when it is trending downward. Although assets like stocks may have an overall upward trend in the very long term, it is still possible to profit from shorter downward trends lasting several years. However, shorting and holding for extended periods like one would with long positions may not be wise in such cases.
How Platinum Stacks Up Here
Platinum does not exhibit the same long-term characteristics as stocks. While we have only about 30 years of historical charts for platinum, we do know that precious metals, including platinum, do not follow clear long-term trends like stocks. Instead, they tend to oscillate between bull and bear markets without a strong bias towards either direction over the long term.
When looking to take advantage of trends, what we are really seeking is velocity – the speed and magnitude of price movements. Platinum has even more velocity than stocks, making it generally more volatile over both the short and medium term.
Trends that lack significant velocity are harder to predict and may offer lower potential gains. This is often observed in what we call flat markets, where prices don’t experience significant movement in either direction.
However, if we aim to trade in both upward and downward directions, the specific direction of an asset’s movement becomes less important. What matters more is that the asset shows sustained and substantial movement in one direction or the other, and that this movement is predictable to some extent.
Over the last 9 years, while the stock market has been on a strong upward trend, platinum has been stuck in a downward trend. Those holding both stocks and platinum during this period would have seen platinum’s decline offsetting some of the gains from the stock market.
There are instances when the stock market trends downward while platinum trends upward, but these situations are not always predictable, and assumptions should not be made. It’s essential to assess the performance of each asset separately. While one market’s movement may hint at the possibility of the other moving in the opposite direction, this should be confirmed through price action to manage risk effectively.
Since platinum lacks a clear long-term bias, trading its trends becomes the primary focus, whether it’s short-term day trading or taking longer position trades that span several years. The approach involves evaluating the current trend in the desired time frame and managing positions accordingly.
Trading Platinum Both Long and Short
There is a common perception that going short (selling an asset in the hopes of profiting from a price decrease) is riskier than going long (buying an asset with the expectation of a price increase). However, this belief lacks a solid foundation. In reality, long positions can be riskier because market downturns tend to happen more rapidly than upswings. It is the speed of market movements that matters, as slower changes offer more time to adjust one’s strategy.
In financial markets, panic selling can occur, leading to sudden and significant declines. On the other hand, panic buying is much rarer. Market upswings are not as startling as sharp downturns. Nonetheless, both long and short positions can be managed effectively to limit risks. Being willing to take both long and short positions enables investors to benefit from both bull (rising) and bear (falling) markets, which is more advantageous than solely holding long positions during bear markets or staying out of the market entirely.
Platinum, unlike stocks, may go through long periods without showing bullish (upward) trends. While stocks are generally characterized by a bullish bias, platinum lacks such tendencies and its current trend dictates its market behavior.
It’s important to remember that the ultimate goal of taking a position in any asset is to make a profit. Hence, when the market is experiencing an uptrend, it is wise to swim with the tide and take long positions. Conversely, during downtrends, one should also consider short positions.
Timing is crucial in investing, and it’s not always wise to be continuously invested in a particular asset, whether it be long or short positions. There are times when there is no clear trend in either direction, and it might be more beneficial to stay out of the market altogether. Exploring other investment opportunities that offer better prospects during such times could be a viable option.
Traditionally, people have owned precious metals like platinum as a speculative investment, anticipating its value to increase over time. However, with today’s more efficient markets, there are ample opportunities to trade platinum securities, allowing investors to profit from both upward and downward price movements. This versatility goes beyond the conventional approach of solely seeking upward price trends.
