Any trader/ investor considers his/her entry price the center of the universe. Traders/ investors assess the difference between their entry price and the current market price based on 3 factors, and they are represented by this triangle. Note that Tsaklanos his Investment Triangle applies to individual positions in anyone’s portfolio, and it is another investing practice that complements Tsaklanos his 1/99 Investing Principles.
These are the 3 important aspects that create balance or stress for the individual investor, as per the triangle above:
- What they are focused on. This might be checking their daily P/L status in their broker account every day, it can be the news, it can be their investing thesis, it can be their support/resistance price points, it can be the ongoing market trend, it can be their emotion (which is driven by expectation), it can be their overall portfolio performance. Not saying any of this is good or bad, just saying that FOCUS is key. Also saying it’s a mental thing.
- How they experience the difference between entry and market price. This evokes feelings, and as we know they might take over control over ratio and disturb focus.
- How they read the market trend, which is the rational part of markets.
Again, remember that this triangle applies to individual positions, not the entire portfolio.
Ideally, these 3 factors are in balance. Balance is the opposite of tension, and we do know that tension in trading is a recipe for disaster.
However, if the balance is skewed it exponentially increases the odds of getting the juice out of a position.
For instance, if one gets too emotional about a position it is going to lead to wrong focus (unrealized losses, checking too often price changes missing out on the importance of closing prices and dominant trends). This ultimately creates too much tension, and trades will go bad.
Let’s apply this concept to the current silver market situation.
Anyone who understands that silver is a volatile asset knows that opening a silver position back in June (right before a secular breakout above 28.50 USD failed) could see a silver (mining) position go in red in July. Now the mental and emotional reaction to this is key, and it will make a huge difference in future success of the position of this investor. An investor that understands that precious metals will be the big beneficiary of the current market setup (Investors Moving Out Of Cash And Also Into Treasuries: Odd, But Strongly Bullish Precious Metals) will be relaxed (emotional) as they focus (mental) on the market trend and conditions. The opposite is true as well: an investor with focus on his daily P/L situation which he checks every day on his mobile app will have the wrong focus, will close its position way too early, and will be confronted with a missed opportunity further down the road.
Not any premium service covers the internal spectrum of investing. We are here telling you that +80% of failed trades are due to the mental and emotional system of an individual investor. We extensively cover emotional and mental reactions on open + closed positions in our Trade Alerts and Momentum Investing services. Moreover, both services are focused on the silver market currently. in our Trade Alerts portfolio we have a very specific entry price for an SLV position which we expect to return 30 to 40% in 2021. In our Momentum Investing portfolio we hold 2 silver miners and tipped one more: one is right now exceeding our entry price and looks super bullish, the other 2 you can pick up now below our entry price (great value, and enormous upside potential).