Why We Dont Count Open Equity
In one of my recent videos I mentioned the problem of counting open equity as yours. When you deal in CFD’s the dealing system has a a nasty habit of showing your total profit/loss on your current trades. I have dropped in what this looks like from my current test account.
Being human the first thing we see is the Profit/Loss figure and the rest are largely ignored. This is a problem for our emotions because this money is not ours and it does not accurately reflect the true state of our account. Interestingly, this is a problem also suffered by portfolio management software since very few mark positions to the value of stops or take into account the margin incurred in generating a position.
Consider the chart below – this is the profile of the profit/loss figure for my test account.
You notice immediately how volatile this account has been over the past few days and this is to be expected given the current economic brinkmanship being played out in the US. You can see that in the space of less than two trading weeks the open profit almost triples and if I were emotionally wedded to this I would be a very happy camper right up until the time it collapses. The point is – OPEN EQUITY IS NOT YOURS.
The reason it is not yours can be seen below which is a table of profit/loss and the margin incurred to generate that profit/loss figure.
I have to give this margin back at some stage – I may be lucky and find that the positions I have move sufficiently that the margin is effectively annulled. But at present this is not the case and the true profit/loss figure needs to take into account this nasty little fact.
How To Trade A Government Shutdown
This has been a bit of a dinner party topic of late and my answer is simple – no differently to how you would trade any other period in the market. The issue I feel is more one of perception, in the current environment we are obsessed with short term thinking. The chart below is a weekly chart of the Dow and I am struggling to see the shutdown.
It is no different for shorter term index/option traders since the current movements simply represent opportunity and for longer term traders they simply represent noise. This noise needs to be resisted at all costs.
My ancestry is Viking and I have a theory that in Viking times there was a shortage of dickheads because the structure of their society did not tolerate it. If Sven was being a dick, Olaf would wander up to him and simply say…mate stop being a dick. If he didn’t he would get a battle axe through the head. Unfortunately, we are no longer able to do this and as such we have dickheads breeding out of control and all of us at some stage have come across them and have to tolerate them. A consequence of this is we have to be more Zen about things and realise that bad taste and bad breeding are their own punishments.