4 May – Price paid thanks to imperfect understanding.

An important lesson learned: 1. Do not trade when you are not following the market. I was not following at all, to be honest. So trading based on previous facts which I was supposed to update with new ones brought me here.

I was bullish in oil and gold for some time in the past ( i still am in the long term but it seems it does not work for me at the moment)  and my prediction was that bubble in the stock market would cause investors to rush into gold and oil prices would recover. That did not happen and my predictions are severely tested right now. It seems stock market rush is not going anywhere at the moment and I should have cut my losses when prices were falling instead of building more positions down the road. Now, I am fully exposed to both commodities which are very volatile in nature.  I have always tried to run away from the type of exposure despite, it caught me badly.

It seems timing of oil prices have been wrong. There is no inclination for supply and demand convergence in the near future which will keep prices in a range and if that happens, it might take months to get back where I was and till then it is going to be a long wait. On the other hand, if my conviction on oil prices needs an adjustment then I should be short in anticipation of falling oil prices, however, I do not have a strong conviction of that either. OPEC next meeting is coming soon and if I reverse my trade today and OPEC extension goes through I am burnt once again and that is the moment to jump in front of a train. OPEC may not reach to a conclusion but they might at least keep current production levels intact rather than cutting more. Saudi Arabia needs higher oil prices for probable next year Aramco IPO and they may not let this deal go away. So my intuition says to stick with prices and add more futures positions at low levels. However, if prices fall further that might trigger the margin call. So far, I am not close to that call level despite that I should be on the watch not to make my futures positions worse than where they are today. Figures coming from the US is not hopeful so far. Rig count keeps going up week after week and companies like Halliburton keep making better technologies for fracking that reduces break-even levels for oil producers in the US. US production has been up by more than 450,000 bpd from the beginning of the year in the US and that is definitely not a good news for me.

I am more worried on gold than oil prices. Since trading gold for some time I came to recognize that gold is based more on imperfect knowledge than oil and I do not like trading something based on imperfect information. From now on ( except this trade which I need to bear with me) I will be limiting my gold positions to the lesser degree of my portfolio size unless I see a very clear picture or momentum in the market.




2 Comments Add yours

  1. And never trust oil for a week 🙂


    1. yep agree, would not bother me if the loss was small, this time it is big


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