Cash is a position

I spend a lot of time in trading forums and on stocktwits.com. As a consequence I often see comments from the same people. What I realized is that a lot of people are desperately chasing the “new hot trade”. But one got to admit; some days it’s plain and simple boring, and you don’t find any opportunities.

What do you do with your money then? The answer is rather simple; you do nothing. Cash itself is both an investment and a position. It is so from two points of view, which are the economic point of view and your personal point of view. Already heard the expression “In a deflationary environment, cash is king”? This is the economic point of view. In this article I’m referring to your personal point of view.

Simply put, if you can’t find a potential trade with a positive expected value according to your money management plan, do nothing. Cash has a neutral expected value over short period of time. Add to this the negative expected value that you’re saving by staying out of the market, and cash gives you a positive expected value.

Trading is a bit like playing poker. It’s emotionally demanding. You’re exited by the idea of making money quickly with the next trade. This emotion can cloud your vision and make you take a weak position, the same way a poker player would play a weak hand because he’s too excited.

One of the characteristics that make me profitable over the long term is my capacity to fire quickly when I have too, but also to put it back in it’s holster when I have to.