Trading Platinum in Both Directions

The Role of Trading in Asset Speculation

We normally think of trading as involving taking positions in something in the shorter term, where investing has us taking longer term positions. It isn’t really the time frame that distinguishes trading from investing, it is instead our approach to managing our positions, regardless of how long we are shooting to hold them.

While investing may have us thinking that we’re just going to hold the investments indefinitely, in most cases we will be closing our positions at some point, but we generally will perceive the position as having the tendency to go up in the very long term at least, like the way people see investments like stocks or real estate.

When we trade a position though, we’re going to be monitoring its performance in some way on some time frame, and even long term plays can be traded, or at least positions that we expect to be in for a long term duration, when we are attentive to its standing relative to the criteria we are using to measure it.

A commonly used one for instance when trading longer term is using a 200 day moving average, where we’re entering or exiting depending on where the price of the asset is relative to this moving average, or what direction this moving average is trending in. There are a lot of things we can use to measure such things, but the significant thing is that we are using something rather than being passive about whether we should be in the position and not evaluating it on an ongoing basis.

When we take a position in something, we initially determine whether our speculation is worthy of speculating upon, in the direction we are taking, and this decision doesn’t just need to be made prior to opening the position, it needs to be assessed throughout the holding, to decide whether conditions have changed which should prompt us to liquidate it.

Even if we are expecting to hold something for a very long time, we can never just rely on our expectations to determine whether we should remain in the position, as this always needs to be a combination of our desired time frame and how the asset is doing in that time frame.

Moreover, even if our desired time frame is long, there may be situations where having to bear the brunt of pullbacks may simply be too inefficient regardless, where we may be setting out sights too long and would benefit by exiting while this is going on and looking to re-enter when the market starts forging ahead again later.

These considerations will always bear upon any position we take, and there are no investments that do not benefit or even require ongoing evaluation, regardless of our desire to be diligent. Those whose diligence is inferior are simply not investing or trading well even though they may end up with a decent return in the end, if that return could have been substantially improved by managing their positions better.

The Significance of Trends

Most investors don’t pay any attention to this and don’t really look to manage their positions all that much if at all, and may just be seeking to play long term trends and essentially go all in with them over time. This is the basis for the buy and hold approach we see so much with stocks, and while this isn’t a terrible approach, it generally isn’t that efficient either.

Ideally, we want to be in an investment or trade when the prospects of it moving our way is positive, and not in it when the reverse is true. The fact that we see bull and bear markets of various lengths in the stock market is actually testimony to a lot of money invested in it being shifted around according to trends, even though a lot of investors may ignore these trends and just stay the course.

Positions that are more responsive to changes in market trends tend to be more efficient, where we will tend to see returns accelerated and risk minimized, as long as one does move with the trends and not make too many mistakes. Nothing is ever certain or even close to it in trading, although at any given time there are probabilities involved with trends, and the goal is to be on the right side of them more often than not.

There are of course trends that manifest in both directions, where a market may be trending up at one time and trending down at another point, and the trick is to determine where the trend is heading, not just when we enter, but throughout our holding period.

These trends can be of various lengths, where we may see a trend downward in one time frame and a trend up in a longer one, and our choosing our desired time frames involves paying attention to trends of a desired length, and nothing more, at least if we are managing our positions properly.

We can look at stocks and see that from a longer term perspective, one that investors would seek out, we’ve been in an upward trend since 2009, and while there have been some dips along the way, which shorter term investors or traders would seek to take advantage of, from this longer term perspective things have been pretty bullish overall, to the tune of about a 400% gain over 9 years.

There are actually three different types of markets that we can be in, bullish, bearish, and flat, and we need to heed the flat ones as well, and perhaps especially so if we’re looking to trade both long and short, as flat markets are distinguished by a lack of a sufficient trend in either direction.

One can make money both long and short in anything, because all markets have downward trends, and the idea is to look to capitalize on these by betting that the asset will go down in price at a time where it is trending that way, meaning that it is more likely to go down than up over a given amount of time and is also likely to move enough that way to make the position desirable.

With something like stocks, which have an overall upward trend over the very long term, it isn’t wise to short and hold like people do with long positions, but this does not mean that one cannot profit from downward trends of lesser lengths, which can last for several years.

How Platinum Stacks Up Here

We cannot say that platinum has the same long term features as stocks do, and although we only have charts that go back about 30 years, we do know that the class of investments that platinum is in, precious metals, do not trend that way, and instead tend to oscillate between bull and bear markets without a clear bias long term toward either.

What we’re really looking for when taking advantage of trends is velocity, and platinum has the feature of having even more velocity than stocks do, meaning that it is more volatile over both the short and medium term generally.

Trends that have no real velocity are more difficult to predict and also yield less potential gains, for instance what we term a rather flat market, where price doesn’t move all that much in either direction.

If we’re looking to trade in both directions though, we really don’t care whether something is moving up or down, just that it moves substantially in one direction or another for a sustained period of time in a sufficiently predictable manner.

While the stock market has been going up so much over the last 9 years, platinum has been mired in a downward trend, and if one was long both stocks and platinum they would have seen platinum reduce their stock market gains over this time.

There are also times where the stock market is trending downward and platinum is trending upward, although the two don’t always move in opposite directions and we can never just assume they will. We must instead look at the performance of each, and while we may take one market moving in one direction as an indication for the greater likelihood of the other moving the other way, this all needs to be confirmed by price action in order to avoid excessive risk.

Since platinum does not have a long term bias, we are actually down to trading its trends, whether we’re just day trading trends or taking position trades in it which may last several years. The process is pretty much the same, we evaluate the current trend in the time frame we are seeking to trade it in and manage our positions according to the current trend.

Trading Platinum Both Long and Short

There is a view that going short is more risky, although there really isn’t any sound basis for such a view, and if anything, long positions are riskier, because things tend to go down faster than they go up. It is this speed that matters, not the overall move, because slower moves offer us plenty of time to adjust.

We see panic selling at times but we really don’t see panic buying, and you don’t wake up one morning and see the market up for something in the same startling way that you can see it go down. In any case, both long and short positions can be properly managed to limit our risk to whatever we wish, and while there really isn’t a good reason to be afraid to short anything really just because it’s a short.

Being willing to go both long and short affords us the opportunity to benefit from both bull and bear markets, and this is far preferable to holding long positions in bear markets, or even being out of the market during them.

Platinum can go many years without being bullish, more so than stocks, as stocks are mostly bullish but can be bearish at times, where platinum does not have a bullish bias and we could say that this market has no real tendencies beyond what is happening in the current trend.

We need to keep in mind that the goal with taking a position in anything is to make money, so when the tide is coming in we should be looking to swim with the tide rather than against it, and also look to swim with it when it is going out.

It is also not always wise to be invested in something all the time, in this case either long or short, as there are times where there isn’t a sufficient trend happening either way, and we may be better off not in the market at all, especially given that there are other places we can put our money which may provide better opportunities right now.

While people have historically owned precious metals like platinum to speculate on its value increasing over time, today’s much more efficient markets provide us ample opportunity to trade platinum securities, where we are no longer confined with looking for it to just go up and can profit from it going down as well.