Know When to Fold

“You’ve got to know when to hold ’em, know when to fold ’em, know when to walk away, know when to run.”

– Kenny Rogers

Just last week, I advised those holding short positions in oil to consider folding if prices climbed above $79 or $80. As oil now hovers above $79, it’s a timely reminder of the fine line we walk between strategic foresight and the humility to act on it.

Even though I believe oil prices may retract, the essence of strategic trading lies not just in predicting the market but in knowing when to fold.

The Oil Example: A Lesson in Humility

History shows that only a few positions recover from such downturns once you get to a 10% loss. It’s a stark reminder that humility and the willingness to accept a smaller loss is not just prudent, it’s essential to long-term success.

While it’s possible that oil prices could drop, allowing those positions to become profitable again, betting on such outcomes is speculative.

Why Folding Early Matters

Accepting a 10% loss rather than risking a 30% loss underscores a vital trading principle: not every loss turns into a gain.

The courage to fold early, guided by humility and an understanding of market trends, is what differentiates the strategic trader from the gambler.

It’s a hard-earned lesson in the importance of protecting your capital for opportunities where the odds are more favorable.

Implementing Strategic Humility

This approach requires a disciplined mindset:

• Adopt Stop-Loss Orders: Use them not as a sign of defeat but as a tool of strategic defense.

• Assess Risk-Reward Ratios: Always weigh the potential gain against the risk of holding onto a losing position.

• Embrace Humility: Let go of ego and greed. Recognize that folding can be a powerful move towards achieving your trading goals.

Reflecting on our recent advice regarding oil, and the broader strategy of folding at the right time, offers a profound lesson.

In trading, as in poker, the wisdom to fold is invaluable. It reflects not just an understanding of the market but a deeper appreciation for the virtues of humility and strategic patience.

Embracing these principles can guide us through the uncertainties of the market, preserving our capital for the moments when the tide turns in our favor.

Regards,

Brad Hoppmann
Analyst, Market Minute