The Bigger Picture Of The Copper Sell Off

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As a contrarian trader I am always looking for way oversold plays in the market.

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After last night’s massive sell of in copper during the Asian session the big questions is this:

Final spike down, or more substantial downside to come in the not too distant future?

When raw fear grips a market investors will sell anything. It is like an avalanche that gathers momentum of its own steam. No logic at play here, just that tipping point of no return.

Never stand in the way of the bigger cycle as investor or trader.

There has been no trade other than the short side in copper. With mining companies in general under pressure the latest drop in the copper price is going to create more challenges for the sector.

The price of copper right now doesn’t so much represent the general belief in the sector, rather it represents the herd instinct of the collective number of traders and investors out there who are usually emotionally driven in their decisions.

The trading bots like this and as levels break price follows along. More panic ensues.

Really, nothing much has changed since the days of the tulip mania. When the selling begins in earnest and belief of the collective changes, it is time to position yourself for a trading opportunity.

There is a Buddhist saying: “Things work until they stop working”.

The selling off will stop. I do not know any more than you when the price of copper will stop falling. Copper won’t fall forever though. Going short when one isn’t already positioned short is not a strategy I would advise, unless you are a very nimble trader.

Alas, there comes a point when one needs to look forward to that change in trend when you should consider scaling into long positions when everyone else is selling.

The shorts have to cover at some point.

When that happens we will see a sharp reversal. I am not suggesting that investors ought to be looking to catch a falling knife. I am merely pointing out the finer workings behind the trading façade.  

Understanding how price evolves makes for sound trading psychology. When you understand the deeper psychology at play you are in a much better position to profit in the long run. Identifying major turning points is also that place where the most  money is to be made.

Risky? Yes, potentially. Against a backdrop of a cycle where we can expect more volatility throughout the trading year, the market are going to test many a trader and investor. Last year gave us a taster: We are in the midst of a massive transition time and predicting market direction is going to be tougher than it has been for some time.

As a contrarian investor, I always scale into a new trade with tiny positions. If the trade develops I can add to it. If it doesn’t develop I have a stop in place and will stop myself out.

I am at peace with that way of trading and have trained myself over many years to let it be okay to be stopped out for a small loss.

Unlike most traders I do not identify with a loss or a gain. I view the markets as a playground where I play with the stakes I deem to be sensible. It has taken me years to detach from the outcome of my trades.

Trading/ investing are not personal. They follow certain universal laws and if you understand the universal laws at play you can position your trades in alignment with these laws. Knowing how to do this is the real secret to all good trading and investing.

Let’s use our trading minds for a moment:

The likelihood of copper going to 0 is pretty slim. The fundamentals are such that copper is a metal that is used in industrial applications and that is not going to change over night.

Much is made out of the forecasts of a further slow down in China. While this may be so, it is also fact that demand in China tends to pick up momentum after the Chinese Lunar New Year mid February. At that point we should at the very least see a decent bounce, initiated by short covering to begin with.

Moving one’s stops along as price moves in one’s favour is vital to protect profits and capital.

None of the above is rocket science. The big issue is the emotional make up of the individual trader or investor.

I have said it before and will say it again: There are always opportunities in the market, but do you have the trading psychology to take advantage of them.

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 Mercedes Oestermann van Essen is an active trader, trading psychology coach and the author of“The Buddhist Trader” and other books on trading psychology.

She holds webinars and bespoke trading psychology seminars for high net worth investors, and professional traders.

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