Time and Tide, in Trading
Ginni Chauhan
Mapping the intersection of market structure and trading psychology.
Time is the friend of the wonderful company, the enemy of the mediocre.
Warren Buffett
Time is not neutral in trading. It is neither friend nor foe. If at all, and in all its superior judgments, time is always on the ‘right’ side. That being the true value of the stock or security, whatever it may be for that period. It could be even double or all the way down to zero.Time is against the trader when he is not on that side and not placed in the right direction. Volatility finishes whatever’s left.
In the wrong direction, time is dragging the value of money (or premiums). Any increase in volatility would increase the speed of the process of depreciation.When the direction is right, time stops the punishment and, with it, the erosion of value. Any volatility only rewards the will to ride further. The compounding gets kicked in, unlocking the gain in value.
This directional concurrence is also part of life in general. In life, if the direction of our efforts is right, then time compounds the desirable outcomes. A few lucky breaks as volatility might take us places!Again, only if the direction is right.
Opposite, if one is in the wrong direction or on the wrong path. The more time one remains there, the farther one gets from the desired outcomes. If volatility strikes as a sudden event, then it is the definition of tragedy.
Which is the right direction? In life and markets, in the most convenient and desirable sense, it is the direction of gain or growth. Yet, as part of the natural cycle, everything must go through periods of de-growth (easy word for decay!). Hence retracements, reversals, and setbacks exist as the other set of ‘right’ directions.
If a trader were to time these cycles of growth and de-growth, he could collect bounties of both time and volatility. And if he fails and follows through in the ‘wrong’ direction, then…
Well, everyone knows what happens next.
Also, Time and Tide wait for none.