Discipline and strategy

In investing, no one is 100% right. And you don’t have to be right all the time. There are investors who are only right 30% of the time, but they earn far more than the vast majority of market partici-pants. Discipline and an investment strategy are what it takes to make money. These elements are key even if your accuracy is low. analysis works. It really works. But I will not teach it. It is an art that everyone understands and applies in their own way. But you can be assured that it does work.

People lose money using technical analysis because they choose the wrong time period, Or rather too short of a time period.In short time periods, the price behaves chaotically and is difficult to read from the charts. Experience shows that over longer time periods, technical analysis gives more accu-rate signals (daily, weekly or monthly).Of course, you need a lot of patience for such long periods, but that is what investing is about.For the patient, the sky is the limit, for the undisciplined, losses will occur.

The following chart may be a bit old, but it illustrates this point very well – you don’t have to be right all the time in investing, but you do have to have discipline and follow a clear strategy.

You can see Lance Roberts’ comments on the price chart and moving averages in this image, but it would be useful for everyone to seek their own truth in it. 

The hardest part of investing is the psychology. It seems easy at first, but any practitioner can attest that psychology and discipline account for half the results. 

Many times you will see bigger or smaller price drops in the market. Sometimes a 4-5% sell-off can look like a new recession, so it is crucial to always keep an eye on longer-term charts and indicators. The following picture is a good illustration of negative and recessionary periods in the markets, and there are many of them.

Further to investor psychology, it is important to be able to filter the information that circulates in the public domain. You may have noticed that there are many people who start commenting on the financial markets without even understanding what it is or how it works. Novice investors have a fragile psychology and often fall victim to such unfiltered information. They lose their own opinions and start following the noise. 

It seems that as individuals we are looking for validation of our thoughts or ideas in order to feel more secure about our decisions. But it is always worth considering whether those sources of information are reliable. For example, do economists working in Lithuanian banks have a good understanding of Bitcoin? Certainly not. They work on the basis of theories and, as you know, their theories say nothing about a technological revolution like Bitcoin. But they still start commenting on things they do not understand at all. And of course, they are rarely right when they talk about things they do not understand. This is noise. You need to avoid the noise in order to be able to use your head and learn from your mistakes. 

The following illustration shows the emotional reactions of ignorant investors to market movements and their irrational decisions based on these emotions.

At the beginning of my journey as an investor, I saw this exact illustration and thought that you have to be stupid to play on emotions. But then I tried this thought experiment. Before every crisis, I would turn the chart of the S&P500 index so that it showed me a picture as if I did not know that a market crash was just around the corner. And I can tell you that I used to want to buy those charts. I wanted to buy every dip in the market, just as I had done before. And all the moving averages and price candles looked attractive. But it was a deception. This investment strategy would have driven me into bankruptcy. So when I realised that my own psychology was weak. Instead of looking at how to generate money, I evaluated how best to protect myself on the markets.