"I see no reason to take profit"

There are a handful of phrases and comments from the many books and discussions that have been impactful and particularly game-changing for my trading career, but none more than what a colleague of almost 10 years said to me during a discussion of a trade that was going superbly well. A phrase that has reverberated around many big trade decisions since. When I later circled back to my colleague on the discussion many years later, imagine my shock when he wasn't able to recall the conversation that reshaped a large part of my discretionary trading. Who'd have thought that wisdom can be found in such a casual utterance, unremembered by its source, one that can echo indelibly throughout another's career...

We've all heard the phrase "Cut your losses quickly and let your winners run". Sounds perfectly rational and easy enough, but the reality is that this is the single most difficult thing to do in trading because we are, after all, human, and not perfectly rational. As much as we attempt to approach our decision-making through logic alone, emotions and experiences whether good or bad play a role in guiding our decisions, and that becomes particularly evident where a decision centres around elements of risk and uncertainty. In fact, humans are wired to do the exact opposite and there are studies bridging together The Prospect Theory (Kahneman and Tversky, 1979) and The Disposition Effect (Shefrin and Statman, 1985) to empirically demonstrate what terrible risk takers and risk managers we are. Those studies show us to be risk-seeking when faced with losses and risk-averse when faced with gains; and I think we can all relate to that. For example, you have a position at a loss, and the further offside it goes, the more willing you become to give it time and a chance to recover even if there is a possibility of those losses getting larger - this is risk-seeking behaviour. By the time take the loss or realise the loss, we often wonder why we didn't cut it sooner even ahead of our stop loss at times - don't we? With positions that are profitable on the other hand, we become increasingly fearful our hard-earned profits could vanish and thus more willing to lock in profits than to risk giving it back - risk-aversion behaviour. Our very nature opposes the popular trading mantra that requires us to be risk-seeking when winning and risk-averse when losing.

A large part of being a good discretionary trader is knowing when to take profits, when to stick with a thesis, and how to filter noise from signal. The technical aspect is usually straightforward—we can confidently exit at major levels when RSI hits extremes across multiple timeframes, for example. Macro decisions however, are far more complex; conditions rarely repeat, and we must battle our natural instinct of selling winners too early. That conversation from years ago resonates now because today's market is driven by clear macro/geopolitical themes. If you're long the geopolitical basket (crude oil, gold, dollars, short relative-value energy losers), you are likely to be asking similar questions of what actually changed and whether there is 'any reason to take profits?'. Those simple words uttered casually years ago help to cut through the noise, force the right questions, provide a solid benchmark for further decision points, confront (often wrong) urges head-on, and, most importantly - enable strategically sound decisions or adjustments to our trading plan.

May that serve you equally well.

In addition to our usual medley of Macro and Technical developments, I outline why something of a TACO or de-escalation scenario put forward by some highly-followed X accounts is utterly detached from reality, why we should continue to press on our thematical trades across the geopolitical basket (short SPX EUR SEK versus long USD USOIL NATGAS), what to look out for, and why there is no risk of a carry unwind despite the popular narrative resurfacing again on X.

Iran War

The central question market participants are wrestling with is whether we are anywhere near a peak in the Iran conflict and its impact on markets. My TL;DR assessment would be: “We’re not even close”.