It’s a while now since I pulled out of Silver at the end of August. It was all getting far too exciting and volatile for my limited wallet to deal with even using excessive leverage like a real bank!
So I really missed much of the dram that has left most small speculators grovelling around in the dirt wondering what the hell hit them. Well, I was going to write about it and I sort of began on a post on G+ but never really did get my act together for a full post. And, as is the way of things, someone else has done it for me.
Last weekend Clive Maund wrote an excellent post in his Gold, Silver and Oil blog which I recommend you read when you have a moment. It’s a truism to say that the commodities markets are fixed, but sometimes the big boys do decide to waggle their collective muscles and take out the smaller players in a quick sweep.
Here’s how it works. Imagine you want to play a simple game with pennies.
You and your opponent each have a stack of pennies and toss one penny each from the stacks. If your coin matches your opponents coin, you take both coins. If the coins differ, your opponent takes both coins.
As you can imagine this game could go back and forth for ever if you and your opponent have an equal (and relatively) large number of pennies say a hundred each as it allows for unlucky runs to be recouped and exchanged. But what if you have ten pennies and your opponent has one thousand pennies. How long will your money last?
Of course, I don’t have the time to sit down with a friend and toss coins all night. I’m a busy man. So I got a spreadsheet to play it for me, two hundred times. And this is the result:
In two hundred games there was a twenty percent chance of lasting one thousand tosses. The longest game took just over two hundred thousand tosses. But every single time, the player with ten pennies lost the money eventually. Every single time.
That is why speculating on volatile markets is not a good place for the small time trader. If there is no trend to follow and each trade is a gamble, you cannot sustain trading for long.
I confess I am thinking of re-entering soon but have not decided yet.