Advising farmers on how to best manage their risk in corn, wheat, and beans entails balancing an understanding of technical action and fundamental news. As humans, we like it when all the signals, fundamental and technical, line up and things work in concert with each other. This really makes life easy—both for us and for our clients. The problem is that this scenario doesn’t always exist, like the current price action in corn where the technical chart is rather bullish, but the fundamentals are bearish, at least for new crop.
This disconnect between what we perceive the fundamentals to be and what the technical picture forecasts highlights an important point: you have to know yourself as a risk manager. We’ve written a lot about how risk management is really 90% mental. I mean, honestly it isn’t that difficult to see a chart and say “I want to be short below $15.00 soybeans” or “I want to own corn above $6.00.” Yet a simple set up like this is extremely difficult if your brain and fundamental analysis says that corn should be well below that $6 mark—it makes it tempting to sell corn above that price point.
Whenever this is happening—you are taking positions that conflict with your chart analysis because you believe you understand the fundamentals—you must put yourself in check and decide whether you are a fundamentalist or a chartist—because whatever you decide you are you need to practice being!
It's after you decide to commit to who you are, in our case a Technical Chartist, that you start to make the best decisions for your bottom line and make rules to follow, because then your rules and analysis prevent you from taking unwarranted actions.
This seems so simple, but in reality, it is overwhelmingly difficult and has been the root cause of countless failed trading careers and poor risk management.
When you find yourself struggling with this type of pride-based action taking, look within for practical solutions to overcome your mental mistakes. Here are three solutions:
- Reduce the noise you allow by not reading the fundamental news. Don't look for news to validate your position.
- Write down your rules and systematically make sure you are following those rules.
- Hire someone that will hold you accountable to your rules—or outsource your weaknesses to others.
