A Trader's Conviction

Markets move like waves in an ocean, varying in size and impact. Small waves nudge surfers along, midsize waves sway passenger boats, and the largest ones can capsize shipping vessels and carriers.

The current market movement resembles one of these towering waves. Most traders sit and watch as "large tides lift all boats"—not toward their intended destinations, but back to shore, if not wrecked and sinking altogether. It’s during these times that convictions are truly tested.

I follow market experts on X, where I observe different convictions playing out. Macro-focused traders are leaning heavily into bonds and gold. Bottom-up fundamentalists remain fixated on value and growth. Meanwhile, many traders swear by price action alone. Amid this massive wave, those who respond adeptly to price action—stepping aside when needed—are the ones staying afloat.

We’re currently witnessing a "Correlation 1" moment in the markets, where everything moves in lockstep because everything is being sold off simultaneously—even, humorously, in the Heard Islands. The pandemic sell-off of 2020 was another Correlation 1 event. Extreme fear fueled panic selling across all markets, often triggering margin calls. In such moments, even winning positions were liquidated to offset losses.

Suffered tariffs, but no stock sell-off in Heard Islands

During these predicaments, an active trader’s conviction shines through. This conviction—rooted in maintaining a smooth equity curve—acts as their "get-out-of-jail-free" card when irrational selling takes hold. A pristine equity curve means shallow drawdowns in portfolio value, achievable only if the trader stays attuned to their portfolio’s swings and exercises the discipline to sidestep extreme volatility.

Equity curve figure from Build Alpha

Ultimately, this steadfast conviction becomes the trader’s edge. In a sea of chaos, where waves threaten to overwhelm, the ability to stand firm—guided by discipline and awareness—elevates their competitive advantage. While others flounder or sink, the convicted trader navigates the storm, emerging not just intact, but stronger.