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Why It Makes Sense To Short Oil

In a dealing room, making bad calls is a fact of life. I don’t care how smart you are or think you are, no trader has ever been 100% correct in their reads on a market. Understanding that, accepting when you are wrong, and then cutting and moving on are essential traits if you are to survive for any length of time. It follows from that that the worst thing a trader can do is to double down on a bad call.

Averaging losers and “trading with conviction” may look admirable in movies and the like but for every success story that comes from doing that there a few hundred tragedies.

So, given all that and in the knowledge that one half of the hedged trade that I suggested here last week was to short crude, and understanding that since I made that call the main WTI contract, CL, is around twenty percent higher, the one thing I shouldn’t do this week is think about shorting crude.

But I just can’t help myself.

Don’t get me wrong, I completely understand that the massive cuts in U.S. output will have an effect and that that effect will probably be being felt most just as demand begins to recover. There are good reasons to believe that the spike in price that causes could be nearly as sensational as the drop that preceded it. I just can’t see how that future dynamic can lead to further price increases over the next couple of weeks.

As many people realized for the first time a couple of weeks ago when the May…





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