WTI and the price of 'hope' - my sizing mistake
Looking back at the tail end of 2021, when WTI was pushing towards $85-$90, I made a classic mistake in sizing that still grates. The narrative around a supply squeeze was strong, and I was convinced we'd see a quick break to $100. My read on the market wasn't entirely wrong in direction, but my conviction led me to overcommit on size relative to my usual parameters. I essentially sized for a 'sure thing,' which, of course, doesn't exist.
The market did eventually breach $100, but not without a significant consolidation phase first that tested my patience and capital. Had I stuck to my standard sizing, I could have weathered that chop comfortably, potentially even added to the position at better levels. Instead, I was in a position where I had to either sit through uncomfortable drawdown or cut part of the position, both outcomes eroding potential profit and adding unnecessary stress. It was a clear reminder that even when the conviction is high, risk management through position sizing remains paramount.
It's a common trap when the narrative aligns so strongly with your own thesis. Even if the direction is right, overleveraging on conviction can really sting, especially when the timeline doesn't pan out as expected. What specific parameters did you feel you breached the most in that situation?