The Most Difficult Aspect of Trading

RECENT MARKET CONDITIONS

"Winners learn more from losses than from profits. When a profit is earned, there may be little room for improvement. When a loss is taken however, a trader's self-discipline is the first thing to be examined. The second aspect of a loss is to understand how the actual price action caused the loss. Was there a trend reversal? Was there an unexpected gap?" Joe Ross

Hello:

It’s extremely important that everyone around the world has an idea where their currency is trending, especially if you’re trading. As we all know, whether you like it or not our governments and institutions influence currencies to their benefits. Nevertheless, trading hasn’t always been easy in recent weeks for many private and institutional market players. It’s vital that every trader around the world has an idea of the most difficult aspect of trading and how to handle it. The most difficult aspect of trading is the attempt to retain the profits you’ve gained. Money is easy to make, but keeping it safe is very difficult.

When the markets enter a period of protractedly irrational volatility and/or consolidations, many traders suffer; especially trend-followers. For instance, someone who bought the recently consolidating USDJPY would be stopped out with a loss. The buyer might blame herself/himself for buying the pair, without knowing that someone else sold the same USDJPY at the time she/he bought and was stopped out with a loss as well. When the market conditions are favorable, most traders make money easily, but when the market conditions aren’t favorable most traders lose all the money they’ve made. Some even suffer big drawdowns on their accounts after losing their accumulated profit, while some eventually receive margin calls. Yes, the most difficult aspect of trading is an attempt to retain your hard-earned profit. The best traders in the world are those who can suffer as small drawdowns as possible during bad market conditions who hold out long enough. One who makes money in easy market conditions isn’t a good trader whereas one who can successfully defend her/his profit in difficult market conditions is.

As I hinted before, pro traders also go thru technical issues and uncertainties, so don’t feel like novice traders are the only ones suffering. It was reported that the markets, which sometimes seem to be rotten, didn’t spare even the most successful funds managers. For examples, hedge funds titans, including Steven Cohen, Dan Loeb, David Einhorn and John Paulson were all hit by the global market activities. Let’s sum up their losses.

In the month of August 2011, they’d following losses:

Cohen’s SAC Capital Advisors lost about -3%.

Loeb’s Third Point Offshore Fund fell -2.8%.

Einhorn’s Greenlight dipped -1.4%.

John Paulson was reported to have lost -34% so far this year. And so on.

Which one of these market titans would find it easier to recover his loss? You can answer it yourself.

In some of his articles, Thomas Stridsman (CTA), usually talks about risking 0.25% per trade. Do you think he doesn’t know what he’s doing? It’s one way of losing in a professional way. By doing this, it’ll be very difficult for him to have substantial losses on the funds he manages. Unfortunately, many people out there assume that big position sizing is the key. That’s the assumption that’s being punished in the market time and again. One funds manager who’s long been using very small position sizing declared that over the years of trading with real money, there have only been insignificant losses – things that don’t last long – while enjoying annualized returns of 20% - 50%.

Short-term oriented traders love fast, dynamic markets, high volatility and, of course, significant trends – no matter whether the charts’ lines are going upwards or downwards. At the moment, the market proves to itself that it works even in apparent times of crises and emergency. Ultimately, the bottom line is this: After every market phase, after each irrationality, there’s eventually a good opportunity for entry into a stable and long-term trend. Of course, the current market environment of increased volatility also offers opportunities – especially to traders. If you’re active in short-term or swing trading, you can sometimes take moves in one day or some days that might otherwise take many weeks. And there’s also something else that the market turmoil can teach us again: Without any loss limit and conservative risk management, the game is over.

Paul Wallace, a former Royal Air Force controller of jet fighters, admits that trading is war. I conclude this article with his quote:

“Wherever possible it’s better to live to fight another day than waste your resources.”

NB: Please watch out for my coming articles with these titles: ‘Making Money out of Losses – A Blessing in Disguise,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘The Most Important Trading Skill – Who’s a Winning Trader?’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 1 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘A Hedge Funds Strategy,’ ‘My Hedge Funds Strategy Update,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Resist the Lure of High Risk – Part 4’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Gap Trading Revisited,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses - Part 4 (Losses Aren’t Abnormal),’ ‘The True Holy Grail – The Long Sought for,’ ‘Suicide Trading Techniques,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 5,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Optimization of the USDCAD Hedging Strategy – Bringing the USDCAD to Subjection,’ ‘Overview of My Signals Strategies,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘The Cost of Discipline,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Monthly Market Review,’ ‘Monthly Trading Report (November 2011),’ etc.

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC

Email: amustapha@fxinstructor.com

Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

www.fxinstructor.com/blog/author/amustapha

www.fxinstructor.com/blog

Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal

And my past articles are also available at: www.ituglobalforex.blogspot.com

If you want my coming trading articles delivered directly into your inbox (I don’t support spamming in any way), you can send me an email titled “Request for Trading Articles.”

NB: There is risk of loss in trading, but it is possible to be a successful trader.