“Anyone who has been
involved in the markets has been humbled and respects the fact that this is not
an easy game no matter how successful we have already been or how much
experience we have.” – Charles E. Kirk
About 4 years ago, Mr. Geoffrey* came to me and said he wanted to learn
Forex trading. I explained to him that training would take some months because
there were crucial aspects of this business that people tended to ignore and
we’d need to work on those areas.
The training began. Initially, Geoffrey showed interest, but as
time went on, he lost patience. He told me that since he knew how to buy, sell,
close trades and handle basic operations of trading platforms, he wouldn’t want
to waste time with further training. He confessed that he’d just purchased a semi-automated
trading software which would make him rich very quickly. He showed me the historical
results of the strategy as published by the vendors – 4000% returns in one
year!
I tried to caution him against greed, but he thought I was a
doubting Thomas who wanted to discourage him from speedy attainment of
financial freedom. I was too conservative for him. Geoffrey took a
high-interest loan of $5,000 and started trading with it, using that semi-automated
strategy. He constantly let me know how his trading was. I saw that he was
risking 20% per trade and I warned him against that, telling him that 1% risk
per trade would be OK instead.
“I want to pay my kids’ school fees,” he retorted.
He was able to pay the school fees that week. Even he made
additional $120,000 within the next 2 months, on that account, and therefore,
he was lucky enough to pay back the loan with the interest on it. His plan was
to raise the remaining balance to $1,000,000 before he withdrew everything. I
was jealous of his achievement, I began to feel like a fool with the so-called
trading beliefs I held on to.
Without mincing words, Dr. Woody Johnson says there are
traders who have good market knowledge, a good plan, and good money management
but fail to keep their commitments and follow-through with the plan. I discovered that Geoffrey didn’t use stops;
he preferred to run negative trades until they came back to entry prices. The
strategy he was using had stop loss recommendations included in it, but he
ignored those recommendations. I warned him against his failure to use stops.
“Come off it, man. Stops are for chickens.” He
rejoined.
I ceased giving him advice.
One day, he messaged me on Skype, asking me what went wrong
with British economy since the Cable was dropping like a stone. I replied that
I knew that kind of drop was normal, so I didn’t bother to know what caused it.
He said nothing in return.
At times, the markets may show sensitivity to fundamental
figures and move accordingly; at times, the markets may ignore the
fundamentals. After a few days the Cable was still dropping. He messaged me
again on Skype, asking me the question below.
Should I close the trade?
I didn’t know the trade he was talking about, neither did I advised him
to open the trade. So, why would I advise him to close the trade? He opened the
trade himself and he should be responsible for the outcome of the trade. His
position size was suicidal; plus his trade management technique was dangerous.
I didn’t respond to his question.
Later I began to empathize with Geoffrey. I was aware that something was
strong with his trading, so I decided to visit him. I met him yelling at his
hen.
“You unfortunate hen! You’ve been incubating your eggs for
over 40 days without hatching them. Your mates hatch theirs within 21 days, but
you’re here showcasing your uselessness. If you want to hatch your eggs, hatch
them quickly. If you’re not ready to hatch, get out of my sight!”
Geoffrey was extremely bitter as a result of the adverse
condition affecting his trading capital and he was talking it out on the poor
hen. He chased the hen away.
As I entered Geoffrey’s trading room, I saw that his account
was down by -$100,000. He’d previously raised it to +$180,000. He became
overconfident and began to risk 30% per trade (without stop loss). He’d a few
positions that were in favor of the Cable because his semi-automated strategy
generated a ‘buy’ signal. The rally that acted as the cause of the ‘buy’ signal
was a mere rally that trapped the bulls before the currency pair assumed a
significantly long-term downtrend.
As I was watching the chart, another fundamental figure
affecting the GBP was released. The effect aided the continuation of the
downtrend. The market, which had dropped by over 800 pips already, dropped by
another 150 pips. Geoffrey suffered.
I was unable to say anything – I felt very sorry for him.
Eventually, Geoffrey closed his positions. The new available
balance was less than $1,500. At least, he was able to avoid a margin call,
wasn’t he?
I won’t mention the consequences Geoffrey faced as a result
of his foolishness.
Like some long trades at the time, the bullish gains quickly evaporated.
However, while Geoffrey was badly affected, certain traders have learned how to
survive that kind of price action; they’ve even learned how to make money from
that.
This article is ended by this quote:
“As
dedicated as I became, it was not until I was able to both profit and protect
my gains that I considered myself a successful trader.” – Chris Ebert
*This is not his
real name.
Source: www.tallinex.com
Learn from the Generals of the Markets: Market Generals
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