The Silly Game of Trading

Back to September, I spent almost the whole month thinking how trading could be a silly game. After a buy order I put at 1.4100 on EURUSD in early August didn't fill as I mistakenly set a validity of one day on the order (and of course the 1.4100 was reached the day after my order died...), I spent my days waiting for the right moment to put on the position back as the EURUSD kept going up up up. In this kind of situation, if you're a bit experienced, you KNOW that as long as you are aside, the price will keep on going up but it will reverse against your position at the precise moment you go long!!! OK, I know you know what I'm talking about...

We call with my fellow traders the ability to buy at the top and sell at the bottom the "gift" and we call the "gifted" guys "Hoodoos". I have to confess that I happened to be a Hoodoo sometimes but as I said in a previous post, the more I trade the less I'm "gifted". For instance, here the story is not over yet and I don't know the final outcome but it will be probably not as bad as expected as I finally put on my long EURUSD at around 1.47 just after the FED talked in September : of course I've had bad time since as the EURUSD went against me and I've had good time too as it went close to 1.50 and is around 1.49 as I write, I'm still in and alive, under the circumstances that is surprising!

The thing is I felt like writing in this post about reasons why the trading can be a silly game and to be aside while the prices go up and enter when it reverses is definitely one of them. Another one I think about can be compared to when as a child I was playing chess: I was able to think about a single move for a while, its rationale, how would react the other player, try to foresee further moves etc to end up playing impulsively something totally different of what was assessed, generally a bad and stupid move. Silly no? A mix of impatience and impulsiveness. An instance of this one : last week as the EURUSD was slightly below the 1.48 mark and there was hard fights around that level, a young fellow trader of mine, who had been waiting for weeks for a market opportunity saw one here as his analysis showed a strong probability for the EURUSD to come back to 1.48. He went for the jugular long EURUSD with a very high leverage. The pair went straight against him (Hoodoo !) and overnight the position was loosing something not that far from 20% of his equity, he finally took the loss, reduced to "only" 7-8% in the morning.
He told me that morning "Mmmmh Sauros, the move down is very strong, and now I feel like going short". That's typically one of my strategies : "when you loose too fast in a way, just reverse the position" but I have different time horizon (one night is not too fast for him), use of leverage, risk management and sizing : unlike him I never bet the farm and rarely use actual leverage.
The only advise I could give him at that moment was to make sure to survive to trade another day and told him "Now the difficult part for you is to resist to the strong urge you have to make it back straight away and be patient enough to wait for the next opportunity". "I know" he said, "I agree, the only thing is I feel it's gonna drop down more".
When I came back from lunch maybe one hour after our discussion, he told me "I just made it back, I'm flat". I looked at my screen, the EURUSD had soared, the guy went long to make it back. "One hour ago you agreed to calm down on the trading and you were bearish, now you traded and went long? - Yep it's correct". Impatience and impulsiveness. Maybe the silliest thing in that story is that they paid, because one day it might kill him.

Now the silliest thing I can think about trading is that most of us know the way to succeed in trading but almost no one is able to follow it. Many traders, including myself, agree that the key of trading success is the "Cut your losses short and let your profits run" rule, while some guys argue that's the silliest rule. This rule is also the most difficult to apply because it implies that you need to have more losing trades than winning ones. There's what I call the break even effect as well, after a loosing streak we tend to bank a profit when it breaks even. Generally we just close far too early the deal that will bring us in a profitable year... We tend to forget that the goal is to make money and not to make back money... How many times all the stress, joys, cries, trading excitement, tons of research read, nights spent on the screen finally led to a profit of zero?
Another profound implication of the rule is that except for the first deal when we bet on a direction, we tend to sell when we should buy and buy when we should sell as we're tempted to let the losses run and take a profit short.

Ahhhh, I can see something way sillier than trading : it's Professional Trading but that's another story I'll tell you later my Fellow Traders