A Trader’s Tale

To wrap up “do what you know”,  let me tell you a trader’s tale.

Ray has been trading for about five years. In December, he could do no wrong. He had a 100% win rate! Then, this month, he could do no right. He made money only in 2 trades from 18. More importantly, all the money that he had made in December, he had now lost. And, to top it all off, he was on a five consecutive losing sequence!

“Am I ever going to get it right?”

This is the question Ray was asking himself after he had taken a short position in the USDCAD. He had been faced with two options:

• Short at around 1.3220, or
• Short at around 1.3280

Based on the chart below, he had carefully assessed that there was a 63% probability that the pair would head south from the 1.3220 level.

Instead, it went to the 1.3280 zone.

“Not to worry”, thought Ray. “At least the market is now coming off. The Fed announcement tomorrow should prove bearish for the USD. I guess I’ll just have to sit through the figure.”

On the day of the Fed announcement, Ray expected about a 50 point range. As a result, he expected to be in an open loss situation ahead of the rate statement. Instead, the pair sold off to the point that he was in profit.  He was now faced with this quandary:

• Take the profit – at least he would stop to run of outs. He would also stop the nagging fear that this trade will again turn out to be a losing one! But, if he did that and the news event did turn out to be bearish for the USD, he’d leave dollars on the table! Then, regret would set in big time.
• Hold the trade through the figure – but then, he would have to live with the choking fear that this trade would turn out to be another humongous loss!

In examining his options, Ray did his best to suppress the anxiety he was feeling; and did his best to come to a rational choice.

So what would you do? Would you hold through the figure? Or, would you take the profit on offer? What advice would you offer Ray?

Welcome to the real world of trading!

Ray’s choices are ones you will face daily. How you manage them will determine whether you succeed or you fail in the long run. The choices are simple ones:

• Do I take the trade now or do I wait a little longer? If I take the trade now, I may turn out to be wrong and lose money. On the other hand, if I wait, I may miss out on what will be a very large profit.
• Do I exit the trade now or do I wait a little longer? If I exit now, I may miss out on massive profits. On the other hand, if I don’t exit, I might lose all my profits – or at least a substantial part of it.

Here’s the thing: if your plan has an edge, you need to apply what you know. This means you need to manage your feelings so that the 3 F’s don’t shanghai your intuition and your reason. To manage your feelings, you need to plan, and and you need to plan carefully.  Then you need to execute your plan. Also, you need to keep a record of what you do – repeat what works, junk what doesn’t.

Does successful trading sound like a lot of work?  You better believe it! On the other hand get it right, and you have over 90% of your competitors offering you their money. What other profession offers that?

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