Your Blueprint to Financial Freedom

Now, over to Jason, who will reveal some of the secrets that made him a successful investor…

We all have defining moments…events that shape our future.

I want to tell you about one of these times.

It’s about a trade that had a huge influence on my career. A trade that would cement my views about what it takes to be a great trader.

I remember the time well. It was 1999 and I was a senior trader at Bankers Trust.

My job description was simple. I could trade just about any market — currencies, bonds, stock indexes, precious metals. I just had to do one thing…make the bank money.

The story I’m going to tell you is about two trades in the precious metals market.

Let me begin…

Sentiment towards gold in the late 1990s was close to an all-time low.

You see, the yellow metal had been in a crushing bear market for three years. The price had sunk to US$275 per ounce — its lowest level since the 1970s.

This was a time when gold producers were selling gold they were yet to mine. Central bank selling was also weighing heavily on the market (the Reserve Bank of Australia was a seller).

Needless to say, sentiment towards gold was awful. Just about everyone was bearish. 

Extreme negativity can only last so long. There often comes a point when the bears have nothing left to sell. This type of situation can lead to some of the best buying opportunities.

The key to profiting from these situations is patience. You need to wait for prices to break higher. 

One of my trading rules is ‘never pre-empt a break’. Buying ahead of higher prices may seem like a smart idea. Although all too often it proves costly when the breakout never occurs.

So I waited…and waited some more.

Gold finally began to grind higher during April. It was a promising sign, but I still wasn’t ready to pull the trigger.

Then, in early May, there was a surge. Prices shot to a six-week high in overnight trade. This was the confirmation I was patiently waiting for.

I got the call from the night desk in the early hours of the morning. The voice said ‘Jason, you’re filled on your gold order.’

Time has blurred the exact size of my position. Although I remember thinking that I had bought more gold than some producers mine in a year.

Quite simply, I was long a lot of gold!

This was one of my largest positions ever.

My defining moment as a trader

Within hours, a shock announcement came out of London. The Bank of England was planning to sell a huge chunk of its gold reserves.

Prices plummeted in an instant. My briefly promising trade was going to hell in a hand-basket, FAST!

One of the first rules of trading is you always have an exit point…a stop loss.

My stop loss order was in the market when the announcement came out. The problem was the price immediately gapped lower.

My fill came back and it was ugly. I lost more than three times what I was expecting…it was a disaster of massive proportions.

What happened next was my defining moment as a trader.

Gold had now broken to the downside. My trading rules were clear — go short if prices break lower.

There was no time to re-consider the rules. I reversed my position and went short without hesitation.

For weeks, I had been waiting to buy. Now, within a few minutes I had sold two large parcels of gold — the exact opposite to what I was expecting.

The first sale was an exit of my long position…the second was a new trade that would profit if gold fell further. 

And fall gold did. The decline lasted for over two months…and I held on for the ride. 

Staying with the trend is part of all my trading systems. It’s the single most important rule to maximising profits…and this time was no different.  

I finally closed my position after about seven weeks. It was just days before gold made a final bear market low of US$252.80. 

My second trade made back the initial loss, many times over.

The key to long-term success

Reflecting on these events was insightful. I had held my nerve under intense stress and made the correct decisions.

Having a system — a set of rules — made all the difference. It made it possible to make good choices quickly in a high-pressure setting.

Many traders head to the sidelines after a big loss. Sure, it feels safe…but they are out of the game. You can’t make money while you fearfully sit it out. 

Trading rules were my plan for a ‘black swan’ — a surprise event with a major effect.

I was still in the game after a large and sudden loss. This put me in position to take one of the year’s most profitable trades.

Following a system wasn’t new to me…I had been trading this way for a while.

What made this situation different was its speed. There was no time to think…it was a case of follow the rules without freezing up.

Here’s the thing: you set trading rules when there’s time for calm, level-headed thinking. You then rely on the rules when clear thinking is all but impossible.

The system trader knows what to do in any situation. This is a big advantage. He or she can be decisive and take opportunities many would miss. 

This experience gave me an unshakable confidence in system trading. I knew that consistently following a well thought-out set of rules was the key to long-term success in the markets.

I now fully understood why so many traders fail. It all comes down to preparation. The system trader has a plan for everything, while many traders have a plan for almost nothing.

System trading gave me a real edge. It was my blueprint to making a lot of money.

Cheers,

Jason McIntosh,
Quant Trader

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