My Short Story

Beginner Questions
1

Trading is difficult. I don’t want to sound like a pessimist writing this but chances are, you will lose most, if not all, of the money you deposited into your account. I paper traded for 4 – 5 months to gain my own strategy. I treated it like real money, managing my risk as I saw appropriate and managing my risk as if it was real money and live trading. I took two big losses within my first two weeks live trading because I did not manage my risk properly. I started with a $6,000 account and managed to decrease it to its current level of $1,200. Today is 3/25/2015 and I started live trading with $6,000 on 3/6/2015. Which means that in 17 trading sessions (counting Sunday nights here in NY), I’ve managed to lose $4,800 or an average of $282 a day. But like I said, I took two big losses that completely obliterated two things; my account value, and my confidence.

The first big loss was after the FOMC meeting on the 18th of March. I was with the other 83% of the population taking bets like short EUR/USD, and long USD/JPY and USD/CAD. I had a gut instinct telling me to take the opposite approach. I told myself that there are way too many people on one side of this bet and that I’ll get burned with the rest of them. But I stuck to my short euro, long dollar approach. And I did get burned. The dollar fell at a dramatic rate. And the euro gained even quicker and more violently. I had stops in but they weren’t low/high enough and I ended up taking a significant loss. I’m not sure of the exact number but I’d say in the $1,500 - $2,000 range…on one trade. Poor risk management. The other significant loss was an overnight position short the EUR/USD at 1.0838. First of all, no one knows what is going on with the Euro. We see investment banks (GS, Barclays, Citi) taking big bets on the EUR/USD hitting parity. Then we hear of retail traders and other banks saying that it will have a huge reversal, the ECB QE has already been priced in and that parity is completely out of the question. So no professional can accurately say “this will happen to the Euro”. I trust no one as of right now. Not even myself (sounds bad, I know). I began to question whether I should just back out of currency trading all together until there are clear paths.

Back to my loss on the Euro. I went short at 1.0838. By the time I checked back 4 hours later (around 5:00 AM), it had jumped to over 1.09. My first mistake was not putting a trailing stop loss on it. Poor risk management. Had I done that, my account would have been around $4,000 still. But I was ignorant and I asked myself how long of a timeframe would I like to keep this trade? Will it be a short term, intermediate, or long term trade? I began thinking if GS and other banks with decently high success rates when it comes to forex analysis state that they believe it’ll trade at parity in <6 months, well then I’m inclined to copy their trade. Along with the fact that the overwhelming downward trend hasn’t really shown any sign of slowing. And 63% of open positions through an unnamed online forex broker were shorts, one would be inclined to keep their short position for an intermediate term trade, correct? Well that didn’t work out so well. The Euro kept driving forward. Report after report came out pushing the dollar lower. Soon, EUR/USD was trading over the 1.10 mark. However, every time it hit 1.10, it stumbled back down to trade in the 1.0920 – 1.0950 range. Again, with technical analysis done, reading article after article of currency strategist’s opinions at various banks/hedge funds, I added to my short position. Time after time again, I heard that any “corrective move up on the dollar” should be taken as an opportunity to create a new short position.

Then came the day where the Euro decided to briefly stay above the 1.10 mark for much longer than expected and for much longer than it ever has before. I couldn’t take seeing my account in the red of another $2,000 along with seeing all of these estimates that the Euro is now ready for a reversal and people are stating it’ll hit the 1.1180 resistance in no time at all. So, I closed my short position, took my loss, and just stared at my P/L year. I lost $4,000 essentially in a matter of a few days.

It rattled me up quite a bit. To be honest, I’m still emotionally rattled. That never happens with me though. I’ve never been the emotional type but losing this type of money based on two trades where my gut instinct was telling me to go the opposite route and that I could have avoided this entire thing and even profited from it, made me so angry. What happened next was an even bigger mistake.

I began trading with anger. I felt frustration building and building and I tried convincing myself that I’d bounce back from this eventually. I began trading violently and quickly so I could try to recoup my losses as quickly as possible. I wanted to at least be profitable this month, even if it was $10. So I went into this insane panic trading. Taking whatever profits I could get. From $.60 to $100 per trade. I had a day where I looked up at the number of filled orders I had and it was near the 400 mark. But this type of trading only brought me into the hole deeper. And now my confidence is so rattled that I can’t even make a $10 profit on any trade. Any trade I touch, works against me almost immediately. So I kept taking these small profits and bigger losses. And now my account sits at $1,200 from $6,000 just 17 trading sessions earlier.

Now my dilemma is do I keep trying, go back to the drawing board but risk the rest of my account? Or do I say enough is enough and take a step back? I keep treating this as a hiccup in my trading experience. I was naïve to think going in that I’ll be profitable the first month, even the first 6 months. I dove head first into the shallow end of the metaphorical pool, and broke my damn neck doing so. But I’m not one to give up. And I’m not one to just say “you know what? I failed. I’m done”. I’m the type of person who thinks “well, I’ve lost x amount. I still have y amount. I can still bounce back from this. I’m not afraid of a little challenge and adversity.” And it actually motivates me to work harder, study harder, no matter how long it takes. No matter how many long nights I have to have.

Trading stocks for me is difficult. I go to school full time and work 30 (at times more) hours a week. On top of school, work, and outside studies for various exams in the Finance world, I took up trading forex part time. What I’m getting at is I’m not in a stable environment from 9:30 AM – 4:00 PM every day where I can sit down and concentrate on day trading stocks. But, when I get home at 10:00 PM, the forex market is open. So I figured that was my best option. I’d arrive from a 10-12+ hour day at school or work, finish some school work for 2 or 3 hours, and then begin studying technical analysis for another 2 hours or so. Once I became confident that I could identify various candlestick patterns and use indicators and such, I opened a demo account using thinkorswim. As stated earlier, I paper traded for 4 – 5 months so I can find my own strategy before becoming involved with live trading.

My drive for success in trading far outweighs my fears of failure. I’m not sure if that’s naïve or if it’s just ambition. I am confident that if I cool off a bit, and regroup my thoughts, that I can bounce back. It may not happen in one day (wish it would), and it may not happen this month, or the next 3 months, but I’m confident it’ll happen. I had two bad calls that cost me 65% of my account. I’ll have to learn from this and take those lessons in stride. I have to manage my risk better (clearly) and not let frustration build. As soon as I feel that I’ve taken enough hits to the groin from forex for the day (meaning come up with a max $ loss number for the day), I need to step back and reevaluate the markets instead of attempting to make up those losses by trading violently and putting myself in a worse situation.

Obviously taking losses is a horrible experience. Especially when they happen so violently and quickly like in my case. But the worst loss you can imagine taking is the type of loss where you didn’t trust your gut and the one where had you trusted your gut, you could have actually been decently profitable. But again, I take these lessons in stride. What else can a guy do?

2

Hindsight bias - or how we say it in other my country - everyone’s smart after the war. It is very easy to recognize your mistakes after the fact. The same as there are tons of economists that say they knew about the 2008 crash or US intelligence beating themselves up because the 9/11 seems to be so obvious when you look at all the circumstances that lead to it.

That being said - you have already recognized your mistake - poor risk management. Even if you had taken bad decisions, good risk management would have left you with no more than lets say 10% total drawdown and if you are ever going to ‘‘get back on your feet’’ that is the main thing you need to worry about.

The last thing I want to say about is the ‘‘gut’’ feeling. Should you ever follow it? The gut feeling is nothing more than your dopamines going off because of spotting either a pattern or the opposite - the disruption of it. So sometimes our ‘‘gut’’ knows things even before our conscious minds have even acknowledged the fact. But a problem with that is - you should only go with it when you are an expert of some field. That’s because an expert has seen all/most of the possible patterns, therefore, he can spot anything off as a reflex. When a gut feeling is used by someone who is not an expert it works more like gambling addiction.

Ok I am sorry have to run, but if you want to continue this conversation let me know I will say more when I have more time

3

One thing I have come to understand about FX Trading is that psychology trumps strategy every day of the week. Not only in trading but in everything in life. But if you have the right psychology combined with a good strategy, even if you lose a trade it should be no big deal. You should expect to lose trades.

There is a book I found on this site that should be read by everyone who wants to overcome or achieve anything at all, though it is written particularly to suit the traders perspective. It’s called The Secrets of Emotion Free Trading by Larry Lewin, I’m not able to post links yet but if you search it you will find it.

One thing I noticed in your post was you used the word “wish”. (I wish it would) Success can’t be wished, it must be earned. You have to be honest with yourself.

I’m not having a shot at you when I type these things, I think you are immensely brave to post this - it’s quite admirable really. Just take it as a lesson, keep to rules, $1,200 to $6,000 is an achievable goal, just go slow.

4

I’m sorry to hear about your loss. However, I’m here to say your story looks almost identical to mine and judging by your name, I can guess we’re the same age too. I was a confident college kid thinking I can profit within a couple months of learning and ultimately loss 50%+ of my capital within months, and I’m sure many traders here on BP has the same genesis of trading as you and I. And although I’m no where near a professional trader, I have finally seen the light at the end of the tunnel and I can tell you it does get better as you continue to increase your knowledge and grow as a stronger trader.

Here is where I saw your mistakes. You basically took a 50/50 gamble on trading on the FOMC meeting, it was either going to be hawkish or dovish. Now I know all the big banks released their predictions on how Yellen will get rid of “patience” however, it is still a great risk to trade during those huge volatile moments. As a beginner trader should’ve never participated in that trade.
The second mistake I can see where you went wrong is your position sizes. Although you never mentioned how many lots you traded with, I assume by the damage that it was too much. Although you have a decent capital for a beginner trader, it does not mean you should use all that to use.

My advice to you is to take things slow. Continue to expand your knowledge, browse through forums, youtube videos, etc to grow as a better trader. After a big loss like that your ego and trading confidence is probably rock bottom. I suggest maybe taking a break from live trading and sit on the sideline paper trading again until your head is cleared from the trauma. And when you feel like you are ready to give it another shot, don’t trade beyond 1K positions. Profit a couple cents to a dollar then focus on making the big bucks.
Best of luck.

5

I agree with your opinion on the gut feeling. It is simply a rush of dopamine when you recognize a pattern or set up. In my case, the two times I felt this “gut” feeling, I should have followed it. Unfortunately, I didn’t. I’m not stating making trades based solely on feeling is the right way to go, however it sometimes does help solidify and back up your established case against or for a market trend.

As for my mistake, you’re right on that too. I did recognize my mistake, fairly quickly. However, not quick enough as you can see by the damage I took. Risk management is something I will have to slowly learn as I trade. I don’t believe it is something that can be picked up in a few days or weeks. But it is a skill that has to constantly be worked on. On top of that, I will have to find my risk tolerance. Clearly, I have yet to figure that out. When I do, I will not be making the same “violent trading to recoup losses as quickly as possible” mistake after a big loss.

Also, as stated in my story, I need to figure out a max $ loss per day for the first few months.

Thanks for the reply.

6

ShredFX, I agree with your reply. Psychology does play a vital role in not only trading but every day life as you stated.

I will look into that book. I’m an intense reader. A few books that I think helped me in trading and in life are 48 Laws of Power by Robert Greene, 50th Law by Robert Greene, and a few others by the same author. I’m a big fan of his work with breaking down fear and overcoming it in any situation and it does have real world applications in trading. Greed, fear, adversity, and challenges are all highlighted in his many books.

I appreciate your last comment. This post was more of a self journal entry for me to read a few months down the line as well as a coping method from my loss. It helped me take a step back and be honest with myself.

Thanks for the reply.

7

Nykevin94, we are most likely the same age. I’m currently a second semester Junior in a NY college. (Won’t say specifics as there are many crazy people out there). But from what you describe, I’d agree that our story is similar, almost identical.

You’re right when you highlighted my mistakes. I did take a 50/50 gamble on trading the FOMC meeting. I also agree I should not have traded that key moment in the market as I’m a novice trader. I think I was just over excited by the fact that if I was right, I’d be golden this month. I took too large of a position in multiple currencies and got burned, like I said. I won’t get into the specifics of my lot size but I was highly leveraged and judging by my damage from one trade, you can use your imagination.

I’ll continue to grow as a trader. As I said in my reply to ShredFX, I’m a very active reader. Whatever free time I have, I read. I’ll continue to expand my knowledge of technical analysis and the foreign exchange market as a whole. I’ll study some strategies and test them out in my old demo account. I’ll still trade live but won’t make the same mistakes. I’ll slowly build my account back up again like you said, taking smaller profits with smaller positions and tighter stops. Along with coming up with a risk tolerance where I can give myself a max $ loss for the day before calling it quits for that specific day.

Thanks for the reply. Since were near the same age, we should network if you’d like.

8

Really feel for you buddy, sounds like a real kick in the b***s
On the plus side, you still have $1200 left of your original investment, presumably all money you decided beforehand that you could afford to lose.
I would climb back on that horse, albeit trading smaller lots, probably only 1 or 2 trades at a time, and on longer timeframes. This would allow you to use wider stop losses (so your trade has room to move) without risking more than you are comfortable with. Once youve entered the trade turn your pc off and do something else, the stops will offer you protection against sizeable losses.
Good luck in all your trades

9

There’s a lot here…and I’m going to be honest I didn’t read anyone else’s post.
You seem like an intelligent person, with potentially a type A personality.
Those two things, as hard as it may be to believe, can work just as strongly against you as they can for you.

A lot of the biggest pit traders back in the day, were dudes who didn’t even go to college and barely (some didn’t) finished high school.

Here’s my analysis:

  1. Learning to trade is a process. You’ll make mistakes like this, and they will cost you money. It’s no different than anyone else’s journey. We’ve ALL been there- whether it was $50, $5,000, or $50,000. Mistakes will happen.
  2. Stop trying to approach trading w/ a solution-based mindset. The market is not a problem with a defined solution. The market is not A + B always = C. Trading is a skill-based practice. (Credit to Peter Davies here).
  3. Clearly, you’ve over-leveraged yourself to near-oblivion. I’d recommend staying under 5:1 until you are very, very confident that you can up your buying power. If you have a $1,000 account- the total of all positions you have open would never exceed 5 micro lots.
  4. There is such a thing as diminishing returns when it comes to the educational process. Have you ever taken 2 or 3 days COMPLETELY off? That means you have zero interaction w/ any market / educational material- anything that has to do with trading?
  5. How much time would you say you’ve invested in researching how professional traders actually trade. I’m talking guys who were in the pits back in the day, or people who run live trading rooms w/ pedigreed backgrounds / accolades?
  6. What is that you truly seek to attain from trading?
  7. On a scale from 1 to 10, how much do you “understand” what happens when you hit the “Buy” button or “Sell” button? Do you understand where your order is going? How it is getting filled? Likewise- how familiar are you with the overall FX market? Do you know the major participants and how/why they interact w/ the market?
  8. Do you factor any of your trades on inter-market relationships?
10

FOREXunlimited, your analysis is great, well structured, and very true. I agree with all of your points. I do believe I’m a type A as I’m constantly trying to evolve and learn different things. Though I’m young (not tooting my own horn here), I do have a job in a well known firm doing back office trading and research analysis on anything from real estate to FX to mutual funds. I’ve actually just been offered a two year contract post college locking me in for full time work the day I graduate. This is the first position I’ve held in Finance where I stayed there for more than 6 months. I’ve held numerous jobs in the Finance industry and what I’ve discovered about myself is that when I stop learning, I become unmotivated, so I leave and enter a new position that educates me.

I love your 6th point in regards to what i want to attain from trading. I value education over anything else. Including money. Trading for me was more of a “let me learn something new, let me immerse myself in this segment of Finance, let me challenge myself.” I absolutely love it, love studying it, love reading about it. It is not work for me. It is something I spend any time I have outside of school and work doing. It is something I truly enjoy doing just like playing basketball, or running, what have you.

I managed to network with individuals who were prop traders at a Wall Street firm. They offered me the opportunity to shadow a few traders for a few days as they live trade equities and FX. That’s when I fell in love with it. I believe I fell in love with it because of the passion these guys had for the markets, as well as their extensive knowledge. These guys loved waking up in the morning. They looked forward to Monday mornings while everyone else dreaded them. That’s what I wanted. So I found my passion in trading.

I’ve networked with a few FX professionals both in and out of school (guest speakers and such.) I hope to continue networking and shadowing the professionals, again constantly learning and engaging myself.

Thank you for the reply. It’s appreciated.

11

Bravo! Good job! (No sarcasm. I am serious.) You popped your cherry! Have a beer. (or six like me) I am frankly impressed that you put on trades that heavy. Now start trading micros and see if you can trade a thousand trades with that $1200 and have at least $600 of it left. If you do any better than that, celebrate. After that, you will probably have figured out how to not blow up and you can go on toward profits. May you profit like a prophet.

And may the forx be with you.

-Adrian

12

Very VERY good thread, and very detailed. Good for ALL new people to read.

13

Wow you go to school in NY too? Small world. Finance junior as well except I go to a school in NJ. And no doubt, always here to network.