Riding Out The Storm

Beginner Questions
1

Well, after a few euphoric weeks of profitable trading, my beginner’s luck has just run out. Thanks to the coming US elections, I have open trades where I’m down 80 pips on EUR/USD, down 180 pips on GBPUSD, down 150 pips on USDJPY. The losses are too large to bear so I am stuck. These were originally planned as intraday trades, but as the losses mounted, I kept praying for a comeback, which hasn’t happened yet. I had stop losses set but trailed them downwards till I finally removed them because I was going to hold the trades for just a day, not thinking that the market could spike so suddenly and without warning. Hard lessons learned.

I have enough reserve margin to sustain a longer hold period as long as the market does not keep falling (or rising) indefinitely. So I plan to just sit tight, wait until the election hysteria passes, and hope the markets return to normalcy.

The question is - will the specific currency pairs I mentioned come back if I just hold on? And how long will I have to wait? I’m not even thinking profits - I’ll be happy if I just get my capital back. Bonus question: what direction will the forex market go if either candidate wins - up or down?

Thanks,

Fil

2

First of all, [I][U]don’t[/U][/I] take me as sounding “unsympathetic”. I don’t mean anything I say that way, and I wish you improvements! :slight_smile:

And they should have stayed that way, no?

Let winners run, and cut losses short. “The first loss is the cheapest”.

Investing is sometimes “trading that’s gone wrong” (meaning that a long term trade can sometimes be something that started as a scalp, went against you and turned into an intraday trade, went more against you and turned into a swing-trade, went more against you and turned into a long-term trade, went more against you and then turned into an “investment”!). Don’t let this happen to you. If you open an intraday trade, make it an intraday trade.

[B][U]It’s ok to have losers[/U][/B] (as long as you don’t let them run! :wink: )

And clearly you were very unlucky, here, as well.

Well, as you say, hard lessons learned. And I hope not too expensive. Valuable and important lessons, anyway. You have learned them and don’t need smart alecs like me to lecture you. :8:

Yes, these are the questions.

I don’t know the answers, but the GBP is well up, today (after the court ruling in London). That may not last, though?

Some pairs will rise and others fall (“bonus cheeky answer”)! I think what you’re really asking is probably what the effect on the US Dollar will be, according to the US election? The general consensus of opinion seems to be that a Clinton win will be better for the Dollar in the short and medium term. I don’t pretend to understand these things, myself.

Sorry not to be able to offer you any advice … possibly others with more “fundamentals awareness” than I have will reply; but even so, soliciting views in a forum is no way to go about making your trading decisions, really, you know? :33:

Recommended novel: Two Riders of the Storm - Wikipedia

3

Well, I don’t have time to get out of my losing positions before US elections happen in the next 72 hours. The best I can hope for is postpone my loss liquidation decision until after the elections. I was thinking of doing this by hedging all my losing positions by trading same-size lots in the opposite direction using a different account, since hedging is technically not allowed in the US. That would have the effect of freezing my positions until after the storm. Again, the object is not to make money but just to preserve my positions until better times return. It is to be noted that my US broker has just raised its margin requirements on GBPUSD in anticipation of massive volatility next week.

Your thoughts?

Fil

4

It sounds terribly complicated, to me. To do that, you’d presumably be opening trading positions? I don’t quite understand why you’re apparently able to [I]open[/I] trading positions but not able to [I]close[/I] them. Sorry - I really can’t advise you about this. I think perhaps your best hope, here, is for someone who understands fundamentals to offer an opinion - but that really wouldn’t be me. :8:

Hoping you find a way to resolve it successfully.

5

Sorry if my earlier post was unclear. What I meant is that I want to avoid closing a losing trade because it is too large to close. So the plan is to open a new trade with the same size & same pair but in the opposite direction. For example, if I am am short 3 lots of GBPUSD and it is down 250 pips, I am scared that the GBP will continue to rise and the USD will fall if Trump loses, so I will countertrade by going long the same size and pair. The hope is that it will offset each other such as there will be no change in my account overall. However, it will buy me time to enable me to wait until the trend reverses and hopefully I can ride it back to breakeven. Makes sense?

6

Hi Piplipino. .

Sorry to hear about your situation .

Excellent advice, as always, from Dr Lexy!

May this be of help to you:

http://forums.babypips.com/forextown/82930-my-5000th-post-video-dealing-margin-call-blowing-up-account.html

7

Yes - that’s so: I followed the “hedging” argument.

But how will hedging as you suggest be better than simply closing your trade and maybe deciding subsequently to re-open it whenever you would have closed the hedged trade? Won’t you just be paying extra commissions/spread/dealing-costs to be in exactly the same position?

I see how it works, and agree that there would be no change in your overall account for the duration of the hedged position. What I don’t understand is how you actually [I]benefit[/I] from doing that (rather than simply closing, with the option to re-open subsequently in either direction, of course, if you judge it appropriate). It seems to me that you just pay two lots of dealing-costs for the same overall net position.

8

True, what Dr. Lexy says:

hedging in the wrong hands can be a

D I S A S T E R

…

9

Many thanks to both of you for bearing with me up to this point.

PipMeHappy, I watched your video which was very informative - in answer to your question about whether I am ready to accept defeat - the answer is a resounding NO. And here is why - I really believe the US election is going to be a black swan event, except that it could go either way. I am holding 100% short positions with USD as the second currency in the pair. I am already in the red because the USD has been weakening against the EUR, the GBP & the JPY. I strongly believe that if Clinton wins, the USD with surge much higher, and I will be able to recover my current losing short trades. The reason I do not want to sell at a loss now is because the market might go higher with a Clinton victory and I would be left holding the bag with a double whammy - not only did I lose big time on my pre-election closing, I will also miss the rocket ride to the top. On the other hand, if Trump wins, and I have no hedge to act as insurance against accelerating losses on my open positions, the USD will nosedive and I will be exposed to potentially unlimited loss on the downside.

Maybe I’m using the wrong terminology in that I am saying “hedge” when I really mean “straddle”. To put it bluntly, I want to have my cake and eat it too. I want protection against both the upside as well as the downside, and my case is doubly difficult because the loss has already accumulated and I am only trying to stem the bleeding.

If hedging is not the right answer, I might consider putting applying emergency brakes by erecting stop loss barriers this late in the game. But then I’m up against the same dilemma - the stop loss gets hit if Trump wins, and then the market turns around when Americans return to their senses and realize that Trump is not the bad guy he was made out to be after all.

Philosophically, because of my innate fear of losing, I equate outright closing a trade at a loss to going to hell, while hedging a potential loss while the position is still open is more like going to purgatory. Closing a position has an air of irreversible finality to it, while hedging it means it remains open, waiting for Second Coming by way of a market reversal. Maybe I’m only delaying the inevitable, but who knows?

10

A loss isn’t a failure, its a statistical unavoidable certainty on a number of trades because you can’t predict the future behaviour of markets, nobody can. Take the loss, get out now, stop trading and read Mark Douglas on the psychology of trading.

11

Interesting/helpful discussion on ‘hedging’ here:

12

First off hedging in most newb traders talk is taking the other side of your trade. Bad idea just cut you losses and live to fight another day. The only person that will walk out ahead is your broker from transaction costs. True hedging consists of building a portfolio and spreading your assets out (so to speak). Taking the other side of your trade is the same as closing it but you are now also out the transaction costs which your broker will thank you.

Do a lot more research on hedging before bringing that concept here. Sure you can look everywhere and see people doing that and damn there win ratio is off the charts but they eventually have to answer for that losing trade and most of the time it ends with a margin call. You stuck in a bad trade now so fine you “hedge it” now you tied up margin and now what you take another trade and it goes against you now what you “hedge” that to. Just keep going and soon you will reach a margin call and your broker will liquidate your positions and if said broker is takeing the other side of your positions you think they are going to liquidate positions in your favor?

I suggest cut your losses they happen. Go back to demo because you are not ready for real trading. If you can cut your losses you WILL got slaughtered out here and you obviously need to work on your emotions and need to make a trading plan that you will stick with. If the trade proves to be wrong you dont stick with it as you are to deep you cut that **** and get out. You dont stay in it and hope for the best thats what rookies do and they get killed out here. Choice is yours but CUT YOUR LOSES.

13

What will happen you don’t know because is not in your power to know the future. The only thing that was in your power was the amount of risk taken when you have opened the transactions.
If the future events happen how you wish to happen that doesn’t mean you have predicted the events. It means you had luck, and even worse you will win by doing a big mistake, and you don’t learn nothing when you win by mistake.