Knowing Which Style to Play and When to Play It Part II

As per my previous post on this topic title I mentioned that I had and am still continuing to face some rather monumental difficulties in my life and in my "career" as a currency trader (aka, foreign exchange operator). I am small time, an account less than 10K (growing though), with some memorable wins and some gut-wrenching losses in my past. My pattern is usually one of two or three steps forward and a step or two back, but at the moment I am progressing. Part of my problem at the moment is the fact that I cannot support myself through this activity alone, but I am looking forward to the day when it will be possible - I was on the cusp of it approximately three years ago, had an account just shy of 10K > grown from 1K a year prior, with an equity curve that I consider impressive considering I was working for someone else full time, with a combined commute of one to two hours a day thrown in to suck extra time away.

Then I got desperate, my work situation was - less than ideal and growing worse by the month, and I decided, and I chose my words carefully - fuck it, I loaded up against GBP/JPY sold 100,000K into the wickedest rally that I ever saw on this pair - a pair which for the most part I loved to buy low and sell high on. I threw myself against a brick wall, and refused to give up - being honest here. I lost, in the end $4500 on the trade when on Boxing day of 2013, the markets gaped above my stop loss - or did I run out of margin - no matter - I was stupid, and I was stupid for a period of a couple of months where I kept thinking I would come back, and I kept selling on the way up to add to my woes. Plain and simple I was an idiot, running into a brick wall repeatedly, thinking, soon it will retrace and then return to the range, and I'll earn my next 10K in a matter of months. I cannot stress the utter stupidity of the initial decision, but also the continued stupidity of what I continued deciding as the days wore on and I lost more ground to this trade, never mind the -ve carry on this sucker.

It takes a special kind of idiot (me at the time) to allow the feeling of desperation to overwhelm my normally good judgement (and cold blooded trading style), to interfere with my analysis, my money management, and my damn case money.

Never mind the fact that less than a year later, I did this again with the AUD/USD (during the shocking interest rate cut), this time I went long, and continued buying on the way down. lost only 1.5 K on that one, and in my defense, it was my home life (roommate, whom I sure meant well, but was extraordinarily harsh to be around), that was the distraction and the negative influence, so much so that on the month that I moved, I wrote this this piece on the importance of a good environment when attempting to work magic, to employ a craft, to build something of lasting value.

I am now here, just under a year later, and while it has definitely not been a cakewalk by any stretch of the imagination, I feel that my instincts for the trade are somewhat returning. I am nowhere near the level that I was back in the first 3 quarters of 2011, where for three or four solid months, I was earning more money trading than I was at my day job, while working my day job, while commuting, while sacrificing precious time in the present for the future, but I am still playing, and still making gains.

What did I do when I realized I had to fix my brain, especially in regard to how I operated? I stepped back, after a few mistakes, and took things slowly, also my broker started allowing microlot 1K positions to be taken, so I started trying to think like an institutional trader, which means I began to take my business more seriously and enter into deals more cautiously, and more slowly, building positions gradually - which I recommend to anyone who has lost the magic touch of instinctively finding tops and bottoms (which is what I used to do) and playing their whole hand right at the reversal point; which is a bit of bull, it is not magic, and tops and bottoms are generally speaking only a matter of time and perspective (quarterly, monthly, weekly, daily, 4-hour, 1-hour, 15-minute, 5-minute) i.e. which chart is being looked at.

While I have played a few hard and fast trades and done it well on occasion, I traded small for the most part and gradually improved my instincts to the point where some of the fear (and chain-smoking) diminished, and started to have a bit of fun. I realized this step back in intensity and focus allowed me time to heal, and time to look at other aspects of my life sorely lacking...

While I do not think I was quite at the breaking point, I really did feel almost no reason to continue trying, in trading and in life - it was that bad. I am not now in a much better position than I was a couple of months ago, my environment is not great but it is for the most part stable, my day job leaves a bit to be desired but the people there are great, and though I am still way more solitary than I am used to (I miss my old friends badly because I shut them out), I did make a few new friends when I stepped back and just feeling some sincere and meaningful human contact can work wonders even when the world seems to be collapsing around you.

Knowing Which Style to Play and When to Play it

It has been a strange couple of years for me, my head has been in a serious fog for a while and the last couple of years have been bleak. Lost a fairly decent job a couple of years ago, and this year I lost two very good friends who passed away. To make own matters worse, I isolated myself from my remaining friends. Though I did make some seriously bad mistakes and still do, both in life and in my trading, I have learned a few things about both and about myself.

Sometimes I make the same mistakes over again, because well, a painful lesson is often my best teacher, learning it twice or three times creates a deeper impression.

I have learned the strength of a diverse trading style, with contracts spread among several currency pair trades, rather than placing everything in one idea. This used to put immense pressure on me as my progress would be either halted when one idea failed, or stalled while that idea languished in limbo, or reversed as the idea turned against me and cost me more than I should have allowed.

The lesson is that no one idea should or can realistically make a person that trades wealthy; it can happen under the right circumstances, but it it not likely and therefore not highly probable.

Someone that studies and takes positions in the market with an aim to be an "expert" or at the very least professional about it should have more ideas to employ than they know what to do with as they progress, then it is a matter of choosing the right ones, in other words, best risk/reward for your efforts - life on the other hand is not so simple.

When I realized sometime over the last year I had issues with the way I operated, I tried to take steps to improve myself, and what I did was I took the margin I had left over (from carrying some -ve positions) and choosing a bit more carefully where I put my money, and by taking several months to use smaller positions and also to scale into said positions, by buying or selling in blocks, at different levels, rather than the whole position at once, and also waiting for price reversals at extreme levels and then having the patience to wait for that tiny position to be worth something substantial (weeks, and months as opposed to hours and days), which means essentially swing trading with small amounts to reduce the amount of stress I carry day to day. It has not worked out perfectly but I am still a human being with some degree of psychological issues - so bad I went to see help.

Over the last week or two, I have tried to take day trades or larger positions (with recently freed margin), and made a few mistakes and a few good decisions. I am not sure if I will be as fast as I used to be, as this takes good health, an even emotional state (something I have not had in a long time), and plenty of rest. Trading when your life is in a survival mode is difficult, and I realized that I have been in that way of thinking for the last year and a half.

Baby steps it seems, for now, in life and in my trading, and if I learn to run again, it will be nice, but I need to make more progress before that can happen, and continue trying to cut out the bad behaviors that mess me up. I am not trying to be perfect; I will settle for better though.

Trading financial markets should be something you approach with a happy and healthy attitude, but then I realize, so should life.

Trading On The Go ~ I Move In Four Days

I had the intention of not trading during the last week and this week as I find myself in transition, but then, I make the mistake of opening my charts and seeing opportunities at every turn. I had read somewhere that you should not trade when things are unstable in your emotional realm ~ but that is how life is and if I were to only trade when things were stable, I would have too much time off. I found a good compromise in that I open smaller positions than I can when my life is in extreme flux to compensate the stress load and the results are good! In fact, by playing smaller positions, I've learned to do more with less, as the saying goes. Over the last couple of days, I had a tiny position in EURUSD -ve which I cashed in this morning for +8 pips, USDJPY +ve which I cashed in for +41 pips, and a USDCHF +ve which I cashed in for +2 pips. 50 pips is not bad considering I did not plan on trading at all. Since that, I've re-opened a long USDCHF at a better price and I am sitting in a coffee shop right now, planning the rest of the packing I have to do and the move I have scheduled for this Friday.

The Value of Mobility

Just recently, I found myself away from home (and therefore my desktop) for about three weeks out of the last seven. I did have prior knowledge so I have a laptop. This is about the first time in ten years since I have owned a laptop and I must say that considering what it has done for me, along with the proliferation of Starbucks locations (and their free WiFi service). I am not yet the type of trader that can leave my positions running for days without checking and managing them, so the ability to operate when I am not at a desktop computer is invaluable for me. I know, I could still check my phone and call in (I won't talk about the lousy phone app that my broker provides), so instead I'll just say that I am happy with my new mobile solution. There is nothing worse than a missed opportunity, and this should cut down on those.

You Have to Eat While You Dream

When I started the project, the primary objective for this blog was to be an ideas board for long term wealth creation through trading and investments, however, I am now made aware that basic survival is a primary objective for traders and all people. As a (hopefully) consistently successful independent trader, overhead should be fairly simple, and comprising mostly of the cost of living, entertainment, information sources (Internet), and utilities. In this sense independent traders have an advantage over many businesses which have larger operating costs.

On Friday July 3rd, 2009 in the evening I had Bloomberg Television streaming in the background when I heard an interview with Jack Welch, on For The Record. One statement given by Mr. Welch caught my attention more than any other: "you have to eat while you dream."

The statement was a consise reply to the question posed (and I'm paraphrasing) that: "is it a bad thing that [Jack's] record has set a standard on Wall Street, and should short term goals be achieved at the expense of long term goals?"

He expanded further when he stated that a business needs to meet short term goals in order to survive for the future and that a good business should be doing both at the same time rather than sacrificing one for the other.

Although Mr. Welch was speaking as the former CEO of GE, and his comment was intended as advice for up and comming and established business leaders, it can be taken to heart by individuals. As independent traders, we are all business leaders in the sense that we operate our own businesses.

In case you are like me and do not own or want a Television, you can stream Bloomberg TV at http://www.bloomberg.com/streams/video/LiveBTV200.asxx

Part of keeping expenses down to increase your capital is eliminating wasteful costs, and one of the most wasteful for some, is the circumstance of carrying a large credit card balance. If you are like me, you have decent or average credit, and you have a credit card or two. If you are a trader, I imagine you need a credit card to at least open your trading account and to fund it.

Although credit card debt has been a growing issue over the last few decades, it has come to a head with the recent recession.

You do not need to cut up your credit card. Credit cards have some very useful benefits, and for some, a credit card is absolutely necessary to their way of life or business.

There are several good rules to keeping your costs down, and of course to keep your credit card from costing you additional monies. One piece of advice that I was given years ago was to "Live beneath your means", [even if only slightly beneath your means.] The essence of this is to spend less than you take in. The purpose of which is to have extra money. What you do with the extra money is your business, wheather it be for your next vacation, your next car, house, having an large emergency fund, using it to build more wealth, or just for the sake of having it. The result of this recommendation should be a personal mental adjustment that has saving money occupy the back of your mind at all times.

In regard to the credit card, my golden rule is:

Pay your full balance before the due date

The reason for this is simple. When interest is paid on a credit card, the credit card companies are being paid for a service from which the holder receives no lasting benifit. Credit card holders are paying out money for the luxury of holding a balance on things and/or services that they have previously purchased. If the holder cannot pay the full balance for one month, it can be understandable; either they overspent through lack of foresight or for the sake of an emergency. Ces't la vie. If the full blance is not paid for two months, the costs start to magnify and it may be a clue that the holder of the credit card has a serious problem. If this situation repeats over a series of monthly balances, the holder may be in a downward debt spiral and extreme measures can be taken by either the individual, or in a worst case scenario, the credit card companies will eventually pursue the holder for the full balance if and when a minimum payment is missed. This is a personal financial disaster waiting to occur.

You don't need to always pay cash, in fact, in my opinion, the whole point of having a credit card is convienience; you don't need to carry a large amount of cash ever, and you can track your expenses very easily with a credit card, in fact, more easily than paying cash. The caveat is to not overspend your margin of error, and in my humble opinion to have the cash in your bank account before you do the damage on your plastic. One of the first psychological steps is to not count a credit card as a extension of personal income, rather as a means to extend your purchasing power temporarily.

Have a minimum of cards to track, and try to have or obtain cards without a yearly fee.

Keep track of your credit cards regularily, and a good way to do this is to make use of online banking to check balances weekly; be aware of the upcomming balance to be paid and then pay the full amount a few days beforehand. The reason for this is simple, anything that can go wrong will go wrong; in this case, Internet connections fail, weekend getaways can happen on the spur of the moment, or simple memory lapses. In addition paying it off will ease any potential anxiety.

In regards to existing credit card debt, I can only advise paying down the principal as quickly as possible, over an above the monthy minimum but hopefully people in general avoid the trap before it springs. If you have a legitimate and uncontrolled problem, you may want to either seek help and/or have the card cancelled until you can learn self-discipline.

If you have not watched it, I do recommend that you watch The Secret History of the Credit Card which I recommend to anyone with a credit card. You can do so online at http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

Through my own experiences, I have some aditional personal tips to pass on to help your bottom line.

Eating out can be a expensive so I try to keep it to a minimum and save it for social occasions to get the most out of my money. Unless you work 18 hour days, most people can manage to prepare the majority of their food at home. When I was doing tech support, I was a cronic take-out and dine-in junkie. When I let go of this habbit, and kept these to a minimum, I found an immediate improvement in my bottom line. In addition, you should be buying the bulk of your food at a supermarket as opposed to convienience stores (which charge higher prices on staples and basic food items, and your produce (fruits and vegetables) at a decent produce store (typically better quality and cheaper than a supermarket). It also goes without saying that when you do eat, you should make balanced and healthy choices to keep your body and mind in shape, which helps you stay productive and happy.

Before you buy it, ask yourself: do you need it, is it useful, do you really want it, will it make you happy in the long run? I know several people that have houses or apartments filled with things that they either don't need, serve no purpose, and does not add to their quality of life in the long run. Knick knacks encourage clutter, which can cause you to lose valuable time when you have a mess, and a major inconvieniece if you lose something of actual value or necessity. In addition, I'm sure the earth will be better off without a few useless trinkets.

Increase your personal equity (savings and assets) through goal setting and visualisation. Give yourself a small first goal, and then when you get there, increase it. Try for something simple at first, like having 1 full paycheck in the bank, or say $1000. Creative visualization and self-discipline are handy for this; it is the process of goal setting, and thinking positively while actively pursuing your desires. When you start to accumulate money, then you may want to actually get your money to work for you. Wheather it be real-estate, stocks, mutuals, savings bonds, or investing in a business, remember that your end goal should be to do something good for yourself, your friends, your family or the world. Money doesn't buy happiness, that much is true, but as a tool it can expand personal options dramatically when used properly and with respect.