Tuesday, June 24, 2008

People Who Think about Art as an Investment are Pathetic! --IFCN Wk 29 -Tue- Equity: $760.55.

The famous quote above is from Walter Hubert Annenberg (1908 – 2002), an American billionaire. He was a previous owner and publisher of the Inquirer, the creator of Seventeen magazine and TV Guide; a philanthropist, and a diplomat.

Estimates are that Annenberg donated more than (US) $2 Billion in his final years. Believing education was the greatest investment he spent much on schools, libraries across America. He still had $4 Billion to leave his family when he died.

His collection of French impressionist art was valued at approximately (US) $1 Billion in 1991 and was donated to the Metropolitan Museum of Art in New York City when he died in 2002.

He was a pro in the art department.

In 1991, he pledged his $1 Billion collection of Cézannes, Monets, van Goghs, Gauguins, and others to the Met (postponing delivery, until his death; meanwhile he collected substantial tax breaks-- my kind of guy).

He was smart with his money, thought ahead for the “long haul”. He figured he'd be around for a long time, so he made sure that his capital would last long enough to accomplish his purposes. That was smart too. He made it to 94.

We have to be thinking for the “long haul” as traders. Strangely enough, being ready for the long haul as traders has little to do with money.

It has everything to do with your mental aspect.

Trading is not a quick draw contest. Yes, sometimes you have to be swift to take advantage of situations, but not overly so. There are plenty of opportunities that come very regularly. If you are ensconced in this business of trading, you will make yourself ready to take advantage of them.

Trading is not investing.

There is an old cartoon from a decade old Wall Street Journal taped to my desk.  This is the kind of "art" I collect.  I attach it below:

That concept is definitely not for a forex or derivatives trader.

We deal with high leverage and yet, have to take losses of reasonable size. We must be willing to take profits of unreasonable sizes to gain. These abilities are definitely not comfortable for the many, just the few who can adapt to it.

This week we were up over 3% early Monday morning in the Challenge account. Now, the account is 6% lower from the peak, with actualized losses and only 2 potential trades that may still turn into losses.

I don't have a problem with this kind of trading. Do you? (Some do – I got some emails today from some new readers saying how ridiculous it is to have a total of more than 200 pips profits on Monday and not take them..., my answer? Go ahead and take them if you wish, it is your money....)

Imagine that trading professionally may entail many successive weeks like this, over and over again until you get a BIG move that brings home all the profits. It does.

Imagine giving up the week before the BIG profit week. It happens to many. The poor bastards usually feel like hanging themselves.

It comes down to the “long haul” mentioned before. To succeed and survive as a trader you have to know what the possible consequences are from your trading style. They may not be pretty, but the results you are seeing on this site are better than 90% of profitable trader's experiences.

If you are able to keep putting in the orders after mounting losses week after week, you have the right stuff it takes to make a success. (Another reason why you must trust your method of trading!)

The following are this week's FirstStrike entries:
  • Eur/Usd: short @ 1.5557, stopped out at 1.5617 for a 60 pip loss.
  • Gbp/Jpy: short @ 211.09, stopped out at 211.99 for a 90 pip loss.
  • Gbp/Usd: short @ 1.9673, stop 1.9733. Trade in progress.
  • Usd/Chf: long @ 1.0415, stopped out at 1.0355 for a 60 pip loss.
  • Usd/Jpy: long @ 107.90, stop 107.30. Trade in progress.
Note: Any FirstStrike trade not stopped out before Friday gets exited on Friday just before 15:00 CST.

The Gbp/Jpy went higher after stopping out my trade, finally hitting the FirstStrike buy price for the week. If one had taken it, it too was stopped out. It is not the week for that pair.

On to the rest of the week!

Current equity is $760.55.

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to:
newsletter@infiniteyield.com and tell me to which address you would like it sent. Please do not use AOL, Yahoo or Hotmail addresses. Nothing personal, but they've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!


MikeZhang said...

Hi, Joel:

well said, well said.

I have read all your posts here, not mention to the hardcore stuff of trading, I was just wondering are every professionals all articulate? Yes, that's my experience and feeling, but I don't think it's just coincidence.

There should be some common ground between how to trade well & how to express yourself clearly, and I figured out it's the logic thing & knowledge of the world(sort of liberal arts ). I wish I could be at this level some time.

Thank you and keep walking

The Archiphage said...

For me, the very hardest thing about trading is watching a small or middling gain turn into a small loss. Learning to take losses was easy enough. It's painful to be wrong even when the trade immediately breaks against me, blows through the stop, and doesn't look back... but that's nothing compared to the misery of watching a gain turn into a loss. I mean, gains are what we're looking for, right? You get one, and then you have to give it back and then some. Millennia of evolutionary psychology are screaming at me every second to take some while the trade is green... then it's positively torturing me with regret once the trade goes into the red and stops out. Furthermore, even if the eventual exit is mercifully profitable, it's almost never at the very top, so there's room for regret there too.
There's a term from behavioral finance that applies here, the name of which escapes me at the moment. It's the one where a person will be happier being given $10 than if they're given $20 and have $10 taken back. Same result...different feeling. I think 'endowment' is the word I'm looking for.
I notice the same psychology at work in drawdowns over a series of trades too. I've managed to more than double one of my accounts in a few weeks... only to follow up those results with a 45% drawdown in 1 week. It's a laughably small amount of money, and I take huge 7% per trade risks with it. I am determined, however, to take the next valid setup with the same position size regardless of my feelings at the time. My idea is to get used to handling big swings in equity while the absolute amounts are trivial and building up from there.
When I started messing around with trading about 5 years ago, I had no idea how hard it would be to make easy money. Thanks, Joel, for your valuable guidance.