I took a big trade today right after the Non Farm Employment report came out. I took one of my low risk DIBS trades, short the Eur/Usd at 1.5863. The market cratered. Anyone selling within a minute of when I did-- had instant profits after getting filled. It was a meltdown. The entire world must have been long the Euro going into the report. (See chart below)
Were you a seller too? I know I wasn't the only one selling. But here's the Million Dollar Question, “Where do you get out?”
The answer to that question is the reason some people make a living at trading and others break even or worse.
My answer to the above question: I'm still short. I will stay short until the market stops going down.
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If you are trading a system or even a special setup where a combination of significant factors come together--- you finally end up in a trade.
In a perfect world, you immediately place a protective stop. The reason the stop is called a protective stop is not because it is protecting the position. The stop is protecting your capital. Stops are much more vigilant than most of the individuals who should be using them.
In the real world, few people put in stops. They might put in a stop-- but then keep moving it farther away from the market when the market starts going against them. And keep on moving it away to avoid the inevitable.
The point isn't to be RIGHT, it is to make money. This means that we have to be right with the market, which IS always right. Take your losses when they are small or they will have the chance to get BIG.
Do not people realize that there will always be another chance to get in?
The market is never wrong. It is how we handle the trades we take can make us wrong.
It is correct to have losses. The markets' existence depends on them. Someone has to lose for someone else to gain. This causes people who are now “winners” to feel richer and then exit the market, thereby stabilizing the market. The exiting of losers causes the market to adjust to another “correct” level.
Why people insist on doing the same things over and over and get the same bad results is still amazing after decades of seeing the same reactions. But that is beneficial to traders, little actually changes. Just the faces of the losing sides.
It didn't take me very long to learn the business of taking small losses. It took one miserable oat trade early in my trading career. I had heard that oats were in oversupply, and I saw the market falling 5 cents off the highs of the last month. Conditions seemed ripe.
I shorted a single contract of oats. The first day it went my way by ½ cent as of the close. That was the best I ever had it with that trade. My “mental” stop was about 6 cents. ($300) I now believe you have to be mentally ill to use mental stops.
Each and every succeeding day after entry, the market either closed unchanged or against me a penny or less, usually just a half cent. Intraday volatility was minimal, about a 2.5 cent range every day ($125 - $50/cent) After 3 weeks, the market was against me 16 cents or $800. I just couldn't believe that the market wouldn't swing my way, even a little. The margin on oats was only $300 at the time and here I lost $800 just one nick at a time. I finally had enough and got out.
$800 isn't much money now. But then, it was 25% of my capital lost in one strange trade. I know that if there had been just one sharp day against me I would have been out of there immediately. I know that if I just had one day in my favor I would also have gotten out.
But it was so gradual....
That was the last time I traded a position without a hard stop in the market. And never again risked so much on one trade. (Note to self: Don't ever again be in a situation like the frog slowly steamed to death by swimming in cool water put on the stove.)
What closes the majority of trading accounts isn't losses. It's holding on to losses with no idea of where “enough” is.
Being in a losing trade is the most natural thing in the world. Most of my trades are losses. But they are small compared to my profits.
Every large loss starts out as a small one. Ignoring losses is the surest way to turn them into bigger ones and quicken your exit from trading. Get used to taking small losses on trades. Trade small enough positions so that taking the small loss is inconsequential. Then it is easier to train yourself to make smaller losses.
The moment you finally get rid of a loss, the pain stops, with just a dull ache for short time. Then you can forget it.
How to make Big money trading forex.
The flip side to losses is this---
I am certain that the reason people don't make substantial money from trading is: they've never made substantial money from trading.
How're you ever going to get a big payoff if you never let a profit get big?
Back in the week of August 13-17 of 2007, a FirstStrike sell in Gbp/Jpy attained 1,916 pips at its zenith and 1,205 pips by the close of the week. Besides interesting proof that just one trade can overwhelm a half year of straight losses, it would be nigh on impossible for most people who consider themselves traders to handle a trade like that.
“It's just...so...biggg!!!”, said one of my friends. “I have to take some profits.”
All they would have to do to handle it would be accept the bonanza. Of five friends I know who take these trades religiously every week, some having traded for 15 years--- only one of them got full profits (1410 pips) from that trade. The others got 450 pips, 500, 670, and 710 pips respectively. I got 1300.
It wasn't luck. I just don't care. About the things losing traders care about.
I have taken tens of thousands of trades. There is no thrill left (pleasure, yes! - from perfect execution) from putting on a trade, just knowledge that the only way you get paid by trading is by getting entered in markets that are about to move.
I'm not afraid of losing. I'm afraid of not letting big profits accumulate. I know that if you get a big move in one direction, it is likely to get even bigger.
I know that markets go into phases where it is hard to win for long periods and then go into periods where it is difficult to lose if you just execute the trades.
If one wants to make big profits you have to begin training yourself to take some of those big profits.
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We have only a slight possibility of some OneNightStand trades for Friday. I doubt they will happen but I will send out the orders to subscribers this evening.Have a good, safe, holiday weekend!
Current equity is $730.43.
Joel Rensink
www.infiniteyield.com
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!
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