BarroMetrics Views: Tale of Two Traders
Let me tell you a tale of two traders……
John is an S&P day trader. One Friday, he decided to exit a position but just missed getting filled on a scratch trade. Since the S&P closed within 2 ticks of exit price, he decided to hold it overnight, and exit on Monday. He was looking to scratch the trade.
Unfortunately on Monday, in the European session, the S&P tanked! John sat there mesmerized as the S&P broke support after support in a massive down move.All John could do was swear at the screen even while his open position losses mounted. Finally, the broker cut John’s position when his equity ran out.
(The event took place in Jan 2008 when Soc Gen unwound Jerome Kerviel’s unauthorised S&P losses.
The other tale is about Ray……
Ray was having one of those months….he’d sell and the market would go up; he’d buy and the market would sink.
Ray shorted the AUDUSD; as the market started to rally, Ray reasoned that since it was a rotational day, he could exit on a pullback. He tried twice and each time, he missed the exit by 3-4 pips. The next day, he again raised his exit price to .8961. The AUDUSD retraced to .89611 and rallied. As the AUDUSD started to push through the day’s high, Ray exited at market. The trade cost him 0.6% of capital.
Both are true stories.
The first can found on youtube, http://www.youtube.com/watch?v=vIMwMsY0ndo . (Be warned, course language). The trader in question is reputed to have lost his savings.
I watched the video with mixed feelings. In part it brought painful memories – to a time when I would regularly blow my account; in part I kept thinking, ‘Come on, you idiot, pull the trade! What a wuss!’
The fact is the trader could have stopped swearing, and exited the trade, at any time during the video.
The second is my latest trade.
Figure 1 shows the last attempted exited. Missing out by .00001 cost me an extra 18 pips. What’s that you may ask? Well on a percentage basis, it increased my losses by 30%. In my book, that’s a lot….par for my trading at the moment. Of course, if I had given myself the luxury of swearing and cursing at the market, I could have waited to exit at current prices – for an additional 60 pips.
The message today is this: as traders, we control our destinies. Sure we may have bad luck, sometimes – this is balanced by times of good luck. The key is to ……manage our losses, as best we can, within the framework of the uncertainty that marks of our profession.
FIGURE 1 AUDUSD Exit