Posted by: Bevan | March 25, 2008

Recovering From the Crash

I’m in the process of picking up the pieces after a major drawdown.  I know, most people would start writing about trading when they’re on top, but I guess from now the only way is up!  I decided to start trading forex in July 2007, and began several months of study and demo trading.  It was certainly a great learning experience, and I never cease to be amazed by when the sober words of Alexander Elder or Marcel Link come echoing through my mind as I make decisions.  Attending Greg Secker’s Traders University in November of last year provided the impetus to begin trading for real – he doesn’t have a high opinion of paper trading.  I set up a spreadbetting account with what has turned out to be a very good company, Echelon Wealth Management, although the interface is a bit clunky.

 Initially I kept getting stopped out, won a few trades, and found myself after a month £100 down, although having learnt a lot rigidly putting some of the principles of the seminar into practice.  I then started taking some trades on the FTSE 100 index, basing them on basic technical analysis backed up by awareness of news and events, and market correlation.  I was able to find a strategy which consistently gave me 50-100 points per day which meant that my trading account started growing consistently.  I began experimenting with some other markets, namely Gold and currencies.  Although I made some controlled losses, I also made some very successful trades and found my account size growing considerably.  Early last week it had more than doubled. 

 It was then that my trouble began.  I had a few losing trades with cable, in which I had a misguided notion that it would continue its uptrend in a climate of dollar weakness.  It both failed to echo dollar weakness due to the effects of its decline against the Euro, as well as the 1% cut in interest rates in the US.  However the damage occurred with Gold.  I failed to put stop losses in place on all my gold positions due to the fact that I thought I could manage them manually.  Unfortunately the story of what happened is told in the chart below!  I lost a considerable amount of equity, and was given a sobering lesson in the fact that no matter how disciplined you are, and how well you manage your risk, you can never once fail to observe the basic principles of trading!

 Gold April 08 Plummeting!


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