Wednesday, December 06, 2006


It had to happen eventually. After five months during which I experienced nice growth I run into a roadblock last week. The worst ever week it actually was. I had strings of 4 or 5 losses in a row all taking out my increased Stops, which had helped me gain so much the last few months. The higher volatility offered chances to make it back, but I could not take them, as I was away from my computer on other business. The ranges had increased and the stops I took on positions would have been eventually winners just an hour later.



I questioned my trading approach, I questioned my charts, but came up blank. I knew, I had made 2 trade management errors and paid for them. One was adding to a losing position in the HSI, as I did not expect a -600 point day and I started a long position when it was down 450 points. The other was not reversing a trade, where my charts told me the market was going up. The break came for about 150 points in the DAX in the afternoon, but then I was away and had closed my losing positions in the DAX and FTSE  at -25 each already.

I then asked myself if changing my trade management rules would help and came up with a Stop Reverse set at -10 to -20 ticks. It’s an approach which I confirmed in backtesting works nicely in volatile markets, as usually a failed trend move causes a violent move in the other direction, which easily would cover the previous loss. Still in real trading I’m not yet comfortable with this approach. It’s something I will work on as the markets continue to show this higer volatility.

One thing I tried to avoid to do was thinking, that holding my position would have resulted in a winner. That way led to disaster once, I won’t go that road again. No, I trade with big stops for a reason and I have to accept, that these will get hit eventually and that I will have losing streaks. It’s just normal. It’s a reason to question my trading approach, it’s a reason to look for small signs, which might have alerted me, that problems are coming my way.

But if the approach is still sound, if the trading method works, then let’s go back to work. Trading is a business and losses are just cost of doing business. You can’t complain, if you need to buy inventory as a sales man. And some times you will have inventory you can’t sell. It happens. It’s bad luck, but to stop doing business, just because you couldn’t sell some of your inventory would be foolish.

And so I’m back to business this week, trading a bit more cautious and starting to make it back.