What I Learnt Losing £60,000 My First Year as a Full-time Trader
During my first year as a local (independent trader) on the floor of LIFFE,
I bought and sold 8804 FTSE futures contracts, about 40 contracts per day on
average. The result was a loss of £61,620 or -£267 per trading day. I was
profitable on 55% of days with an average gain of £1009, my average loosing
day was -£1780. My biggest one day gain was £7730 and my biggest loss
-£12,426.
As you can probably imagine, this was a difficult time for me. I was trying
to work out how to make money consistently. It was the consistency that seemed
so hard to find. As you can see I was having a regular experience of making
money, what was killing me were my losses. It seemed that every time I got
ahead by £5-6000 over a period of a week or two, I would lose it all and a few
thousand more in the space of a couple of days.
At the time I was too unhappy with my performance to be willing to spend
any time analyzing my results. If I had I would have discovered that during
this period all I needed to do to go from a loss of £61,620 to a small profit
would have been to avoid just 10 trading days. Those 10 days cost me a total
of £69,169!
At the end of this period I was so frustrated, fed up and stuck that I
decided to quit trading and return to a more secure career. It only took me a
few weeks to abandon this plan and return to trading. I felt sure that I had
the raw talent to become a consistently successful trader, what I needed, I
reasoned, was some support. Support to stop me having the huge losing days
that were crippling me financially.
I approached a firm I knew that backed traders on the floor and they agreed
to back me with £20,000 of trading capital. We would split profits 60:40 and I
was set an initial daily loss limit of £500. If I hit my £500 limit the firm's
floor manager would come and tell me to go home. The third day trading I lost
about £3500 and nothing happened, no one came to ask me to stop trading. I
felt very foolish, but continued to trade for the remainder of the week while
avoiding any contact with the floor manager. The following Monday (the week's
losses had totaled about £5000) I got a message to meet with the director with
whom I had made the agreement (it transpired he had been away the previous
week). I was sure that he was going to say that the deal was off. Instead, to
my surprise, he told me how important it was that he could trust me, he needed
to know that when the market was volatile he could trust me not to be racking
up big losses. He suggested that I start afresh. Needless to say I was both
relieved and grateful. So I went back to the trading pit that morning with the
determined intention to not loose more that £500.
The next two weeks turned out to be one of the toughest periods of my
trading career and one of the most rewarding. Stopping when I was down was
hard. I realized that what had been at the root of my large losses was my
inability to accept loosing at all. To me loosing was unacceptable. Such was
my intolerance for loss that I lost for ten consecutive days. But as the days
progressed, even though I continued to loose £500 a day, I found my mood
lifting. I actually started to feel OK about loosing as long as it was within
my limit.
At the end of this 10-day period of losses a seeming miracle happened; I
started to make money. My target was to get to +£1000 and then not give back
more than 20% of my gain. So when I had a profitable day I was making between
£800 and £2000, for an average of about £1200. Not only did I start to make
money, I did so for 15 days in a row, three entire weeks without a loss.
This marked the beginning of a new era of trading for me. In retrospect, I
believe that I had been trading scared, scared that I was really a looser. The
two weeks of rigidly sticking to my loss limit caused me to revaluate myself.
I started to feel good about myself for sticking to my limit. Before it was
bad if I lost money, now it was only bad if I lost more than my limit. Before,
I never knew whether I was going to make £1000 or loose £5000; now I knew that
the worst case was a loss of £500 and that was OK. I started to see that
sticking to my trading limits was a sign of strength and my confidence started
to rise.
Looking back at my first year's loosing streak, if I had restricted my
losing days to -£500 my loss of £61,620 would have turned into a profit of
£83,525. Not only that, I think that had I been sticking to a loss limit
during that period, my confidence would have been that much greater and my
percentage of profitable days would also have been higher.
"Our deepest fear is not that we are inadequate. Our deepest fear is that
we are powerful beyond measure. It is our light, not our darkness that most
frightens us. We ask ourselves: "Who am I to be brilliant, gorgeous, talented,
fabulous?" Actually, who are we not to be? You are a child of God. Your
playing small doesn't serve the world. There's nothing enlightening about
shrinking so that other people won't feel insecure around you. We are all
meant to shine, as children do. We were born to make manifest the glory of God
that is within us. It's not just in some of us; it's in everyone. And as we
let our own light shine, we unconsciously give other people permission to do
the same. As we're liberated from our own fear, our presence automatically
liberates others."
Whatever is at the root of our fear, in order to become consistently
successful traders, we have to overcome it by developing trust in ourselves,
trust that we will always act in our own best interest. When we trade
fearfully, we undermine ourselves and end up taking the very action that
confirms our fear. The question is how to develop an unshakeable trust in
ourselves?
We develop trust in others through repeated experience of them acting in
ways that inspire trust. In the same way we develop trust in ourselves as
traders by building up a history of action that supports our goal to become
consistently successful traders. The more frequently we adhere to our own
trading plan and limits the greater our self-trust. Now this sounds like a
catch 22 situation, if you find like I did that you cannot help yourself, how
do you start to develop self-trust through right action?
In a way I was lucky, my back was against the wall, I knew that if I broke
my limit I would be out. So I had to stick to my limit and in doing so I gave
myself the opportunity to confront and finally reject my fear of being a
loser. To go from being a net loosing trader to a consistently profitable one,
we need to set ourselves achievable targets of behavior. My problem was
allowing loosing days to turn into huge losing days, so to set myself the
objective of stopping trading for the day when I was down £500 was appropriate
for me. For others the primary problem can be the resistance to taking a trade
when a signal comes up, be it intuitive or mechanical. An appropriate exercise
would be to take a simple mechanical trading system (it does not have to be
much good, break even would do) and set the goal of taking the next 10 signals
without hesitation, regardless of how you feel. We need to build up our
trading skills one at a time, when we are confident we can cut our losses we
can move onto execution, then we can work on holding on to profitable trades
etc. Tennis stars don't become stars just through competition; they hone their
skills one by one on the practice court and they continue to practice
throughout their careers. As traders we need to identify the individual skills
we need to develop and focus on them one by one. Someone new to tennis does
not expect to go out and win competitions straight away, they know they will
have to spend a fair amount of time practicing and learning first. Short term
trading, like tennis, is skill based, and those skills can be identified,
practiced and mastered.
Malcolm Robinson
LIFFE Pit Trader & Electronic Trader
InstinctiveTrader.com
 Today's
forex currency trading news updated Thu. February / 09 / 2012
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