Sunday Thoughts: “I want to turn $1000 to $2000 by next week.”

Perspective

Who is right?

It is possible to turn $1000 to $2000 in a single bet in forex, in one day, in one minute, in one week, or one month, or any financial instrument that allows margin. Say for under Singapore regulations, the maximum margin allowed is 1:50. Meaning if you’re trading forex, every dollar you trade is worth $50. Overseas brokers can allow margin up to 500. Imagine your $1 being worth $500. And you have $1000 to trade. You effectively have $500,000 of margin.

With $500,000 of margin, you can do lots with it, just as what you can do with a bank loan. But it’s very, very different from a bank loan.

Simply because if you use all your margin, every little movement of a forex price (pips in common language) is going to be worth alot of money.

So as an example, with using all your margin of $500,000, betting long on the USDCAD on last Friday’s NFP results (which turned out higher than expected, but the USD CAD dropped by 60 pips in 5 mins), each pip is worth about SGD$38. So a 60 pip move against you will lose you $2280.

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HOW CAN I LOSE MORE THAN I HAVE? (learn to read bro)

Ok. So that’s what can happen. So let’s say it moves 60 pips in your favour. Thats $2280. Congratulations, you managed to turn $1000 into $2280 in 5 min.

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Dr Van Tharp in his book Super Trader did a very good experiment on this. And found that when it came to the biggest winners, there were basically 2 types: The one who bet large bets and got lucky, or the one who places small bets and profits little by little.

So who is right? Both are reasonable, and very possible ways of turning $1000 to $2000 although the more patient trader will take a longer time.

It’s all in your risk appetite. If you can’t afford to lose $1000 or even more (don’t be fooled that you’ll be closed out at $1000. Price can move so fast, the broker will just close it at the next possible price, which can make you lose even more than $2280 if there’s no one to take your stop loss. Happened to me once. And once is enough.), but willing to risk it because you have really nothing left to lose and wanna have a chance and doubling your money in 5 minutes, nobody can stop you.

The patient trader has an edge over you though. And it’s survival. Time. And luck only knocks a few times.

Which of the 2 types of big winners do you prefer to be? Rationally thinking, which is the right way to trade?

Both are possible. The only difference is time. And of course, this very important question if you want to be the big bet big winner trader:

What’s your next plan for the next trade?

Happy Sunday.

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June 2017 Monthly Reflection: Lessons Learnt

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Previously I blogged about the importance of reflection in trading. And I  do that alot. I do it weekly, and monthly, and during drawdowns, perhaps every 3 months, but I try to reflect as much as possible. Simply because it is the best way to learn.

June has been a good month so far. And I’m not just talking about the numbers. I’m talking about the lessons.

As a reflective trader, I’m always looking for ways to improve the process. And to try new things. Because there is no such thing as “the only way to trade”. Why do you think prices move? It’s because people are trading thousands of ways giving them thousands of signals on different timeframes. The only one way to trade, is your way.

So coming back to June. I experimented with several things with my trading. One is adding trailing stops once the move has gone about half in my favour, and another is to place breakeven orders when the price is about halfway towards my target price.

I’ve always been experimenting with these two, and through reflection, and looking back at my records, I don’t see clear advantages, for my strategy.

So I started to highlight when these stops actually “save” me, or make me “lose money”.

The other thing I experimenting with is taking profit early, based on current price action, and oscillators, and day of the week. For example, if it is close to the end of the week and my profit hasn’t been hit, I take profit. Another example, is when the profit amount is very attractive, and I say, “why not, just take lah”, and I close the trade.

The other thing I added to June, late June, is actually increasing my risk, to test and push my stomach for drawdown.

So here are my reflections, and findings, specific for my trading style. Just to share with you the outcome of reflective learning. These are specific to my trading style, so please, don’t take these lessons as yours. I’m just sharing you my own reflections, as examples.

  • Break even and trailing stops very seldom “save” me. They make me lose money instead, because of whipsaws hitting those stops, before eventually hitting my target.
  • Taking profit, ironically, makes me lose money. As I shared before, it’s important to have a right perspective. And to get the right perspective, you need to reflect, to discover it. While taking profit early puts money in the pocket, I actually lost money because the trade eventually hit my targets. That’s the right perspective to take. I lost money by taking profit. And this is harsh, because I know, losing money slows down the compounding rate, for every week that passes.
  • Increasing my positions size from 1% to 2% is starting to eat into me and push me to the edge. So now I know I am still not ready for a 2% position sizing, and perhaps, next month, I will try something like 1.5%, or less. Because I know that to speed up compounding, I also need to try to push up the position sizing, to gain a greater percentage growth per month.

 

So you see, hopefully, why reflecting, and keeping records, and making it a habit and having the mentality that trading is a job, is very critical to trading successfully. I have met several interested persons in what I do, and I am very happy to hear them tell me “I’ve never thought of trading in this way before.”

Give reflection a try. Keep good records. And reflect on why you took those trades, how they went, and what were some lessons learnt. And keep them. And go back to them once in a while, and reflect if you have made progress. Focus on process more than the results. The results come from process, not the other way round.

Happy trading!