Forget Everything I Said
Last Thursday I put out an article entitled "EUR/USD at 1.3500 - Just a Matter of Time?" It was written before the Fed Funds rate hike announcement so it was far from a foregone conclusion. The article spurred a flurry of responses with some readers agreeing with me and but most calling me a idiot who clearly didn't understand how grossly oversold the unit was.
One particular gentleman took the trouble to point out all the factual mistakes I made (from improperly labeling the yearly low for the unit to not recognizing the fact that the euro r had made a higher low on daily basis for the first time since January which was clearly a bullish sign). His arguments were compelling and to an objective eye he may have been more accurate in his analysis.
Later that day of course, the Fed sprung its surprise Fed rate hike on the market and all hell broke loose. The euro dropped like a stone hitting 1.3500 within ten minutes of the news. That same gentleman then posted only one line to the thread - "Forget everything I said."
When I saw that comment I couldn't help but smile because I thought it captured perfectly the nature of trading. No matter how many years you've traded, no matter how much price action you've seen, you always come across a "Forget everything I've said" moment. Markets like life will never fail to surprise you. If they didn't, trading would be as easy and predictable as a government job and just about as rewarding.
The key to surviving such moments is to not let the surprises rattle you. This is much easier said than done. The shock of something so unusual naturally causes us to lose our rational faculties. I remember many times when a sudden massive move against my position would wipe me out both psychologically and financially. What typically happens under those circumstances is that your desire "to get it all back" increases in direct proportion to your loss. Instead of walking away from the market, the trader plunges himself into an orgy of risk taking that typically ends in a complete wipeout. The more desperate you are the more likely you will lose it all.
Alas I wish there was an easy antidote to those moments of crazy volatility but there is not. The only remedy is experience. You have to blow up a few times before you learn to control your emotions. Jack Schwagers book is littered with examples of world class traders blowing out their accounts repeatedly before finally mastering that lesson.
However, having a contingency plan for your trading much like companies have for their business at least helps you to be aware of the problem. Next time a "Forget everything I said" moment hits you - ask yourself do I really want to trade this event? Or should I step away to come back and fight another day?
May The Force Be With You.
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