Month to date results for January 2008:
# winning trades (CG/ER) : 0/0
# losing trades (CG/ER) : 3/0
CG Return: -34.0%
Hedge (ER) Return: 0% (inactive)
Current Allocation (CG/ER): 66% / 34%
Total Return Month to Date: -25.5%
Performance Chart is Here
Ouch! So have I mentioned before that my gearing would make Jesse Livermore flinch? Three quick, maximum loss trades have hit the Cable Glider in a span of less than 48 hours. It’s amazing how a benign looking little period of choppy consolidation prior to the Bank of England meeting tomorrow morning has really got me in a deep hole right out of the gate for 2008. This is my 4th worst week in percentage loss terms, and my worst in absolute dollar terms. The other drops of this magnitude occurred in February 2007 and May 2007, before I had instituted a cash hedge.
Since I have not taken a hit like this in a while, I am feeling a bit stunned. As I look at my account, it is back to levels not seen since last July. Keep in mind that a significant portion of my profits has gone to pay for living expenses, and the smaller my equity base, the harder it is for me to generate enough profits to cover living expenses AND grow the account.
What’s next? The usual! Follow the plan and try not to worry…I know that trading my systems is not dangerous per se, but with my level of gearing, I leave myself open for repeated punches to the gut like this. I hope for a quick recovery, but that is for the market to decide…I’m on the sidelines until next week.
Ray Barros has posted a great series of articles on routines and habits and how they relate to the construction of a trading plan. This is a great post and deserves to be read and re-read several times. It highlights, among other things, the tendency of beginning traders to favor discretionary approaches rather than mechanical ones. This preference can be quite damaging though, as beginners have not likely developed the ability to trade what they see rather than what they want to see. This is referred to as confusing intution with “into wishing”.
Mechanical approaches are ideal for beginners, as they force us to trade what we see as we develop a feel for the market. In my former life as a stock and option trader, I would bounce around from one idea to the next, blowing up my account several times in the process. The problem with such a random approach was that sometimes luck did shine on me and save me from losing…and of course these random rewards are the most addictive and difficult to reproduce.
When I shifted focus to the currency markets and became aware of all of the great tools for developing mechanical trading systems, I firmly made the mental shift that a mechanical approach would be best for me…after all, my discretionary trading had led me to a track record of 8 consecutive losing years. You know what they say…quitters never win and winners never quit, but those who never win and never quit are idiots!
Now that I’ve focused almost exclusively on the British pound for a few years, I believe that I’m starting to develop a reliable feel for the market. I am certainly NOT ready to incorporate much discretion into my trading plan, because the mechanical approach has worked so well, but I’m becoming more interested in how an experienced trader moves from a mechanical approach to a discretionary one and consistently outperforms the mechanical approach.
Of course, when we talk about intuition, we must carefully define the term. The first definition on dictionary.com comes closest to what we are referring, but it is still incomplete: “direct perception of truth, fact, etc., independent of any reasoning process; immediate apprehension.” Well in this case, we’re not really talking about understanding that is independent of reason, but rather immediate understanding derived from unconscious integration of our experience trading the market. It’s quite a fascinating process, but one that I’ll admit that I’m at a loss to describe the mechanics of.
All that I can do is make a note of just how long it has taken me to begin to develop a market intution and remind beginners that the goal of consistent profitability is a mountain with an unseen (and uncertain!) peak. If your trading plan keeps you in the game long enough, your “into-wishing” just might turn into intuition after all.