The events of the past few days are a reminder how treacherous trading can be. It takes weeks and months to build up to a decent level, and just a few hours for all that work to be demolished. I was an avid mountaineer when young – still love going to the mountains whenever I can. The recent experience reminds me of mountain climbing. We toil for hours through steep slopes, dangerous snow and ice, and when almost near the top we get swept down in an avalanche. Luckily I have survived, just. But now begins the hard work of getting up and climbing that mountain again.
In the mountains there are warning signs of imminent danger and an experienced climber stays alert to these at all times. e.g. change in winds, weather forecasts, the hardness or softness of the snow/mud / rocks underneath, time of day (afternoons are dangerous as the sun heats up the snow), etc. Similarly, in trading there are warning signs everywhere, if only we are alert to them. The US Industrial Production and Capacity Utilization data on Friday came in tremendously strong. The normal reaction to this would be a rise in treasury yields, weakness in JPY, and a rise in USDX. But on the contrary the USDX weakened, JPY rose – a classic rush to the safety of the USD and JPY. Somebody knew what was brewing in the Eurogroup and that it would cause a flight to safety. Even though the average trader does not have access to the inside info of the big and smart money, we can see the footprints of the smart money in the charts. My system was already clearly signalling short in EURJPY and USDJPY at 124.35 and 96.05 respectively. I did take the EURUSD short trade, but felt the JPY is a different creature – it is not affected by Euro developments. In hindsight, I should have picked this up as a danger signal and quit the yen trades.
The point is that the information to trade successfully is always out there in the open, in the charts. We just have to tune into it. Often it is our emotional drives – greed, fear, impatience, complacency, cockiness, that prevent us from reading the signals. I am a prime example of such behaviour.
The account has lost about 85% from the start of the year, after being up almost 60% before this disaster. Recovering the ground lost is going to be a hard slog, but I am trusting in the magic of compounding to get me back up eventually. At 20%/mth it will take me about 9 months to recover to $100k; at 50%/mth it will take 4 months. I am aiming for somewhere between these two: 4-8 months to recover back to $100k. No dividends will be taken before I reach that level.