This is my sad story, of how I pratically blew out my 3.1k EUR account in just little over 2 weeks. It is a sad story in which I am completely screwed, I am writing this article in the hope that it serves as terapy for myself and so that other newbies don't do the same stupid mistakes I made.
For background: I was trading with very modest success the stock market for about 6 months before I started in FX at the beginning of this month. I tried a demo account for FX about a month before I started real trading also with some success (20% in one month). How I went from 3k to 0.5k in 3 weeks is, for sure, a reality check. A painful one.
Here is what I want to say:
1) It is not about how smart you are
I consider myself a pretty smart guy, always had very good results in IQ tests and such. I have a day job (thankfully it seems now) and I am quite successfull at it. My background is in computer science so mathematics and logic are usually my strong points and I feel quite confortable playing with numbers and such things.
I usually read a lot about all kinds of stuff, I like to know a bit about everything and I try to excell in everything I feel interested in (that includes trading).
What I mean is: Beeing successfull in another area of human expertise does not mean you will be successfull with trading. If you're not successfull at trading it doesn't mean your dumb or a bad person. It just means you screwed up or that you might not have the right discipline for this kind of work... I hope that this discipline can be learned.
2) So many trading systems
Being relatively new to markets I have obviously read a lot about technical analysis. In my demo account I used a lot of systems on a lot of timeframes. The indicators I use most are MACD (26,12,9), Bollinger Bands (20) and simple moving averages (20,50). On top of this I am always on the look out for ascending and descending lines, triangles, double tops and bottoms, head and shoulders and all the graphicall paterns I learned.
I traded mostly in 10mn chart and in the end (when hope was the only thing left, capital was 60% gone) i went to the 30mn chart.
So I traded the system when there was a simple MACD cross and I made some money (I had more losing trades than winning but the winners were good) but I wasn't getting rich and I felt the pressure of so many losers. I then tried counter-trend trades by buying when bollinger bands gave oversold signals and I made some scalping this way... but going against the trend, all the scalping I've done wasn't able to cover my losses when the trend was too strong.
Then I tried a system where I combine both (i.e. if bollinger band says it is overbought and MACD is negative then we sell). It promised so much but this morning USD/JPY moved against me in a rally and killed me.
My point is: Stick to a system and to a trading period. I changed so often and for such poor reasons that I don't even know what the hell happened to me. Do the demo account as you would do your real account or there is no point, if when you go to real account you stop having faith in your system just because of a few losing trades there is no use in having a system. Trust it or find another system that you trust and stick to it.
3) So many pairs
This was another stupid thing I did. I traded many pairs without knowing any real history behind them. In effect I traded range bound systems in trending pairs and I traded trending systems in ranging pairs. How could it ever work?
Trade the pairs where your system works best, don't try to apply it to other pairs that you don't know much about.
4) Money management (I will write these words on the ceiling of my bedroom so I can read them every night before I fall asleep)
My worst sin and the real reason I'm writing this now. At first I thought that money management was all about tight stop losses. It isn't. Tight stop losses threw me out with small losses a lot of the time... most of these times my system was really indicating a strong trend that I would have profitted a lot from if I had allowed room for a possible backtrace.
Instead of riding waves of 50 pips and more I was being stopped out at the first retracement for losses of 5-10 pips... pretty soon it adds up.
Money management is about something I realized only too late (of course stop losses are important but they shouldn't be that tight, not on my system anyway) it is about position size. My position sizes were killing me, when things went bad i was losing over 10% of my account... it is easy to get unlucky and have a string of bad results that will kill you with that kind of position sizing. I know it killed me.
On top of that, when the first trades went bad I *INCREASED* my position size instead of doing the opposite. The temptation to get the money back was too strong but in the end I can see this was more like gambling than anything else... I should have started small and only when things went right (not wrong) should I increase the posiiton sizes.
5) Real money and emotions
Playing the demo account I didn't have tight stop loss orders. You know why? Because I trusted my system and I would exit only if it gave the exit signal and not before ... I trusted the system, right, but also I didn't care if the system didn't work because I would not be losing anything.
When I went live I started having fear. I used trailing stops with 20 pips distance to market... I would be watching the price all the time and only relax when I broke even. Most of the time I didn't as I said before and I was getting my ass fried all the time. This kind of trailing stop might have its uses but surely it is not adequated for my system and I had never tested the system with the trailing stop in the demo account because there I had no pressure... there I could endure my losses, on live account it killed me.
I started hypertrading, because I *knew* the system worked (someone save me) it was just the stop that was screwing me. In result, 2 days ago in a counter trend move I lost 35% of my account at the time because I was angry at the market. I knew I was right, the trend should be the other way around so I kept insisting instead of waiting for a more clear signal. Eventually the trade reversed to the place where I wanted it to go, but I was asleep, missed it and my capital was gone.
DO NOT BE ANGRY AT THE MARKET. You will only make it worse for yourself, the market will do the same whether you are angry or not but you will behave differently if you are angry. You will make irrational calls and when they fail you will realize how stupid it was... then when you go to bed you'll realize that you should be angry at yourself and not the market but by then it will be too late.
So in a short summary this is what happened to me:
1) I used too many systems instead of sticking to one or two that works
2) I traded too many pairs without caring to learn the long term history behind them
3) I overextended my position size
4) I was too worried and fearfull of losses, effectively this reduced my profits
5) When things went bad, I broke down psychologically and in effect I was the one pulling the trigger on myself
I think I have learned a few lessons from this, a shame it costed me all this money to learn.
I am not sure what I will do now. I will probably take the weekend to try to re-arrange my thoughts but it doesn't seem I will be able to do a lot with what I have left in my account which is a shame as I would like to capitalize on the lessons learned. Still, I am afraid to break down psychologically again and just trowing out more money out the window. It is not like I was using grocery money but still 3k lost would be a nice vacation with the wife that I won't get to spend. So I have some deep thinking to do and decide if I want to risk it again or just let it go and focus on something else.
Also, just as a final thought, this was my first experience with leverage and I think that should account for much of my problems. I never had this problem in the stock market because I never used leverage so I had better understanding of money management back then. For some reason my worst case scenario on stocks was 5% loss and I was stopped out, on FX I left myself risk much more for reasons I don't understand now... I most probably was deluded with dreams of "getting rich fast" ... I hope I find the guts to come back and to use this experience as a learning point and not quit altogether. Time will tell.
Thanks everyone for letting me rant and if you're new to FX try to learn things the easy way... because have no doubt that you will learn all these things, one way or another. But next time you see a thread about "how I made a fortune in FX in <insert a bizarre way or a short term period> maybe you want to give them a link to this thread so people see the other side of trading.
Cheers everyone,
Branco
For background: I was trading with very modest success the stock market for about 6 months before I started in FX at the beginning of this month. I tried a demo account for FX about a month before I started real trading also with some success (20% in one month). How I went from 3k to 0.5k in 3 weeks is, for sure, a reality check. A painful one.
Here is what I want to say:
1) It is not about how smart you are
I consider myself a pretty smart guy, always had very good results in IQ tests and such. I have a day job (thankfully it seems now) and I am quite successfull at it. My background is in computer science so mathematics and logic are usually my strong points and I feel quite confortable playing with numbers and such things.
I usually read a lot about all kinds of stuff, I like to know a bit about everything and I try to excell in everything I feel interested in (that includes trading).
What I mean is: Beeing successfull in another area of human expertise does not mean you will be successfull with trading. If you're not successfull at trading it doesn't mean your dumb or a bad person. It just means you screwed up or that you might not have the right discipline for this kind of work... I hope that this discipline can be learned.
2) So many trading systems
Being relatively new to markets I have obviously read a lot about technical analysis. In my demo account I used a lot of systems on a lot of timeframes. The indicators I use most are MACD (26,12,9), Bollinger Bands (20) and simple moving averages (20,50). On top of this I am always on the look out for ascending and descending lines, triangles, double tops and bottoms, head and shoulders and all the graphicall paterns I learned.
I traded mostly in 10mn chart and in the end (when hope was the only thing left, capital was 60% gone) i went to the 30mn chart.
So I traded the system when there was a simple MACD cross and I made some money (I had more losing trades than winning but the winners were good) but I wasn't getting rich and I felt the pressure of so many losers. I then tried counter-trend trades by buying when bollinger bands gave oversold signals and I made some scalping this way... but going against the trend, all the scalping I've done wasn't able to cover my losses when the trend was too strong.
Then I tried a system where I combine both (i.e. if bollinger band says it is overbought and MACD is negative then we sell). It promised so much but this morning USD/JPY moved against me in a rally and killed me.
My point is: Stick to a system and to a trading period. I changed so often and for such poor reasons that I don't even know what the hell happened to me. Do the demo account as you would do your real account or there is no point, if when you go to real account you stop having faith in your system just because of a few losing trades there is no use in having a system. Trust it or find another system that you trust and stick to it.
3) So many pairs
This was another stupid thing I did. I traded many pairs without knowing any real history behind them. In effect I traded range bound systems in trending pairs and I traded trending systems in ranging pairs. How could it ever work?
Trade the pairs where your system works best, don't try to apply it to other pairs that you don't know much about.
4) Money management (I will write these words on the ceiling of my bedroom so I can read them every night before I fall asleep)
My worst sin and the real reason I'm writing this now. At first I thought that money management was all about tight stop losses. It isn't. Tight stop losses threw me out with small losses a lot of the time... most of these times my system was really indicating a strong trend that I would have profitted a lot from if I had allowed room for a possible backtrace.
Instead of riding waves of 50 pips and more I was being stopped out at the first retracement for losses of 5-10 pips... pretty soon it adds up.
Money management is about something I realized only too late (of course stop losses are important but they shouldn't be that tight, not on my system anyway) it is about position size. My position sizes were killing me, when things went bad i was losing over 10% of my account... it is easy to get unlucky and have a string of bad results that will kill you with that kind of position sizing. I know it killed me.
On top of that, when the first trades went bad I *INCREASED* my position size instead of doing the opposite. The temptation to get the money back was too strong but in the end I can see this was more like gambling than anything else... I should have started small and only when things went right (not wrong) should I increase the posiiton sizes.
5) Real money and emotions
Playing the demo account I didn't have tight stop loss orders. You know why? Because I trusted my system and I would exit only if it gave the exit signal and not before ... I trusted the system, right, but also I didn't care if the system didn't work because I would not be losing anything.
When I went live I started having fear. I used trailing stops with 20 pips distance to market... I would be watching the price all the time and only relax when I broke even. Most of the time I didn't as I said before and I was getting my ass fried all the time. This kind of trailing stop might have its uses but surely it is not adequated for my system and I had never tested the system with the trailing stop in the demo account because there I had no pressure... there I could endure my losses, on live account it killed me.
I started hypertrading, because I *knew* the system worked (someone save me) it was just the stop that was screwing me. In result, 2 days ago in a counter trend move I lost 35% of my account at the time because I was angry at the market. I knew I was right, the trend should be the other way around so I kept insisting instead of waiting for a more clear signal. Eventually the trade reversed to the place where I wanted it to go, but I was asleep, missed it and my capital was gone.
DO NOT BE ANGRY AT THE MARKET. You will only make it worse for yourself, the market will do the same whether you are angry or not but you will behave differently if you are angry. You will make irrational calls and when they fail you will realize how stupid it was... then when you go to bed you'll realize that you should be angry at yourself and not the market but by then it will be too late.
So in a short summary this is what happened to me:
1) I used too many systems instead of sticking to one or two that works
2) I traded too many pairs without caring to learn the long term history behind them
3) I overextended my position size
4) I was too worried and fearfull of losses, effectively this reduced my profits
5) When things went bad, I broke down psychologically and in effect I was the one pulling the trigger on myself
I think I have learned a few lessons from this, a shame it costed me all this money to learn.
I am not sure what I will do now. I will probably take the weekend to try to re-arrange my thoughts but it doesn't seem I will be able to do a lot with what I have left in my account which is a shame as I would like to capitalize on the lessons learned. Still, I am afraid to break down psychologically again and just trowing out more money out the window. It is not like I was using grocery money but still 3k lost would be a nice vacation with the wife that I won't get to spend. So I have some deep thinking to do and decide if I want to risk it again or just let it go and focus on something else.
Also, just as a final thought, this was my first experience with leverage and I think that should account for much of my problems. I never had this problem in the stock market because I never used leverage so I had better understanding of money management back then. For some reason my worst case scenario on stocks was 5% loss and I was stopped out, on FX I left myself risk much more for reasons I don't understand now... I most probably was deluded with dreams of "getting rich fast" ... I hope I find the guts to come back and to use this experience as a learning point and not quit altogether. Time will tell.
Thanks everyone for letting me rant and if you're new to FX try to learn things the easy way... because have no doubt that you will learn all these things, one way or another. But next time you see a thread about "how I made a fortune in FX in <insert a bizarre way or a short term period> maybe you want to give them a link to this thread so people see the other side of trading.
Cheers everyone,
Branco
never give up !!!!! and never forget money management again 
- You get the point though.)
Some love it, some hate it, there is nothing between.