06 April 2013

Addressing My Biggest T4L Weakness

  • Latest large short cable trade a repeat of a familiar unhappy pattern for me : Identify a beautiful looking chart, get excited, put on larger than usual position, lose trading discipline due to granting of "special" trade status, end up with big loss.
  • Why run larger than usual risk? Greed, unhealthy desire for taking short cuts, illusions of making mini-Soros killings.
  • Recent GBP trade : Position 4x >Jan JPY, 2x >Feb GBP trades. Result : Gave back all of Feb GBP profits when trade went wrong. Overall, from way ahead YTD budget, am now 40% under budget. Feel like an idiot.
  • All of my previous big losses have started with the "perfect" chart trade setup. I am always very disciplined in cutting losses on "normal" trades. It's the "special ones" where I stumble, a bit like spoiling your favorite child.
  • Solution : Henceforth give up even thinking about going for the jugular again. Impose a maximum exposure risk limit of 25% (of overall trading limits) on a single trading position. All positions will be treated equal, no favored sons given special leeway. Give up on home runs. From now on, it's all just going to be singles and doubles.
  • To paraphrase Kipling : "If I can meet with Normal and Special, And treat those two impostors just the same, Mine's the Earth and everything that's in it, And which is more, I'll be a T4L Success."
  • This is not a new realization. But I keep coming back to make the same mistake of stepping up and blowing up when things are going well. No more, I swear. From now on, I will just keep the old rules and not change anything just because a trade setup looks perfect.
  • [Made minor adjustment to the Risk Table. Will now explicitly display the actual % risk of each position, so that it is immediately clear there are no "specials".]

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