Seven stories up, you jump, you survive, no broken limbs........Do you go up and jump again or be happy that you made it safely down?
In my now approaching 18 years of FX trading, and 10+ years of FX trader mentoring, I see good traders make the same mistake time and time again. Some may call it over trading, some may call it greed, some may call it boredom, perhaps its cockiness?
2018, its a Friday at 10am. Should be a good day. Our junior traders have had a good month and our trading manager confirms the results of the months trading to the team. One guy, a younger version of myself perhaps has had a record month. We're not talking a 50% up month, we're talking a respectable consistent and solid (realistic) 10% up month. Brilliant......you would think. He's chuffed with himself, its not his first month of these kind of consistent results so you would think something has clicked and he has become one with the charts. So what should he do now to celebrate his month long persistent journey to success? Go out for lunch, go to the gym, go shopping.......one of these options you would think, right?
He, like so many other traders, I've seen it over and over again, thought he was invincible. What's 10% when you're that good, lets go for 12% or even 15%......actually, if he doubles it he will be a hero!
So, its taken dedication, perseverance, discipline and self control to hit 10% in the month.....but you think you can double that in 4 hours on a Friday afternoon?!
So we know trading is all risk and reward, so lets look at exactly that in relation to the young man above. He's made 10%, he's a good trader (remember that this isn't his first month up, he's 4 years in). Is he a hero, maybe not, but is any trader a hero? What are the rewards therefor of trying to double the return that Friday afternoon? Honestly, not many. He's already a good trader, we've recognised that. Is he the best trader in the world, maybe not, but is anyone? Does anyone actually need to be the best trader in the world? Even a good trader will make themselves a fortune. So lets look at the risk. Is the risk that he doesn't make any addition to the already banked 10%? Nope......Is the risk that he doesn't make any extra and people with not think of him as a great trader anymore? Nope......Therefor is the risk that he loses some, all or maybe more than he's made that month? Well yes, but the biggest risk is to his mindset and his mood. We must remember that trading is a hugely psychological game. When times are good, they are great. When times are bad, they are more than terrible.
As for this young man, I'm sure you know how his Friday ended. He took a risk he never needed to take. He lost his 10% gain, and he lost the title of a great trader that month. More importantly, he ruined his day, his weekend and he started the following month, a month behind.
As an analogy to this situation, I always use this...
You're seven stories up, you jump, you survive, no broken limbs, you're a hero, albeit a lucky one........Do you go up and jump again or be happy that you made it safely down? Remember, once you're a hero you cant be any more of a hero. In this instance the added reward is minimal compared to the potential risk which is lights out.
Don't jump twice!