Oct 15, 2016 - GBP crash - Have you finally learnt the lesson?

Hi all,

First of all, I would like to tell you that this article is for everyone ( I believe  ). It doesn’t matter if You are new to FX market, average Joe or very experienced trader.

Maybe you are like me - I jumped into the FX world back in 2002 and before that I have been trading futures on a small stock exchange. 

Well, back then I felt very confident that I know the rules of the game. As my trading results showed me - NO, I did not! After seeing my loosing trades I started looking around for books related to currency markets. I found few of them where *gurus* were trying to confirm my thinking that 2% to 5% exposure in FX market is just fine. NO, it’s not fine! It’s very far from being fine!

Very often you are going to be on the wrong side of the market. 

Frankly, it is nothing wrong for retail trader as long as you understand the risk you are taking.

What I’m talking about?

Let’s start with everyday risk events:

1.            Data announcements

2.            Central banks speakers

3.            Not expected comments, announcements..etc.

Most probably you were trapped by this kind of events likely not only once. As you can see you may have a very good understanding of the market direction but sometimes big players ( market makers / smart money ) will shake the weakest retail positions before they follow in right direction. How many times have you been a victim of that?

Now, it should be easier to understand: this kind of action is very common and if you are risking 2% to 5% per trade your account could be down by 10 to 25% very quickly – just 5 losing trades in a row.

Has it ever happened to you? Do you remember how sick you were after such a trade? Did you blame the whole damn world?

Come on, it is fine you. Just 10% to 25% down… LOL

Of course the above is only a joke…

But now imagine that you are over-exposed, over-leveraged and GBP is going down … and you are adding to the position…and it keeps going down… you are still fine for next 150/300 pips… you are adding again…. First thing you can see it is a Margin Call but only if we are falling slowly enough, otherwise it is a full blown STOP OUT without any discussion. 

And you are lucky enough if it all ends up with you not being forced to top-up your account because of negative cash balance as a result you your adventure.

Am I kidding you?

Oh NO, I’m far from that.

Wasn’t the GBP crash enough for you? What about SNB’s CHF un-peg? Or maybe a flash crash in stocks in 2010? No, not yet? Let’s recall the events like Lehman Brothers in2008 or so...

I’m pretty sure You understand what I mean by that. It is just a very simple thing that is called „A proper risk management”. You do not really need to “Risk Big to Earn Big”. Try to earn more while risking less. 

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Happy Trading
Mr Price Action



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