So, mental note it was and as the day wore on, it is soooo important that I am reminded and stick to my mental note.... my rule of thumb of 30% of margin got thrown out on the second day of trade and I did exactly the opposite of what I should do according to my mental note.
I guess its easy to go wrong as you see, you deduce the unfolding graphs... I start to take up sell positions on GBP and EUR. Was making quick 20cents, 30cents right until 3pm or so when Europe market opens... all hell broke loose. EUR and GBP was galloping upwards and to my dismay my sell positions are now holding a rough USD140 losses and coupled with my margin, I was freakishly close to a margin call! On my second day of trade! So, in desperation, I transferred another USD50 into my account to keep it alive. Mounting losses grew till about USD190 with free margin of only USD25/- well, there are two things I could do:
1. Deposit more money to my account
2. PRAY
I thought, well, I have done the first... now I do the second...
Changes to the golden 30% rule. Now this is mine.
TRADE WITHIN 30% of YOUR MARGIN BUT BE READY WITH 200% of CAPITAL TO BE INFUSED INTO ACCOUNT IF NEED BE
After that event, I realized I have learnt a few things:
1. Get your strategies in place to MITIGATE losses.
2. Market flies and wait for no man. Decide and act FAST.
3. Do NOT PANIC.
A few ways that I do to mitigate losses:
Lets assume you hold multiple SELL positions. Assuming you bought a total of 5 lots and you accumulate all the way upwards, hoping for it to come down but it did not... and you realize that any more purchases, you would breach the 30% golden rule... and with losses climbing with each purchase that gone awry, you are accumulating paper losses faster than you can say SHIT. My method would be to counter the flow... stem the loss by taking a couple of BUY positions... even at a high price. This would stabilize some of your losses should the price keep going upwards and a potential to make some margin capital from the gains from your BUY positions. While fluctuating and volatile markets make good trading ground, its either make or break under such circumstances. So, my rule no. 4 is BE BRAVE... then again, it is sometimes foolhardy to adopt this stance but again, when I look at the graphs, I made some quick decisions, best and worse case scenario.
Today was a classic case, I look at the situation that I am in, then I realize that my worst case scenario is another 50% of losses... while the best case scenario I can make 180% of profits... at present I am already losing 80% of my capital, so my risk? Lose USD170/- and I am done with FOREX. So I kept my composure or the lack of it.... I started counter SELL by BUYING... along the upward cycle I sell and wait for the breather to BUY again... continued for the next 30 minutes before it was time to fetch my darling wifey from the LRT station... at that time, I was staring the following details on my screen:
Balance: 239.47, Margin: 45, Free Margin: 50++ and a current trading loss of 170++
Looking at it, was a vast improvement of just a few moments ago, where my free margin was about 25++. Not a rosy picture, so I thought of either putting another 50/- into the account or I "restructure" the account further... since I wont have the opportunity to monitor my open positions for some time. By restructuring, I cut and realize some losses and keep a couple of BUY positions to hedge against potential losses.
So, by the time I got home about 8pm, surprise greeted me.... GBP and EUR DROPPED and my position has reversed! I was UP by a bit... but still UP nonetheless...
End day position: USD265.07 and still register a gain of USD45.40 giving a modest gain of 20.7%.
I think I cannot complain. By the way, I still do not know the reason for the spike in GBP and EUR... :).
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