One day in the morning, we were working in our office, and our boss called us to discuss about new trading software which he wants to implement. He said,” I only have one rule.” He straight away looked in our eyes and said, “no excuses.” At the spot, we realized what he wanted to say. He was not concerned about those traders who drag losses. There is no one denying from the fact that when anyone is working in the forex market, he will come across various types of losses.
The focus of our boss was on the mistakes trader makes while trading that pulls them away from their plans. It is acceptable to have 10% loss as a result of five continuous trades. However, if a trader bears a loss of 10% on just one trading; then it can’t be taken lightly. The boss knew that the first trading activity was just normal. However, the second one was just another case of suicide in trading.
Case in Point
In the forex market, you can expect anything to happen. Observe the example of the LTCM (Long term Capital Management). At one point, it was considered as one of the most popular and highly effective hedge funds across the world. Whose members are those that had won Noble prizes. Few years later in 1998, the LTCM was declared as bankrupt. The result was very disturbing as it nearly pulled down all the leading financial markets. Just in few days, with complicated interest rates there was a loss of billions of dollars. In that situation, LTCM should have accepted the loss, but the situation was otherwise. Rather than kneeling down, they instead multiplied their position. This is because they thought that soon things will turn in their favor.
Straight away New York’s Federal Reserve Bank along with another top of the line investors jumped into this scenario, and they managed to tie up the portfolios of LTCM to avoid any further losses. Interestingly, when LTCM traders were interviewed, they were not ready to accept their mistakes. According to them all this was due to some external and un-usual factors, which may never happen again. In short, the LTCM traders never managed to accept the “no excuses” rule which led them towards losing all of their capital.
This rule becomes highly applicable when a trader is not willing to understand the way price actions are moving. For example, you get to hear some negative news about a currency, and in reply you short the currency. The situation continues, but the currency still moves ahead. In this situation, you need to get out of it. If any situation is beyond your understanding, then it’s better not to trade at that time. By doing this, you won’t have to bring any excuse for doing a suicide with your account. Professional traders only know one thing, and that is “no excuse.”