Just got my butt kicked by the AUD/USD!

Ah humble pie doesn’t taste particularly nice.  But great things can be learned if we just try and apply the lessons learned.  Painful lessons should be easier than others of course – but I’m not leaving this to chance.

Today the AUD/USD pair kicked my butt to the tune of 6.5% of my bank roll.  It shouldn’t have happened and I’m going to explain where I went wrong and what should have happened instead.  As they say hindsight has 20/20 vision (I also call it a bi#ch) and nobody is perfect, but silly mistakes should be avoidable.

Mistake #1

Betting against the market.

This is really very simple, if the marketing is strongly trending one way why try and turn that tide?  You want to make money not change the course of history.  If the market is trending up – BUY and if it is trending down – SELL.  Simple.

I’m not sure why I keep doing this and today I didn’t get away with it.  The AUD dollar was really pushing up against the USD, it was a very strong obvious trend.  And yet I couldn’t resist selling thinking I knew when the bull market had had their fill.

Mistake #2

Why make the wrong bet once when you can make it multiple times?

I struggled to cut my losses or even reassess my initial take on the market (I was expecting a turn in direction). So when the market moved up another level instead of cutting my loss I doubled up and made another selling contract.  In the end I made 4 selling contracts which all went to Stop loss or were cancelled without profit.

At one stage I actually opened a BUYING contract only to cancel it minutes later I was so sure the market had finally turned.

Mistake #3

Failing to walk away from the loss.

My trading strategy is simple – only risk a small percentage of the bank roll.  In this case because I’m still learning I have set that to be 1% (max 3%).  The idea being if you limit your risk to a small percentage you can ‘survive’ multiple bad trading days.  Ideally if you hit a loss or profit equal to this amount you call it a day and leave with your winnings or a small lose. 

I failed in this, I couldn’t believe the market could just simply stay so bullish – IT HAS TO TURN!  So after losing 3% of my bank roll I did something really stupid.  I made another trade.  Guess what I lost this one as well.

This last trade is really the main lesson for today.  It shouldn’t have been made on so many levels. 

1. I was really over my daily limit.
2. I didn’t reassess the market (should have been BUYING).
3. I took out a contract with too much risk.

Even now I can’t believe I doubled up on a really expensive and wrong market assessment.

STUPID.