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Author: JsnStein Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 113  
Subject: Re: Turtletrader system Date: 6/23/2006 2:21 PM
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Experiences... how about when I started trading futures?

It was about 10 years ago. Dad and I got a "system" in the mail; Ken Robert's The World's Perfect Business (or something like that). It was a good introduction but Ken Robert's obviously makes money selling the system, not using it.

We opened an account with $3,500... After some indecision and trepidation we finally bought 1 Deutsche Mark and 1 Swiss Franc contract. In 4 days we tripled our account! Looking back that should have been a ginormous red flag, but instead I began to plan on how I was going to quit my job and retire a millionaire.

I didn't really understand options yet. I understood how they worked, but didn't understand what the margin requirement was and how it was calculated. I figured that there is no better way to learn than to do it, so we sold 2 (naked) pork belly call options.

Within a week our broker was calling about this thing called a margin call. Heh, blew it off. Called again the next day. I said, "yeah, I will handle it". Pork bellies closed down that day and never looked back. We turned a margin call into a $3,000 - $4,000 profit.

Quadrupled the account in 3 months and we am just getting started!!! My full-time job is getting really annoying, why am I working here again? I will put up with it for a couple more months... then sweet retirement.

We got whip-sawed in Sugar, that was interesting. We picked up some winners and some losers, nothing major. Our account was still up almost 400% when we bought a Japanese Yen contract. Started making money, as usual, so we bought another. The Yen came down to the original purchase price so we bought one more. We are now long 3 Japanese Yen contracts.

It fell, and fell... and fell! AND FELL!!! we lost over a $1,000 a day almost every day for weeks... This time when our broker called with a margin call, I still blew it off. I knew we would turn this around like we always did. After a couple days our broker wasn't amused, our position was liquidated. We lost everything and even owed the broker more money. My dreams went, POP!

For the next six months I tried to trade but my bubble of invincibility had burst. I was scared. I liquidated everything as soon as I got into it. I never took any major losses but wasn't taking any major profits either. At the end of that time I went short the Australian Dollar. It went in my favor quickly and then went against me even quicker. One night I spent almost all night on my knees praying to my quote screen for the position to turn around. The account was quickly heading toward zero again. The position did turn around. I got out close to my original investment. But I knew it was only a matter of time before I lost everything again. Also, the anguish of that night was intolerable.

I packed everything up. All the charts, books, software, everything. I knew I had to get my head straightened out and a larger account before I could trade. I promised myself that I would come back and trade but I needed to save up some more money and also learn a lot more. I was not the market god that I thought I was...

That fear that was installed in me with that blow-up is still something I deal with to this day. It no longer disables me, as it once did. But I still liquidate positions earlier than I should sometimes because of the fear of giving all the gains back. However, in some respects it is also good, it forces me to strictly adhere to my risk control. I can't say that I haven't held a loss too long since that time, but I can say it is rare and I never risk the whole account or even a sizable portion of it. I got the "cutting my losses" part down cold, I just need a little work on the "letting my profits run" part sometimes.

I like Warren Buffet's top two rules:

Rule #1: Never lose money.
Rule #2: Never forget rule #1.

I have since learned my experience is not unusual. As a matter of fact, it is quite usual. The standard experience of most traders is that they get in the market, take a couple large profits, feel invincible, and then get crushed. If you don't understand leverage and risk, do yourself and favor and learn, or at the very least trade really small until you learn.

Jason
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