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Monday, 28 July 2008

Forexplosion

More of an implosion, actually. After slowly trading my CFD account back up to $3,300 during this year (with some hope of recovering my initial $5,000 stake by year's end), I had a big loss a week ago when the Aussie suddenly dipped against the greenback. I managed to pick the wrong directional moves several times in a row, ending up with less than $2,000 in my account by the start of last week. Foolishly I then increased my contract size from $25K to $150K in an attempt to recover my losses if the Aussie resumed it's trend towards parity with the USD. For a while this high risk approach appeared to have paid off, with the AUD reaching close to 98c just prior to the release of the latest inflation numbers last week. My account balance had recovered to just under $3,000 and I started thinking about reducing my position from $150K to my usual position size of $25K or $50K. Unfortunately I decided to "hang in there" for just a little bit longer...

Of course the Aussie dollar then plummeted overnight, and continued dropping even when the inflation numbers came out slightly higher than expected (which theoretically should have increased the chance on another interest rate rise by the RBA, and hence boosted the AUD vs USD). Having rapidly lost $1,000 I decided to keep the position open in the hope that there would be a rapid rebound. But eventually I gave up and closed out the position when my account balance was down to only $700. I then bought the AUD again when it had dropped another half a cent and seemed to have bottomed out. This turned out to be a false bottom and the Aussie broke through the bottom of the long term up trend and my position got closed out with a residual $190 in the account, which I'll have to cash out. It's nice to imagine that if I just added a little bit more to my account and resumed trading I could eventually recoup my losses - but that's the siren song that lures gambling addicts to their doom. I'd rather just cut my losses and run.

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