Sunday 13 May 2007

Adventures in Day Trading - 11

My problem at the moment, aside from the fact that I'm losing money trading, is that I haven't been able to stick to a trading plan. After losing a large chunk of cash by holding a short position open for several days, only to finally close out just before the AUD started a major downtrend, I had decided that I wouldn't keep positions open when I couldn't monitor them - such as overnight or while I was at work. However, after dropping US$30 on a quick $100K AUD/USD spot trade on Friday morning (Buy @ 0.8256, closed out @ 0.8253), I managed to make back the $30 that evening, buying $100K @ 0.8280, and getting out at 0.8383. I was very nervous in that trade - after watching the AUD go up to 0.8386 I closed out when it dropped quickly to 0.8383. It then (of course) rapidly moved up to 0.8300, which would have made me $170 if I hadn't panicked at the slight drop earlier on. As this was at the top of the current trading band, I then Sold $100K at 0.8300, and was pleased to see it soon drop back to 0.8290 as expected. At this point I thought about closing out a making a $100 profit on the day and calling it quits, but, having missed out on making $170 by closing my earlier position too soon, I decided to hold on to see if it dropped all the way back down to 0.8380.

The AUD then started a major uptrend (although it didn't seem like that at the start!), so I was soon in the red on this open short position when the AUD climbed above 0.8300. I missed a few opportunities to close out at 0.8300 on dips, as I was still hoping to make a profit on this trade, and in the end sat by and watched it climb to over 0.8330 shortly before the market closed. It did drop back to 0.8322, so I then dumped my earlier resolve to not leave positions open, and left my $100K short position on the AUD open while the market has been closed over the weekend. I'm now waiting to see if the AUD drops against the USD when the market opens in a couple of hours. The AUD seems to be at the high end of the recent trading range, so it seems more likely to drop back further than to resume rising. BUT, this is based on historical patterns, which are not really and guide to future behaviour if something fundamental suddenly changes. Just ask the guys who used to work for Long Term Capital Management.

Trading this way is totally illogical - I seem to be just mentally crossing my fingers and hoping things turn my way when I'm in a losing trade, rather than closing out when my loss reaches $100 on a trade, which was my original trading plan. I think the fact that on the some of my first trades where I did close out on a $100 loss, holding on to the position for a few more minutes would have seen the trend reverse and my losses recover shook my faith in that plan. As it is, I'm making trading decisions on an ad hoc basis ("gut feel"). So far it seems that the old adage that "people don't plan to fail, they just fail to plan" is holding true for my day trading.

Enough Wealth

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