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What I Learnt After Losing SG$2,000 In Forex In One Night

Always have a stop loss in place.

 

I started out my trading journey with what I now recognised was an extremely immature attitude. Back then, I was happy to jump onto any investment strategy, as long as I managed to convince myself that it would work with more than 50% probability. I decided quickly that if I monitored the market close enough, coupled with some economics knowledge picked up from university textbooks, I should be able to do reasonably well.

I couldn’t be more wrong.

Beginner’s luck

No amount of luck can help an investor if he insists that he “knows” the market. Not being able to accept that you are simply wrong and that your strategy was not as clever as you originally thought it was is one of the key reasons why people fail repeatedly.

My first few trades in Forex yielded positive returns and my self-confidence quickly grew. I would look at the charts, read some news on Bloomberg and quickly formulate a certain opinion on the direction of a currency.

I have seen the computer screens of many traders bombarded with charts and technical indicators. I somehow managed to convince myself that these are charts and indicators that were too difficult to understand and that I didn’t need them. I thought that as long as I got my “economics” theories right, I would do “okay”.

My initial opinion was that the US Dollars (USD) would do well and I was constantly longing (buying) the USD before every important announcement. My reason was simple. I thought I knew everything and would be able to reasonably predict the direction of the currency pair (e.g. USD vs Euro) that I bought into.
Taking a position before news and data releases

One major mistake many traders like me made was to somehow believe in our own “forecast”.

An example would be a trader being confident of the results of the market data even before its release, and taking up a position before the announcement based on that assumption. This is no different from gambling, and should in our opinion, be avoided.

The bigger the announcement, the more important it is for a trader to be patient and to wait until the market stabilizes before entering.

Being Greedy

I recalled waking up one morning to a sea of red on my phone. Yes, I was so complacent to the point that I even went to sleep without putting any stop loss position in place.

Weeks prior to that night, I was so used to seeing green appear on my phone that it had never crossed my mind to start realising some of these gains. I thought my gains will increase, and it was that greed which eventually caused me to lose $2,000 in one night.

Simple concepts such as always ensuring a stop loss is in place and taking profits for trades that have already made gains were not incorporated into my trading methodology. I had no trading plan, no trading routine and no trading discipline. I simply relied on instinct.

Sharing our experience

Forex trading is not meant for everyone. In fact, it is not meant for most of us. Even if you start off making money in practice accounts, that does not translate into your ability to continue doing well in a live account. A boxer can look good in sparring, a footballer can look good in training and a basketball player can look good making 3-point shots during practice. It is what they do in the actual games that matter. The same applies for Forex.

We believe that people should never put their money into something that they do not fully understand. We hope that through the sharing of this experience, people will realise the difficulties of Forex, and not simply go dabbling into it with limited knowledge.

 

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