My Love Affair With High Risk Trading

I started trading in March 2012 and within five months had managed to lose £2500 (£500 a month).

If this wasn’t a big enough kick in the teeth on its own, it was far worse when my wife got hold of our bank statements. Not only did I feel like a dick for wasting money trading instead of putting it away for our newborn son, I also felt like a total failure.

It seemed that no matter how much I read or studied or how many different trading systems I used, I just couldn’t pick enough winning trades to outweigh my losses. It was with some sadness that about 6 months into my trading career, I decided to shelve it and get back to the day job.

Atleast, that’s how the plan should have gone. But, as you no doubt know, even the best laid plans go wrong sometimes, and after about two weeks doing the normal stuff, I threw caution to the wind and topped up my spreadbetting account with another £500.

But something was different this time because, as I looked over charts and news reports, I felt absolutely no urge to jump in and ‘catch a move’.

Previously, when I looked over charts or read news, I was prone to feelings of anxiety or panic in order to try and get in at the right time so that my position showed instant profit but this time, I just looked. I felt no panic or fear of missing out on anything, and I wasn’t afraid of losing money either.

Rather, I felt empowered.

As I looked at the charts, I knew I didn’t have to make any trades. I had no money on the line and everything was fine – life was good. The market had no hold over me and I watched casually from afar for more than 4 weeks. Then, one day in November, I saw something.

gold-long-16.11.12Half way through the day, after several days of constant price falls, the spot gold price just stopped falling and started to rise.

I felt no panic to dive in or any cautious reservations. I just opened a position to the maximum that my account would allow at £25 per point and went long.

3 days later, I closed the position for £550 profit – or 110% return.

This was my largest profit in a single trade, but also the least stressful trade I’d ever made – despite me risking my entire account.

Higher Stakes, Calmer Mind

Admittedly, my account size was only £500 and if the trade had gone against me, I wouldn’t really have missed the money. It certainly wouldn’t have put myself or my family in any trouble.

Instead, the result was that I felt inspired – or enlightened, you could say – that the success of the trade had nothing to do with the account size, a trading system or any chart pattern, but rather through my feel for the market that I’d been watching for about 6 weeks and my laissez faire attitude to the whole thing.

It seemed almost unbelievable given my early trading experiences that a less rigid and higher risk attitude to my trades could have been my salvation, but I am absolutely certain that my lack of rigidity, focus and attachment was key to its success.

You see, by just letting go of all the hangups I used to have when I traded, like what pattern I was looking at or how much volume there’d been or what the risk:reward potential was, I was able to step outside of the entire process and just wait until it felt right.

When that moment arrived (and I honestly couldn’t care less how long it took to show up) I was not afraid to back my hunch to the hilt and I’ve been trading the same way ever since.

This very simple, uncomplicated, unassuming approach to my trades has helped me grow my initial starting pot of £500 by more than 40% per month. It is so simple, I am convinced that anyone who was able to attain a similar trading mindset would be able to achieve similar results too.

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5 Replies to “My Love Affair With High Risk Trading”

  1. Hey Lee

    This article brings up some really interesting points.

    Firstly, the question of not caring about being flat in the market, do you think this was linked to not needing the money so therefore not being desperate to be in a trade?

    Position size being such that it’s not so little that you end up gambling and not so much that you’re scared of losing. Do you think the amount you risked was “just right” and if so, do you think things will change psychologically as compounding raises stake size?

    I wonder if trading because things “feel right” could be applied to random entries. Maybe in searching for a “system” we are just looking to feel comfortable in our trading decisions and therefore stay calm, cutting losers and letting winners run (if that’s the plan). In other words, what if we can stay calm regardless of the “system”, what if we can stay calm even if we trade random entries?

    What if trading success is ENTIRELY down to our mind-set (well, and exits…) Now there’s a thought! See what you’ve started!.. ;-))

  2. Hi Mate,

    Ha, glad I’ve started something!

    Yes, I think partly because I did not ‘need’ the money made it easier to distance myself from it, but also I think it was because after my earlier trading experiences, where I’d lost so much money, I felt a bit empowered by the idea that I had £500 to play with and it was up to me when the game started.

    I’m not sure how I’ll feel when my stakes increase, but so far I haven’t felt much difference as my account size has increased. I think this is down to the fact that I am only trying to make 30% p/month and so far, I’ve managed more than that. This has meant that I’ve been able to take out the extra from my account and gives me the feeling that whatever is left in is still play money – and therefore doesn’t really have the same emotional attachment. I think this will get more difficult as the amount increases to the point where it is useful (like for a deposit on a house or paying off a car). That’s when you’ll really need to be chilled out!

    Personally, I believe that feelings…or ‘going with the flow’ as you say on your own blog, is a far more useful tool than more mechanical systems. My own vew is that if you can feel a market, you can ride it….like the balloon in the stream, trying to move against the flow will get you nowhere, whereas just sitting back and letting it take you wherever it’s going expends far less energy and distress. Just make sure you know which way its flowing when you jump in and, likewise, make sure you get out before you reach the waterfall…

    Mechanical systems seem to me to be a way of trying to immitate feelings and instinct by trying to put some measurements on what are essentially completely spontaneous things (price action). But the thing is, you can’t really measure all the actions that could affect a price, but you might be able to feel them.

    The caveat of course, is that if you want to ‘feel’ properly and absorb information, you need to have a clear mind that can accept all of the peripheral signals wherever they are without overthinking them. If you can do this, I believe you can trade random entries with success, without a system.

  3. Loving the “if you can feel a market, you can ride it” comment!

    For a while now, I’ve thought of the idea of catching the wave of a move as a bit like surfing. You wait for a good one and try not to waste your energy (and capital) on the little ones. Once you catch a wave, if it turns out to be a bit rubbish, get off it. If it a good ‘un, ride it all the way!

    I haven’t thought of an analogy for the hard graft of paddling back out yet. Maybe that’s the ability to not get pushed backwards too many times by negative mental stuff, before you get into a good position again…

    I agree with your comments about systems trying to immitate feelings, likewise gurus trying to impart their approach. How do you put your intuition into words? You can try (and plenty do) but you can’t learn someone else’s intuition and therein lies the difficulty in learning a trading system from someone else. Little pearls of wisdom that can be integrated into your own approach yes, but a whole system no.

    Sorry, gone off at a tangent again!

    Anyway, keep up the good work, catch you later.

  4. Hi Lee,

    Really interesting article. I’ve just been through a similar experience in terms of your first five months, but I managed to do it in five days!

    I opened a spread betting account about a week ago with Hargreaves Lansdown (uses IG Markets) and I started with a few small bets. I made a hundred quid here and there, mainly with silver and oil.

    I then decided to start looking at random indexes and spots and looking at the charts and I saw Wall Street had rallied to a month record high. So, I decided to short it on £25/pt. What happened? The Italy prime minister had made some announcements causing it to carry on rallying and I eventually closed the position before it got to losing £1000. To claw back my losses, I successfully bet on China and BP. I then noticed EUR/USD had suddenly rallied recently. So, I tried the same strategy as with Wall Street. I shorted it at £20/pt. Bad move. It rallied and rallied, and I checked the news and it turned out that mixed reports from the US including less-than-favourable results from Chicago manufacturing industry for the past 6 months had caused the US Dollar to weaken. And the results from an anticipated FOMC meeting had caused the Euro to strengthen. This was a double-edged sword against my position and I was now losing £1800. I had to put more margin down, but then I made a stupid mistake. I decided to place a long position also at £20/pt in case it carried on going up and I would close this position as soon as I saw it dropping. Unfortunately, I used my entire funds and as soon as I opened the position, both it and my other position closed. I was so disheartened, I didn’t open another position. And then, the EUR/USD spot started coming down. If I just put the extra margin in and left it without opening a second position, I would have startted to reduce my losses.

    What a horrible experience and I’m now £3000 down on my spread betting account. I’ve withdrawn my remaining funds and I’m offsetting my losses against some other gains I’ve made in physical gold, a recent ISA gain in the space of two days and a gain in Bitcoin – all of which I’ve achieved in the past month. This reduces my net loss to about £1500.

    It is painful to say the least, especially given my girlfriend wants a holiday soon and I’m trying to get the deposit together for a new property that is already in process. Stupid I know!

    But your story echoed mine and I seem to have the same emotional process. It was when I didn’t have any hangups or stress I made the money. As soon as I panicked, I lost money as I tried to make quick gains purely speculatively.

    I would definitely be interested in your system. I’m thinking perhaps I could play a long game and speculate with small amounts (like £5/pt) with a large margin. If a position does rally massively, I can just wait till it returns even if it takes days or weeks. My large margin will hold me out. It’s not a way to make a living, but I think it will be a better supplementary income to my day job (which is in IT in an investment bank).

    Would love to hear your thoughts and following your system of £500 initial at 30% compound sounds ideal to me!

    1. Hi jason,

      Wow, sounds like you really did have a trial by fire! I would say I’m sorry for you but it might not seem like it now but this experience will be good for you.

      You sound very similar to what I sounded like this time last year.

      If I have one tip for you right now it’s to slow down, chill out, switch off, let your mind settle a bit. Just reading all the variables you mention about FOMC, Chicago MFG, Italian prime minister is making my head spin! 😉 take a step backwards, soak all of this info in yes, but don’t make any decisions based on it. Let these things sit quietly in the back of your mind.

      Look at the bigger pictures, the macro pictures, gauge sentiment by speaking to your friends and family, not about the markets or anything, just about life in general. Listen.

      This will enable you to figure out the wider flow of things, then when you think you’re ready to try again, keep your eyes open for the opportunities in markets that seem to fit with your world view and the overall flow of stuff.

      For example, you can’t fight the rising markets by trying to guess when they’ll crash. So for now, look for positions that fit both the rising market (are trending up) and your world view (things that might keep going up in a crash). Utilities might be one, food mfg another etc.

      Don’t Try and swim against the tide, predict reversals or tops or whatever else people call them. Just trade with the tao 😉

      Good luck, I hope you get to take your girlfriend on holiday…

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