Experience is one of the most important qualities of a person. Together with the genetic heritage, it characterizes the character and the relationship with the environment. The experience, together with the training, is particularly important for the exercise of professions. Foreign exchange trading is one of the areas where experience plays a very important role. Below is a text in which I, as a forex enthusiast, analyze the mistakes I have made. The purpose is to help others avoid the same mistakes. It is true that you learn better from your own mistakes, but it is much more “convenient” to learn from the mistakes made by others.

In order to use the experiences of others, it is necessary to know the person and their relationship to the subject we are talking about, at least in part. I would call myself a prudent trader: For me it is more important to secure the capital I manage than to make a high profit. At least in words, because as we will see below, I was the victim of my greed, my desire for more. I hope this analysis can help someone get back on track. I am a day trader, which means I tend to close the position on the same day with a gain of 3 to 10 percent.

Experience has taught me that this path is often impractical because it is difficult to guess the price trend. For this reason, I make sure by setting the “Stop Loss” to 100% of the invested amount. In view of the fact that the position can remain open for a long time, I work almost exclusively with trading EURUSD and GBPAUD pairs. On the LynxBroker platform, which I use, they do not apply the “overnight” position transfer fee to these sold pairs, or rather, from one day to the next. In these cases you even get a bit of a return.

I started trading my money the penultimate of November. I will write this text at the end of August. So my experience is about 2 years in the business. Until the middle of April everything was fine. I managed to double the starting capital. After that, things changed. First I lost all my accumulated profits and in May I lost 80% of the amount I had started this adventure with.

As mentioned before, I only trade with two pairs. Here is a brief analysis of my losing operations for each pair. It is interesting that in both cases there are 6 errors. I immediately anticipated the main mistake I had made: I had the potential negative limit where the price could come (as opposed to the desired trend) and the leverage was not harmonized.

GBPAUD Trading

I have prepared a summary of the operations that ended with the loss of the British Pound – Australian Dollar. All positions are short or sales.

At first glance, you will notice that the price rises in the period shown while I am reselling. I have played against the global trend and hoped that it will return in my favour. It’s mistake number one.

The second was that the leverage I used did not take into account the possible negative limit (loss side) that the price could reach. For the observed period (September 2016 – May 2017) the maximum price reached is 1.7800. This could be a reference point for me. At the end of my negative period, the price came very close to 1.7650 without exceeding the historical maximum. If I compare the limit of 1.7800 with my first operation (1.6180), the difference is about 10%. With the leverage level of 25 that I used, the amount invested covers only 4% of the risk. Even a 10-fold leverage is at the limit to cover the risk. In fact, the appropriate leverage would be 5, the leverage that ensures a safe margin.

In the penultimate operation, the margin is 5.3%. I cancelled the “stop loss” by investing more money. For this reason, the losses are higher than 100%. The sixth, last shown position was opened with a leverage of 50, completely out of place. A clear sign of desperation in the attempt to recover the money lost before, which only led to another loss.

GBPAUD Worst trades description

At that time I was already aware that the Australian dollar was heavily dependent on the price of iron ore. Australia is the largest producer and exporter of this mineral in the world. The price change has a big impact on the government’s accounts. I had the argument, but I never went there to check the price of this raw material. Laziness can cost you money. It took me a few seconds to find the charts with the price trend. If you look at the graph, you can clearly see the close connection between iron ore and the Australian dollar. When the price of the first half of March began to fall, the Australian dollar had also fallen, i.e. the GBPAUD pair was on the rise. Had I read the table, I would have saved a lot of money. Another mistake. Don’t forget: The right information is money in Forex, directly or indirectly.

EURUSD Trading

The story of this couple is very similar to the one just described. The mistake number one is the same: the price went up and I insisted on the sale. I tried to “support” a loser position and continued to invest to increase the “stop loss”. Once again in vain and that increased my loss even more.

Here again is the disagreement between the leverage and the negative limit where the price could go to my disadvantage. It is also very obvious that operation number 1 was executed one day after the minimum of 1.0339 was reached; it was January 3rd. This date marks the point at which the euphoria of the financial markets due to the election of the new US president is over. The US dollar began its descent. The difference between the above ceiling and my first position is 8%, twice the leverage of 25. If I use the multiplier 10, the position would still be open today as the stop loss would be set to 1.1470.

By mid-March the trend had changed and the price was approaching 1.0500. I opened two new positions, but only made 16 points difference between them and about 50 pips from the position opened in January. A new mistake compared to the previously described currency pair. Opening very similar positions makes little sense. It would be right to allow a gap of 100 or more points for the trade. The last operation opened with the multiplier 50 is another symptom of despair.

Result

I am sure that many good traders will argue about my arguments and support their observations with valid arguments.
Do not act against the global trend, especially in the long run. Based on historical data, determine the value of the maximum possible negative limit, the unfavorable one that the pair can reach. Adjust the leverage effect to this value. In this way, the “stop loss” of the 100% invested capital guarantees that even in the worst case, the position has no fatal consequences.
The trend chart for a given interval is used to determine the negative limit. The longer the interval, the more is covered.

 
Experience report written by Heiko, 41 years, from Rendsburg