BarroMetrics Views:  A Gold Story

A long time ago, in a a time and place far, far away…there was a trader called Ray. He had sold his legal practice thinking to find fame and fortune in the markets. But instead, all he found was heartache and losses. For four years all he knew was losses, month after losing month. He couldn’t understand it. He was not dumb; he had had successes in his studies and in his chosen profession, so what was holding him back? If only someone would tell him the secret!

Then in two golden weeks all the misfortune gave away to the success he always imagined was his for the taking.  He was day trading Gold at the time and in those two weeks, he felt like he had Gold on a string for him to command. If he said: ‘Gold will go to $603 tonight’, Gold went to $603 and not a cent beyond. Every trade was a winner. ‘His’ trading room was  abuzz. All wanted to know what Ray was thinking and doing. Even the broker got into the act, and copied Ray’s trades.

In those two weeks, Ray turned A$5000K into A$25,000K. Life could not be sweeter.

Then came the third week. Ray was walking with a swagger and his head so big he could barely fit through the door of the trading room. He had meant to get in 30-minutes before Gold opened (his usual practice) but this Monday he came in late. He had intended  to buy Gold market on open but because he was late, he found that Gold had opened unchanged and had rallied $7.00 by the time he came into the dealing room.

Not to worry, he thought,

“I’ll buy the 50% pullback from the morning high to the open. ….

Oops,  the market isn’t stopping, it’s continuing to slip down. I’ll buy again at the opening range. ….

Damn! It’s still going down. No probs I have plenty of cash, I’ll buy again at 50% of last week’s  range….

God! It’s still dropping!! I just have to have the courage of my convictions. I’ll buy more! If it was a good buy at this morning’s high, it’s a better buy now……..I can’t stop now, I’ll look like a fool!”……….

Unfortunately Gold had what Ray now calls a ’slow one-time frame market down’ i.e. a market that just slips into a one directional mode. By the end of the evening,  Ray had lost all his capital: $5000 into $25,000 in two weeks; $25,000 into $0  in one day……….

That’s my Gold story. But luckily only my meager trading capital was lost that day. In exchange for losing my capital (yet again), I finally internalized that part of trading success requires us to accept this: losses are inevitable.

Yep, they don’t feel good and most of us would rather not have them. But happen they will. Totally preventing them is outside our control.

And, I learned to start focusing on what is within our control: Risk Management. I came to accept that Risk Management was one part of the secret trading success. It would take another 3 or so years before I would consistently make money  - BUT that night, that night ….. proved to be an important milestone in my trading.

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