Trust The Process Not The Price

When I was at the FX expo in Las Vegas last week, I found myself in the refreshing position of being in audience rather than the stage as my friend Todd Gordon hosted a panel on the joys and tribulations of FX trading. So instead of pontificating, I listed for change and walked away with some great insights into the game.

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Although the event was sponsored by a broker, the majority of the panelists were not associated with any broker dealer firm and as a result the crowd received an unvarnished and quite realistic view of the business. No one on the panel claimed that you could trade your way to a six figure income with ease or promised that they could show you a “way to print money”. In fact everyone was quite sober and realistic about the actual returns that you could achieve from trading. The consensus view was that 15%-20% per year was the best you could do if you became especially proficient at the game. This was hardly the turn-ten-thousand-dollars-into-a-million pitch that many had expected to hear, but I think most in the audience appreciated the candor of the message.

The most interesting story however was told by Derek Frey who is a frequent contributor to FX street. Once every few months Derek creates what he calls his “lottery account” He funds a five thousand dollar account that he trades very aggressively. This is capital that he is perfectly willing to lose, but nevertheless he tries to make every effort to stick to a particular strategy. A few months ago Derek opened a new account and immediately proceeded to hit the worst trading streak of his life. He made 11 losing trades in a row and saw the account dwindle to 1800 dollars.

Difficult as it was for him to maintain his discipline in the face of such negative results he continued to take signals from his strategy and as markets improved he was able not only to recover his losses but trade the account to nearly ten thousand dollars by the time he came to the expo.

Derek’s experience is a great reminder to all of us that in order to achieve long term success we need to trust the process not the price. Price can be very capricious and as sure as day follows night the only certainty of the markets is that you will eventually hit a nasty drawdown that will tempt you to abandon your set up in pure disgust and frustration. It is those points of absolute bleakness that separate winning traders from losing ones. The losers quit, but the winners persist and more often than not markets become more amenable to your strategies and the account recovers. This is perhaps the most valuable trading lesson of all, and thanks to Derek for sharing it with all of us in Vegas.