Trading Tips

Don’t Be Like This Trader

A reader of the market analysis service I work for emailed me after I posted a comment about GBP/USD. He started with this:

So I just read your posting about the GBP/USD on my fxdd headline. You mention that the upside is pretty limited above 1.55 and that a possible retracement might occur. Do you think it will drop back to the 1.5300 range in the next couple of days?

When I get emails like this from retail traders (I don’t normally get them from institutional readers) alarm bells go off. Is this guy in a position and wants to know what to do?

After I responded that my comment was intended for that afternoon’s trading only and that I wasn’t really comfortable with the idea of the market returning to 1.53 soon, he responded with this:

Hmm…earlier this morning an ACM analyst came out and said that there’s sellers around the 1.5470 area since 1.5490 is a strong resistance but pair continued passed 1.5500.  I asked about the 1.5300 area b/c I have a short @ 1.5350 and contemplating on what to do here.  How far down do you think the pair will retrace this afternoon?  I might just close the position around 1.5420 area.  Any suggestion?

Short you say? 🙂

The market was up around 1.55 when he sent this too me, having started to back down from highs around 1.5520. I told him I couldn’t provide specific advice, but that I didn’t think GBP/USD would get much below 1.5480 if it did in fact kept falling through the afternoon (low ended up being about 1.5465 as the day was winding down). I don’t know if he got out

If he didn’t close out the position yesterday he maybe could have gotten out closer to even early in European trading today (chart above is in GMT time), but still at a loss from his short entry. If he was hoping for further losses to get back to break-even (or better) he’s been out of luck given the snap back.

The moral to this story is that if you’re asking someone else what you should do with a position you’re in you’ve got a big problem. Your plan of action for every trade should include a specific exit strategy, and you have to stick to that strategy.

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