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Friday, October 21, 2011

I have lost my ass

Yup.....I lost it,....and I don't know where I put it.
Nah nah, just to start off with a small comic line after a while absent. I'm in a good mood today, probably because it was pay day at the office ;)

I haven't lost my ass, what I have lost is a lot of money in the few months I've been trading which makes me part of the 90% - 95% of traders who lose money.

The funny part of the story is that I started well, during the first two months, back in February - March, but then unrealistic expectations, typical of a rookie in the game made me take reckless steps as short cuts to "rich-land", and of course, I ended up screwed.

Although the amount lost throughout the year might not be big in absolute numbers it really is with respect to my total net worth (Probably 30% - 40% of my total capital). I lost some money in Forex, some more trading for friends and then some more in subscriptions to crappy services and newsletters which the only good thing they had was their marketers.

In the middle of my broken heart, I stopped blogging for a while, came back for two posts, quit again,......but in reality I didn't feel like writing at all. However the blog exercise is a good one. And I'll start using it to keep myself disciplined.

Many lessons have I learned during 2011 and the point is to learn from them. All the big players in the game lost their asses early in their careers so why would I do better? I could sum up my lessons as follows:

1 - Forex Expert Advisors (EA) sold out there are mostly useless. Curve-fitted to show a nice back-testing curve in order to lure you. Most of the time they offer a 30 month money back guarantee, so if you buy an EA and it doesn't cause you a draw-down during the first month you won't ask for the money back and the seller keeps the profit for selling it. Granted many people will ask for money back if they happen to have a bad first month, but some maybe many won't have a bad first month. Every single buyer who doesn't claim his money back means locked in profit for the seller.

2 - I do think that successful fully automated trading is possible, not only in Forex but also in stocks, options, bonds....Several living examples prove it. The point is: it takes time to find a real edge and even more to go ahead and automate it. And it takes weeks and even months to properly test strategies for past data and perfect the initial raw edge.

3 - Moving on from Forex cheap EAs, signal providers are the next step in the Forex ladder. I couldn't find one, a single one that could deliver solid results for a period of time.,,, they all somehow messed up, and I really can't find a solid long term and proven forex alert provider. Of course, they didn't totally screw up, they had my money as a cushion and that of hundreds of subscribers.

4 - In respect with stocks, I learned that if you don't have the quality info "firsthand" you are doomed to failure due to the disgusting manipulation there seems to exist, the front running by brokers and market makers, the insider trading that takes place every single day. Sharks are out there to eat you.

5 - Forex is somehow tougher than stocks (if you have insider information about stocks :D), and the 24 hour open market, instead of being the blessing every marketer mentions, is a nightmare, don't be fooled. As an individual it is very tough to make some decent money while having to sleep at night because there's job waiting to get done at the office the next day while your positions are in play at the same time and news going crazy in Asia and Europe.

6 - The zero sum game is a negative sum game. Consider brokers' commissions, spreads, slippage, withdrawal fees, conversion rates by banks when dealing with different currencies (Sometimes abusive like those of the RBC who converted my transfers from USD to CAD using a -2.5% favorable rate for them).

Given those rock hard facts, I am quitting the Forex game. It's time to realize it is not my game to win, so I'm out. Good to do it now while still poor.

On the other hand, during all this time I have always studied income plays in the stock market basically selling Credit spreads and Iron Condors on Indexes. Those strategies are without any doubt the most suitable ones for me. Indexes do not suffer the effects of manipulation so abruptly, they also move slower, and I can know about them mostly like everybody else with an internet connection. No one can do insider trading on the SPY, or the Dow Jones!! They are indexes! More importantly I shall only play 3 - 5 plays a month and they are low maintenance, that I can take a look at every night for 20 minutes and think of possible trade adjustments and "ifs" scenarios for the next day, which allows me to perform decently at my job, which I can't quit.

So, my first year trading has put me in the red, in the trenches along with the vast majority of the losers. But I won't give up, I JUST CAN'T and still see a lot of potential for making returns better than the annual 0.75% the bank gives me. Actually the more I learn the more inclined I become to the reality that beating the markets is possible.

I will start simulating Credit spreads and Iron Condors for months keeping a virtual track record on this site. Doing it here will force me to keep posting the updates and the virtual track record which should keep me motivated. So, it will be an appropriate exercise because demo-trading without posting or carrying a diary and track record somewhere is annoying and I have found myself quitting it after 20 "serious" days. I want to try for a while (more than 4 months at least) and face different situations, while at the same time my savings recover and eventually I can get back into the game. This time with the best possible strategy for me, and definitely infinitely wiser than 10 months ago,....or so I hope.

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