We’re a couple of days into the third week of the Explosive Growth Mentoring trading room. I’ve talked big about taking our collective lumps, but today I had to live my rhetoric. I hit max loss today on my GBP/USD short trade when the pair went rocketing to the downside for over 100 pips during the New York session this morning. Talking about taking your lumps is totally not the same thing as actually taking them.
Nathan Can’t Even See the Box Any More
I’m following a plan that crazy Nathan concocted that has been working well. Nathan likes to think WAY outside the box. Even though I took a max loss, I still think the strategy is working well. I took a bit more than a 50% loss on my account this morning. 50% is my max loss but by the time I got all my positions closed, it was more like 56ish %. But with the explosive growth we’ve been experiencing, a 50% loss occasionally is not such a bad thing. Of course, a few consecutive big losses like that might not be ideal, but they don’t seem to be that often. I will grant you that it is mostly experimental and I’m not doing this with my primary trading account.
Nathan has postulated that the only way to get explosive growth in an account is to be willing to risk a sizable amount per trade. When you do what we call “building positions”, you get more leeway for the timing of your entries. You enter at a good support/resistance point, but if the market doesn’t bounce at that point and instead moves against you, you can add “bullets” at each support/resistance point to which the price moves. Then when it moves back in your direction, you can take profit on your “bullets” effectively washing your negative positions until you can close them while still negative, but have a (usually large) profit on the overall position. It takes the pressure off your entering positions and wondering if your timing is right. You do however have to maintain discipline on your entries, this is not a license to be sloppy about your entries.
Always Have a Plan
Many writers have condemned this strategy as “adding to a losing position” and “doubling down” as if there’s an element of gambling involved, but if it’s in your plan (you have a plan, right?) and you size your positions properly, this can be a very successful trading strategy. You must, however, have your “max loss” point. That is, the “I’m not risking any more money” point at which you just close all your positions and take your max loss. You can make that max loss 5% of your account, 10%, 25% – just as long as it’s firm and in your plan. As I said, my max loss is 50%
Large Risk Allows Fast Growth
That’s a lot, but using this strategy has allowed me to grow my account by 150% in the last two weeks. My account is now at 8% growth after my hit, but let’s face it, who wouldn’t love to make 8% in two weeks on their money. I know that’s not what any of us would call “explosive growth”, but then, I just now took the hit. And I can continue to trade and increase it exponentially to quickly make back my loss and then some.
I’ve included a chart with my positions on the GBP/USD so you can see where I fired my bullets and took profits. And where I took my max loss.
Hindsight is 20/20
Hindsight is always 20/20 as they say, but it’s always good to learn from our losses. With that in mind, there is one thing I plan to change in my plan. I believe I placed my bullets too close together price-wise. Casey made the suggestion to look at prior swings on the GBP/USD hourly chart to get an idea of how far I could have expected this to move, then plan my bullets
accordingly. Had I placed my bullets farther apart, I would have been able to hold out longer and, as it turns out, I may not have had to take a max loss on this trade. Casey sent me this image and pointed out that the average of these runs was over 200 pips. The run that made me take my loss was only about 100 pips and right now, the reversal appears to have happened just a few pips below my exit and now it’s flying almost 60 pips higher.
“Live to trade another day!”
Have a great trading day,
Winner’s Edge Trading, as seen on: