Lessons and Hard Knocks

Costly Lessons Learned

I remember May 5, 2005 very well as it was the day I realized I needed to make a change or my trading days would soon be over. Most traders experience days they will never forget and for me, May 5, 2005 was my unforgettable day. This was the day GM was downgraded to junk bond status by Standard and Poor’s Corp. What was so surprising about this announcement was not that it WAS announced but WHEN it was announced. The news hit the wires in the middle of the New York lunch hour! What is the significance of this particular time? For me it was the fact that I was holding a long position of five YM contracts when the news hit the wires. Needless to say the news resulted in a death spike of epic proportions and I lost a few thousand dollars in the blink of an eye. Hopefully you can avoid this kind of disaster and I've provided information that can help later in this article.

You may be asking yourself why am I telling you this? Because this was a major turning point in not only my trading career, but my life. I learned hard lessons from this event and when I look back now, I’m glad it happened. I know some of you are probably snickering and thinking, “Well, it’s good enough for you if you are stupid enough to trade during the New York lunch. You should know better!” You’re right, I knew better since most experienced traders are away from their trading screens taking a well-earned break from the morning session’s action at this time. Not me! I wanted to make up for the losses I had incurred previously and forced the trade because I lacked discipline and money management skills. (I’m snickering now because some of you reading this know exactly what I’m talking about).

Some of you may have mastered trading during the New York lunch hour. I haven’t and won’t attempt it again. At this time of the trading day the futures market is in the doldrums and really not doing much since the big guns are at lunch. My mistake on this day was really a combination of mistakes. First, I shouldn’t have been trading at this time of day and I knew it. Second, at the time I thought major news events like this were only announced after-hours. WRONG! Third, I didn’t have a stop loss in place and it wouldn’t have mattered anyway since the spike happened so fast it would have blown right through my stop. Fourth and most importantly, I was trading (gambling is more like it) on pure emotion rather than sound trading principles. All I knew is that I wanted to make up for my losses! Guess what? I sustained an even greater loss.




Are you experiencing some of what I mentioned above? Have you traded when you shouldn’t be trading? Have you forced trades in an attempt to make up for previous losses? Are you gambling rather than using disciplined trading methodologies? Will you continue to throw the dice and hope for the best or learn to trade well? If you’re reading this, you probably are guilty of many of these. Most of the articles on this blog are about trading methods, indicators, risk management and detailed information about each mini contract. I wrote this article because I’m getting a lot of emails from people struggling with their trading. First let me say, I’m flattered that you would consider me worthy of answering your questions. However, I started this blog about four years ago because I love the financial markets and particularly the index futures market, but I’m not a teacher or a mentor. The articles I have written here have resulted from my experiences as an index futures trader.

Over the past four years I have tried to direct people to sources that will help them with their futures trading and from the feedback I have received over this time period, I have been successful to some degree. However, as this blog grows it receives more traffic and I feel I have a responsibility to my readers to share with them how I reached a level of success with my trading. After the losses I incurred on May 5, 2005 due to the GM downgrade, I realized I had to make a change. I knew I didn’t want a canned trading system designed by someone else, I wanted a teacher. Someone I could follow along with during the market day and watch as they traded. I wanted to learn why they took a position and why they didn’t. I wanted to learn the dynamics of the markets and how to interpret market data.

I scoured the Internet searching for trading rooms. I spent more time than I care to admit on Pal Talk in some of those trading rooms without success. Finally I found Firetraders. They closed down a few years ago since the founder decided to move on to bigger and better things, but the education I received during the six months I was a member was priceless. I learned how to trade, use discipline and most importantly I learned money management. They did not sell a canned trading system for thousands of dollars but they did offer a trading room designed to teach and help inexperienced traders become successful emini traders. You can join our interactive trading room and benefit from following along with experienced traders.

If you want to learn as I did, nothing is better than a live trading room. It doesn’t matter which mini contract you trade, ES , YM or the NQ , they react to the market in similar fashion. The moderator I followed traded primarily the ES and I traded the DOW YM. Although we traded two different contracts, the fundamentals were the same. More information about the various contracts can be found at the CBOT and the CME websites. Thank you all for your emails and I hope I’ve provided enough information here to hopefully get some of you that are struggling on your way to trading success!

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