Hi, I'm Peter Rose, Founder of Longwood Currency Trading, and welcome to LCT Blog Post 04/30/20 — How Bad Can FOREX Currency Trading Losses Get?.

The following is an excerpt from a 90 page as yet unpublished book I've written, Trading Lessons Learned From Failure.

In the Forward, I describe the book as chronicling my journey in learning to trade the currency markets in the manner articulated by Jesse Livermore: "The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes."

I'm an expert at this because I've made a lot of mistakes. As the great basketball player Michael Jordan put it: "I've missed more than 9,000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed."

I learned from my failures. I hope you can learn from mine, and not yours.

Enjoy the post!

Never, Ever Underestimate How Bad It Can Get
Never, ever underestimate how bad it can get, because it can get worse than you can imagine overestimating how bad it could get. Noted economist John Maynard Keynes put it this way: "The market can remain irrational longer than you can remain solvent."

I've lost thousands and thousands – and thousands – of dollars thinking, "Oh, this will turn around because – pick some stupid reason – it's Tuesday with the smell of daisies in the air, and the Bank of England surly wouldn't raise interest rates again."

Doesn't matter if they do or they don't because the market just doesn't care what you think.

In fact, the market doesn't care about anything!

You can't know what the market is going to do anymore so than you could ferret out the direction of a bunch of plankton floating around on the surface of a wind swept pond.

How bad could it get?

Bad, really bad.

In fact, really, really bad.

And how long might this bad thing take to happen?

Faster than you can possibly imagine.

And then it gets worse as you sit there paralyzed, unable to close the trade because you're thinking, "Oh, this will turn around because – pick some stupid reason – it's Tuesday with the smell of daisies in the air, and the Bank of England surly wouldn't raise interest rates again."

How bad could you let it get?

I once sat paralyzed in a trade that had gone $300 in my favor, and then went to $800 against me. I found myself frozen, unwilling to pull the trigger and get out because the loss was $600 more than my original risk of $200.

I should have gotten out with that $800 loss.

I didn't.

I waited....

And then, when it was $3,000 against me, I had to pull one of the two lots off or I would have had a margin call.

But I clung desperately to that last lot, my theory of a sure turnaround that was certain to manifest itself until it just didn't and until I just couldn't hang on any longer....

I was finally stirred to action to close out with an additional $3,400 loss just because I couldn't think of another reason not to.

That's how bad it can get.

But "it" doesn't get bad.

The market doesn't get bad.

Only I get bad.

I get bad by making bad decisions and choices about the market.

The market doesn't care. It's only doing what markets do. The market doesn't care.

Only I care.

Only I hope.

It's only me that, despite being of otherwise strong mind and body, can be so absolutely rectally paralyzed and go into a euphoric state of catatonic bliss that I become totally incapable of acting in any rational manner in the face of obvious danger.

But it's not just me. It's you, too. It's all of us.

We all have that ability to become totally irrational in times of duress.

That's why you have to have rules.

Hard and fast rules, immutable rules, that will act automatically for you when you are otherwise disabled by your own greed and fears.

If you don't have those rules, then you will be disabled by your own greed and fears.

You absolutely, positively, for sure and certain will....

As Gene Hackman as Captain Ramsey addresses Denzel Washington's character in the movie Crimson Tide put it:

"Mr Hunter, we have rules that are not open to interpretation, personal intuition, gut feelings, hairs on the back of your neck, little devils or angels sitting on your shoulder. We're all very well aware of what our orders are and what those orders mean. They come down from our Commander in Chief. They contain no ambiguity."

And so too does trading have "...rules that are not open to interpretation, personal intuition, gut feelings, hairs on the back of your neck, little devils or angels sitting on your shoulder."

As financial trader Greg Simmons so aptly summed it up: "Rules exponentially increase your chance of winning in any game involving skill, luck, or both." And long before him, Albert Einstein said: "You have to learn the rules of the game. And then you have to play better than anyone else."

No kidding....

Thanks for taking your time to read this post,
peter

p.s. For more of my thoughts on trading in the FOREX foreign currency market, check out my YouTube channel for Longwood Currency Trading