Take a step back and let’s look…

• Posted by: kevinmhughes
• February 6th, 2010

"May God have mercy upon my enemies, because I won't.”

- General George S. Patton

That quote by Gen. Patton is exactly the thought should go through traders' minds every day before their respective market opens.  Not that we're going out there to inflict physical harm on people, but the trading world (regardless of what you trade) is a zero sum game, somebody wins, somebody loses.  Everyday someone has to go back to their wife or husband and say "I took some significant losses today".  At some point in our trading careers, we've had a day that we thought our worlds were coming to an end.  I've had one and I'm sure you've all had one.  After that one time, we became smarter (in a sense) and took a step back and look at the overall picture.  Which should have boded well for your careers (it did mine).

Over the last several days, I've been asked the question "Why do you only trade on VERY short term time frames?" or "Why do you go into 100% cash at the end of a trading day?" The answer that I normally say it that it fits my personality (which it does), the second answer that I give is, it's due to the market I trade in.  The currency market, the most liquid, most traded, most volatile financial market in our grand 'ol global economy.  Every day you hear of people 'trying out' the forex market and losing everything they put into their accounts.  The forex market gets a bad wrap because it's said everyone and their cabbies are dipping into the market.  15 years ago, no one had the ability to access the currency market (on a retail front) unless they were a big sovereign bank, Goldman Sachs or just a big bank.   There is a reason for that...  THEY CONTROL THE MOVEMENTS AND HAVE THE MONEY TO DO IT!  When I hear a sob story of how someone lost $50k in the currency market when they started (then find out they aren't doing it anymore) I don't feel sorry for them.  The only reason to lose that kind of money is because they didn't know what they were getting themselves into.  The money that we all make and lose during the course of the year is what these 'bigger' players spend on lunch during any given week.  I trade from 1, 5, 15 & 30 min charts, close out EVERY position at the end of the EVERY day (or just to go to the bathroom) because the market will attack and not look back.

This goes in every financial market, not just the currency market.  The difference with the currency market, is that it runs the world (argue with me if you want, but it does).  The $USD isn't going to hit all time lows or highs because Apple's earnings were below par or Warren Buffett bought a choo choo train because he's always wanted one, when everyone said it was a 'bad' idea.  The $EURUSD isn't going to rally to all time highs because John Thain decorated his office with a golden toilet and cashmere toilet paper.  But the stock market will plummet when the $JPY (Japanese Yen) is strengthening.  International companies will lose billions if they aren't properly hedged against currency risk and we will all rethink a trip to Europe or Italy if the $EUR is decimating the $USD. I'm not asking Joe Donohue where he thinks $GS is going to finish the day to help me with my currency trades, but he is asking me where the $USD is heading because it will allow him to gauge his positions and make better trading decisions.  Jim Gobetz doesn't get my thoughts on the $USD for his health, he's asking because it's going to affect his $CL_F positions as well as his long term holdings in his $1.7 billion trust.

The currency market is where the big money goes when everyone is sleeping.  The currency market doesn't sleep.  I go into 100% cash when I'm not in front of my computer because after being away from the charts/market for a couple of hours, "you could come back to a totally different world" (that quote is from Todd Sullivan).  I trade 1, 5, 15 & 30 minute charts and will take a 15 pip profit 30 - 40 times per day because it allows me to take money from someone vs. giving to someone.  The market will reverse on a dime and burn you, the smaller time frames, help me avoid that.  In the words of Jim Gobetz "We don't move you, you move us"

As Anne Marie said in one of her posts, we are going up against the best athletes in our sport.  That quote should be posted above everyones door so they can see it when they leave for the office (or head into their 3rd bedroom).

To all currency traders (retail) we need to realize that what we trade in a year is what these big players are using in an hourly basis.  If you trade 1000 lots through out the year, that only equates to .003333333% of 1 days volume.  We are parasites in the large scheme of things.  We need to take our profits as they come.  There are some currency traders out there that are 'swing' traders.  Some make money, most lose their shirts.  I give my hats to the currency swing traders, I won't do that because I'm uncertain of what can happen while I'm away for 3 hours.  Know your market, if the currency market, it's volatility and uncertainty doesn't fit your personality, don't attempt it, it will just hurt you.  Don't attempt it because you heard it was easy.  It's not and if someone tells you its easy, dump your coffee on them and walk away.  NO trading is easy.  When it becomes easy to make money, close out your positions, it's the calm before the reversal storm.  Get familiar with the futures markets, if $CL_F is dropping, it's happening for a reason...  The $USD is rallying.

Taking a look at the quote on the top of this post is exactly what the banks and huge hedge funds are saying before they begin their days...  We should be thinking the same thing...  You won't be a millionaire in 1 year from trading the currency markets, but you will become homeless if you don't listen to the rules.  Become an expert at your defense strategy when the real players come onto the field.

Kevin Hughes is the President & Head Trader at K.M. Hughes & Associates, Inc. in Charlotte, NC; a currency trading firm.  If you would like to find out more about Kevin and/or his company, please visit www.hughesincorporated.com

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