EURUSD - Angry Rant: Where did I go wrong?

11:21 PM

But I went from up 3% to losing 1.1%.

so that is a total of +4.1% in total drawdown. Thos accounting for my losing month in April. In realized values though, I lost 1.1%

If this thesis worked out for me, I would be easily up over 10% and risked 1%. 

But where did I go wrong? Where are my learning lessons here?

1) Differentiation between results and sentiment.

The initial upside that I made was due to sentiment pricing. This was good enough to provide a 1:3 risk reward return.

My shock was when the markets reacted positively to the first round results as the potential mispricing was great. If it had happened in the second round, I would be at less of a shock because the outcome is clear.

However, the market acted as if it was done and dusted in the first. This is evidence in the price yesterday because the EURUSD fell even though Macron won.

I could have taken profit but I did not want to due to the potential of the event. This was the source of my mistake. I wanted to lean into profits, but now I find it is not advantageous especially on eToro.

After listening to a political commentator and Ray Dalio himself, I do not think my assessment of the environment was wrong perhaps only in the structure and playing out of this. 

And I need to emphasize this, I understand why Le Pen was "never" going to win, I understand that Macron was the most likely candidate, I am NOT saying that French people are stupid. 

ALL THESE POINTS ARE NOT RELEVANT!! (Angry and frustrated)

The EU must fail in its current form if nothing if done to change the Maastricht Treaty. It is the entire point of credit cycles and it is only a matter of when and which event. 

Given the factors available at the time, if it is at all possible that a dissolution is possible, no matter how small, I will take that bet 100% of the time. 

The entire point is the risk: reward. Macro trading involves more often than not taking a contrarian point of view. 

Whether it is France or Germany or some other EU nation with the same amount of impact. I will take it.

2) Is greed good?

Should I have taken money off the table after the first signs of failure? I was attempting to do what most macro traders do and add positions to winners. 

But this brings me to the next lesson.

3) Etoro(and most of the general population) has a preference to stable.

While I believe my 15-20% target, given a recession or 12% if there is none, is not far away and I can get to there given a few good calls, If this black swan event happened, I may have reached it already. 

But it has not and I have lost many of my copiers and more than half of my AUM.

But this does not upset me because like I said, I have been around the investment banking industry and I understand the patience of investors. Studies have shown that this patience extends for only 6 months. This is worse when it is as easy as it is on eToro to copy and exit.

My only problem with the stable income approach is the black swans. This is where I tend to live. I love understanding them, structuring and trading them.

Most traders who revel in the stable income approach avoid these because black swans rarely happens and when it does, the results are catastrophic. Often we risk 10% to return 1%. 

Quick Lesson in history

Most people have not been around to see bids/offers disappear from the market and rely on stop-loss levels not realizing that when the SP500 crashed in 2008 it was a result in this, the next bid was 10% lower than the current price.

It happens in currencies as well, when the SNB decided to remove the floor of the exchange rate peg, many got wiped out. Including my old broker who went into insolvency, Alpari UK. 

Do not be mistaken, stop loss is a great tool. 

Flash crashes happen this way. They are rare, one every ten thousand or so trading days. 

I spend a lot of time trying to understand the market as much as possible. Now that I do, I can't stand ignorant behavior that I have seen from some traders.

Do they rarely happen? Yes. But that is why they are called "black swan events". But one is enough to wipe your account(more than 25%), please reconsider your methods.


4) The financial markets is not brick & motor

The financial markets are skewered towards the fat tail. I.e. the probability of you losing 20% in the stock market in a single day is much much higher than winning the same amount. 

  Most people expect a simple income stream.

It is possible, but exploitation of this is using an advantage which may not be constant, ability to go in and out to clear trades.

With this in mind, I have spent a significant amount of last month trying to figure a new system out, I am happy with my sample testing bur I have not written my full thesis yet. I am calling it the "no fees to copiers: An etoro exploitation of "mediocristan". 

Stay Tuned for more.

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