The Trade from Hell.
The client was an FX trader at a Bank. He had taken a long intraday EURUSD position on the morning of an ECB meeting. The position was in EURUSD 5 million. This is not particularly a large position within the bank he worked at, however with the extreme volatility risk ahead of this event, this size had a different risk meaning.
The EURUSD market moved sharply higher following the ECB announcement. The trader gave a small fist pump. He really should have known better, fist-pumping is a heinous trading crime usually followed by the market gods playing a cruel trick, this time proved to be no exception.
A sales guys on the next desk picked up on this and shouted over ‘well done sunshine, how much you got on?’ - Sheepishly the trader answered "5 Euros".
The guy on the sales desk was a notorious chiseler. "Is that it? 5 Euros, Billy Big Bollocks eh!" (A city phrase used as a putdown. - Trading rooms can be unforgiving places.)
My usually disciplined client was disturbed by this. - The client could and should have shrugged this off, but for some reason in this occasion he was triggered. His feelings now betrayed him. Intending to show this salesperson, he decided to add another 5 million Euro. (I'm guessing you can see where this is going!!)
At that point, and exactly at that point, a wave of post-ECB meeting profit-taking hit the market. (You knew is was coming). Crash! stops went off and the EURUSD dived. (This was around the time of the Greek crisis, with intraday moves far larger than they are now).
From being 70 pips up on 5 Euros, he was now 50 pips offside on 5 Euros and 120 pips offside on the other 5. He went from up $35k, to down $85k in a flash.
The market had not hit his stop-loss level on the first EUR 5. But on the second 5 Euros, and thus the whole 10, he had absolutely no plan, no stop, no get-out. He had gone 'off-piste', had no plan or contingencies in place and was now gripped by fear. In a panic he decided to exit the whole position before it rapidly became a 6 figure loss. (I think you can guess what happened next!)
With stops flushed out, the market quickly turned back up. Within a short space of time it had recovered the 120 pips.
By the end of the day, he would have been up about 120 pips on the first 5. His end of day profit, had he stayed with the first 5 and not acted impulsively, would have been $60k. Instead he had booked an $85k loss.
Now to compound matters. At the end of the day, the sales guy who had given him a hard time, walked past him, gave him a pat on the back, and said, "well done, looks as if you had a good day!". - He assumed he was still long, he had no idea that the trader had cut at the low of the day.
After this humiliation. The trader told me he could not face seeing anyone on the train on the way home, nor seeing the happy faces of his children as walked in the door. Thus, he opted to walk the 10 miles home. By the time he had walked in his children would be in bed.
"Let him who is without sin cast the first stone."
The Morals of This Story
I doubt there is a trader out there who cannot empathise with this story in some way. There are so many aspects in this tale for traders to mull over. But there are a couple of points I want to emphasise and make explicit.
Ego and Other People
We are all impacted by other people, both those visibly people around us, and those invisible to us who occupy space inside our head. I include in these, the twitter idiots, the voices from our past, such as the teacher or parent who said 'you'd amount to nothing', or perhaps those from your social circle whose toast always seem to land 'butter side-up'.
People and events can spark feelings, often from unconscious memories, which trigger us. These feelings force our Ego's hand with the aim of protecting us (The Ego has good intentions, it is indeed a strange beast). Those feelings, may be fleeting, but they can often echo sentiments which make us feel shame, humiliation, worthlessness, and other painful emotions.
The ego doesn't arrive subtly, oh no! The ego comes charging in like a 10 ton Elephant. And when it does, it is not easy to stop. - 'I will show them' it says, not remotely aware that the 'them' it refers to, are not around, and even if they are, they don't give a flying f-ck about you really. The 'Ego' has now taken control of the levers of your decision-making. By then the 'Car Crash' is starting to happen.
This trader had been trading for over 10 years. but 'ego hijack' is no respecter of rank, age or experience. No person is immune from the impact of Ego, it it too well established in our evolutionary operating system to be able to bypass. In my work coaching traders for the past 10 years, and my previous 25 years as a trader, I have witnessed the trail of destruction ego causes. It impacts the retail trader right through to the world's leading Hedge Fund managers. Its taken global Hedge Funds and even entire Investment Banks down!
[The impact of Ego on trading was explored in this article: A Trader's Ego - The Ultimate Battle. - read the full article here ]
Coming back to the story
The impact on this trader was stifling. The loss itself was manageable, but it was not the size of the loss that was the problem, it was the manner of the loss which hit him hard.
He was unable to trade at all on the Friday, and the weekend was a blur. But he reflected, he contemplated, and he wrote his thoughts in his trading journal. This last act helping him get closure and he was back fresh on the Monday.
The 'Happy Ending'.
This individual was an exceptional trader, and this proved to be just a small blip on his trading journey. All traders have these setbacks, but the best are able to quickly put a line under them, to 'Let Go', get 'Metal Closure' and move on. This trader went on to become Global Head of FX at a major investment bank.
Ego and Other People
We are all impacted by other people, both those visibly people around us, and those invisible to us who occupy space inside our head. I include in these, the twitter idiots, the voices from our past, such as the teacher or parent who said 'you'd amount to nothing', or perhaps those from your social circle whose toast always seem to land 'butter side-up'.
People and events can spark feelings, often from unconscious memories, which trigger us. These feelings force our Ego's hand with the aim of protecting us (The Ego has good intentions, it is indeed a strange beast). Those feelings, may be fleeting, but they can often echo sentiments which make us feel shame, humiliation, worthlessness, and other painful emotions.
The ego doesn't arrive subtly, oh no! The ego comes charging in like a 10 ton Elephant. And when it does, it is not easy to stop. - 'I will show them' it says, not remotely aware that the 'them' it refers to, are not around, and even if they are, they don't give a flying f-ck about you really. The 'Ego' has now taken control of the levers of your decision-making. By then the 'Car Crash' is starting to happen.
This trader had been trading for over 10 years. but 'ego hijack' is no respecter of rank, age or experience. No person is immune from the impact of Ego, it it too well established in our evolutionary operating system to be able to bypass. In my work coaching traders for the past 10 years, and my previous 25 years as a trader, I have witnessed the trail of destruction ego causes. It impacts the retail trader right through to the world's leading Hedge Fund managers. Its taken global Hedge Funds and even entire Investment Banks down!
[The impact of Ego on trading was explored in this article: A Trader's Ego - The Ultimate Battle. - read the full article here ]
Coming back to the story
The impact on this trader was stifling. The loss itself was manageable, but it was not the size of the loss that was the problem, it was the manner of the loss which hit him hard.
He was unable to trade at all on the Friday, and the weekend was a blur. But he reflected, he contemplated, and he wrote his thoughts in his trading journal. This last act helping him get closure and he was back fresh on the Monday.
The 'Happy Ending'.
This individual was an exceptional trader, and this proved to be just a small blip on his trading journey. All traders have these setbacks, but the best are able to quickly put a line under them, to 'Let Go', get 'Metal Closure' and move on. This trader went on to become Global Head of FX at a major investment bank.
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