After reading about JC’s (NYSE Scalper) tough trading day, I thought I’d share my own tale of woe.
Toward the end of the Wednesday’s trading I had profited by £149. There were no more opportunities but I wanted the extra £1 so I could finish the day with a full £150. I figured I’d place a very small trade on GBP/USD and so long as it moved 4 pips in the money I would close out with my £1 profit. Is that really too much to ask? I had no trading signals to trade off, but I knew that cable moves this much every five minutes, so if I set a comfortably wide stop, GBP/USD should eventually hit my take-profit level. It was just £1, after all.
I was trading with all the wrong motives, essentially taking an uneducated punt on the market. Of course the probability of making my £1 was very high, probably around the 80% mark, but the expected return (probability x payoff) was negative – even though my stop-loss was placed far away from the spot price, if it got hit my loss would be around £49. If the market is random, the expected return of this type of trade is negative because of the commission/spread.
Of course, I was shown the error of my ways when the price immediately moved against me and never came back. Even though the loss is negligible in the grand scheme of things, the experience serves as a useful reminder of what trading is not about.