Three positions closed since yesterday — I was stopped out of London sugar and EUR/USD, and closed my New York sugar position. Trade analysis to follow when I have thought about these.
London sugar was a way of adding to the sugar position on what looked like an important breakout. As with my every other attempt to add to a position, it was a failure.
EUR/USD was a bad trade, and I should have seen it at the time. The reason I took it is that I keep slipping into systematic thinking — the idea that you have to take every trade if there is an entry signal. That isn’t right. The point of fundamental analysis is for risk control; if you understand why something is falling and you expect the cause to come to an end, don’t trade it. In this case, the EUR was falling because European governments seemed incapable of reaching an agreement on Greece. When they reached an agreement, it rebounded. Yes, it was a fairly pointless agreement that didn’t do much to stave off Greek default (it was a political fix to involve Europe in any IMF bailout), but the market is dim and focuses on the story of the moment.
New York sugar has made me revisit my sell discipline yet again. Even with a more reliable trading method, I am thinking that it is right to take profits when they are on the table, even if it means cutting several trades that seem to be working. I could have taken a profit of 2% this month; because I held out, I took a profit of 0.45%. NY sugar still looks like a short, so why I have I taken profits? Because losers reduce your staying power. As soon as you have a couple of losers and find yourself down for the month, it is rational to take what profits you have, even if you think the trades are likely to move in your favour — the risk of a loss becomes too significant when you have already had some losses.
The sugar trades are also an example of the kinds of things that markets do to you. On Friday, everything was going really well; both sugar trades were moving in the right direction. Everything can change in a day in markets. With hindsight, that feeling that things were going really well was a sell signal.