Learning in the School of Hard Knocks

I always believe that any loss you don?t learn from is a loss wasted. One reason I know so much is because I have suffered a lot of losses, mostly at my own expense when I was young and stupid, well before the Trade Alert Service started.

So what did we learn from our most recent ill-advised attempt to profit from selling short the Japanese yen against the US dollar? Let me count the ways.

1) When the world?s largest short-term positions all key off of the identical stop loss points, watch out! The 15 minute 3% move we saw today was one of the sharpest in the 40-year history of the free floating foreign exchange markets. This is the bitter fruit of a crowded trade.

2) No one ever got fired for taking a profit. At one point, we had a 1.40 profit on this trade, leaving only 40 basis points left to expiration, instead of a -1.95% loss.

3) When there is nothing to do, don?t do anything.

4) Watch those stop losses. I think I?ll include underlying stop loss points in my Trade Alerts from here on out. It took an 8% move in two weeks to take us out of this one, which is unbelievable for the foreign exchange market. I thought a 5% safety margin was more than enough room to take us into expiration, but I was wrong. These days, the unbelievable happens on a regular basis, both on the upside and the downside.

5) Limiting position sizes to 10% of your total portfolio is a total winner. That?s why I?m laughing now, instead of crying, or looking for a new job on Craig?s List. At a certain point, leverage quits being investment and become reckless gambling.

6) Next May, sell and go away!

7) Never complain that I am not sending out enough Trade Alerts. I can understand why you want as many as you can get, as 90% have been profitable this year. Doing nothing doesn?t mean I have suddenly become lazy in my old age, am out spending my millions, or am developing dementia. It means the current risk levels in the markets are extremely elevated, as I warned you all many times, that the risk/reward ratio totally sucks, and that you are better off making room in your sock drawer for your cash than placing it in the market. ?Nothing to do? really does mean ?nothing to do.?

The next time you are in a hurry to get another Trade Alert, take a look at the profit and loss in this yen trade. Read it and weep.