I recently had a chat with a beginning trader who had just entered the forex trading world, had opened up an account and was eager to place their first trade. Â He was interested in what I was trading, what positions I had on, etc.
I then went into my global macro analysis of the situation. Â I tried to explain why I was bullish on the New Zealand Dollar and the Canadian Dollar. Â I was trying to explain the potential for a rise in interest rates coming from some renewed growth. Â I was attempting to explain why this would generate bullish order flow for those commodity currencies. Â I was attempting to explain the market’s expectations, etc. Â I was attempting to explain why I thought risk appetite was going to increase. Â I was trying to explain why I thought the stock markets were going to head higher and why I thought commodities would head higher.
But this trader was not interested in any of that. Â He just wanted to know what positions I had on. Â He just wanted to know what to buy and sell. Â He just wanted a hot tip. Â I tried to wiggle around it. Â I don’t like giving any trade recommendations, because I can turn around and within a few hours completely reverse my trade and leverage up in the other direction if the market conditions change. Â Most people don’t have that flexibility. Â I refused, but eventually I told him that I was long NZD/USD and short USD/CAD. Â This conversation was on Monday evening, July 18th.
The conversation ends and I go on my merry way.
Turns out, both the New Zealand dollar and Canadian dollar appreciated over the past day or so. Â I get a message from this same trader telling me that he was up over 20% paper profit.
I figured out that in order for you to be up 20% on such a move, you really had to leverage up. Â The beginning trader I had talked to the day before had leveraged up on my trade recommendation. Â Now, I had no control over that, it was his own decision. Â I can’t position size for someone else’s account. Â That is their responsibility.
I wasn’t sure what to think. Â On the one hand I tried to explain my reasoning to him, so he can learn a bit about the global macro environment. Â I tried to explain the market environment to him. Â I gave him a trade recommendation that turned out well, at least for one day. Â The person was up 20%.
But on the other hand I don’t know how he has his stops positioned. Â Is he even using stops? Â How will he manage the exit strategy? Â Does he even have an exit strategy? Â Is he leveraging and pyramiding on the way up even more?
All those questions are already answered in my own trading plan and account.  I have already completely accepted whatever risk I took.
In the end, I may have helped to give this beginning trader a nice win to start off the account, but will this trader eventually learn the crucial skills needed for long term success? Â Can the beginner trader handle the inevitable setbacks and psychological pain? Â Only time will tell. Â But I wish him the best of luck.
Click Here To Get The Free Report
loading...
2 Responses to Chat With A Beginning Trader