Friday 14 May 2010

Trading - the "rubbish bag" incident

Despite all the system testing, all the detailed calculations, despite everything you think you've done to prepare yourself - along comes an incident over which you seem to have no control and a material impact occurs At 9:10 this morning a signal to sell crude oil occurs. The previous bar had closed at 7366 with a low of 7362. My trade, carefully written down, was to sell if the price fell to 7362, next bar, closing out an existing long trade and opening a reversing short, half of which would have a 25 pt profit target attached. This is exactly the sort of trade I could automate, but sitting at my desk, there seemed no reason not to just take the trade as it occurred. Then a loud call from downstairs. One of our rubbish bags is spilling all its contents over the road outside. I rush downstairs and decide that probably a car or the recycling lorry has tagged the bag and split it open. Rubbish is everywhere on the road. It takes me 10 minutes to clean up. Back at my desk, I am horrified to see that crude oil has fallen 60 pts and my trade hasn't been done. I close the long position for a loss of 60 points. Inevitably, part of this covering occurs at the low of the 9:20 bar at 7330, from which crude oil rallies. Worse still, the automatic trade with the profit target should have been picked up and exited in the space of a few minutes so I don't have the profit on this trade either. A quick calculation suggests that I am now down about 100 pts on the trade. My decision making process has rather collapsed by this stage. Crude oil rallies to 7362 which is exactly my chosen entry point. The systems should have been short at this level with what would not be a half sized position, the other half having been closed out at the 25 pt profit. So selling at this level would have put me back in line with the system's entry point (though I would not have had the 25 pt cushion of the first half trade). But the stress of losing 50 pts when I should have only lost 20 seemed to paralyze me and I couldn't put the trade on to bring me back in line with where I should have been) Needless to say, crude oil then sold off dropping 15 pts in the bar where the 7362 level was hit, then 5 pts, then 25pts, and so on. By 10:30 it has dropped through 7300 and hits a low at 10:45 of 7273, at which point my missed trade would be 90 pts up. So the trading system records that it made a 30pt profit between 9:10 and 11:00, while I record a 100 pt loss. Again this means more to think about - automation of such reversal orders has now had a major emphasis. And I need to be willing to correct trades back to the systems chosen position, not go flat because I am stressed. Whose knows which trade might make 150 pts?

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