Case Study: How to trade and lose S$105,000? A conceptual framework in trading promoted by Dr Alexander Elder, one of the best traders, in the world is the 3Ms; M(ind); M(ethod) and M(oney) Management This makes for an interesting case study as traders and investors rarely reflect upon and share their losses with the public. An analysis of his experience using the 3Ms framework: (1) MIND Emotions got the better of him. As I was making good profits, I became GREEDY and put on too much options than my capital could take. GREED got the better of me and I overrode the rule. (2) METHOD He was selling naked options. Theoretically, he has taken on UNLIMITED RISK for LIMITED RETURNS. Unfortunately, he was very clear on the returns, BLIND on the RISK hes taking on. I had 50 NG options and potentially make another US$4+k to make it to $10k profits for the month of Jan 14! (3) MONEY MANAGEMENT By limiting his exposure, he would have better managed his psychology and not trigger any margin call from his broker. I was doing 5 times more contracts than usual. The margin proved too much to handle and the broker intervened. Experience is learning from your OWN mistakes. Wisdom is learning from OTHER peoples mistakes. Learned something? Click the LIKE button. Prevent others from reinventing the wheel? SHARE this post.
Posted on: Sat, 01 Feb 2014 03:21:01 +0000
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