Don't Go For The Vault |
By Boris Schlossberg |
Published
08/16/2009
|
Currency , Futures , Options , Stocks
|
Unrated
|
|
Don't Go For The Vault
Back when he was young, Patrick Swayze made one of the best thrillers of the early 1990's called Point Break. The film is considered to be one of the most adrenaline fueled action adventure screenplays put on celluloid. Playing against Keanu Reeves in one of his very few non-wooden performances, Swayze is the head of a surfer gang who rob banks in order to finance their carefree lifestyle.
What makes Swayze’s crew so brutally efficient is that they are in and out of the bank in less than 90 seconds, making it almost impossible for the authorities to catch them in action. Unlike most robbers who get lured by riches hidden deep within the bank, Swayze's crew never goes for the vault. Until of course the final sequence, when their need for one last big score tempts them to override their discipline triggering a set of very predictable consequences.
I’ve been thinking about Point Break a lot during the past several weeks while constantly trading my 00 setup. As some of you may recall, I went to a ridiculously tight money management model taking only 5 points of profit against 10 points of risk on every trade. However, the results were nothing short of stunning. Despite missing many setups, making more than a few execution mistakes and trading occasionally off hours I was still able to post 14 out of 17 winners maintaining an 80% win rate necessary for the strategy to work.
The reason for my success was the same as that of the surfers in Point Break. I never went for the vault. In short, I never allowed greed to get the better of me. I got in, got out and banked my money. While hardly glamorous those 5 point wins added up to 40 basis points of gains for the week. Do that 50 weeks a year and you are looking at 20% rate of return, without leverage. That’s killer money in the hedge fund world, and if you come anywhere near to achieving that goal consider yourself a great trader.
In another seminal movie, Wall Street, Gordon Gekko make the famous "Greed is Good" speech, but I am here to tell you that greed is not only NOT good from a moral point of view but from a market perspective as well. If you are greedy, your competitors will easily defeat you by exploiting that weakness, as Gekko discovers in the end. Greed is the mortal enemy of success in trading. How many times have we tried to press the trade too far only to lose all our profits and more? Financial markets are extraordinarily unforgiving places of business that constantly prey on your instinct for greed. That’s why the lesson of Point Break should be seared into every trader mind – never, ever go for the vault.
Boris Schlossberg serves as director of currency research at GFT, and runs bktraderfx.com.
|