My career as a futures trader
So I had the perfect system, based on common sense and literally centuries of precedent. Looking back, if I had stuck with my original, simple plan back in 1989 to buy and accumulate, starting super-conservatively with just one single US, UK or Australian stock index futures contract and US$100,000 in my account, and accumulating one additional contract every three months, I would now be worth many, many millions of US$. At that time, the Footsie was being coy with 2,000 and the Dow was below 3,000...
After one year, I had doubled my capital from US$100,000 to just over $200,000. What effect did this have on me? Alas, dear reader, greed and arrogance are powerful companions to success in futures markets, and they sow your downfall. You say you would not be so foolish, but the forces that futures trading unleashes in the trader's psyche can be as powerful as any psychotic illusion.
I decided that, having tested myself for a year, I would now trade more aggressively, leveraging myself to a greater degree than previously planned. To offset this higher risk, I diversified, trading in four indices : the S&P 500, the Footsie, the Australian SPI, and, fatally, the Nikkei. Greed was taking precedence over planning.
As the Nikkei slumped into its long coma, I began to short it, successfully of course but at the cost of abandoning the beautiful simplicity of my original plan, which foresaw no shorting at all. I remember telling my wife incredulously "I just made $20,000 in less than 15 minutes". I omitted to tell her that I lost it again in less than 10 minutes.
By now my Melbourne broker was phoning me at 7 am each morning to talk me through the opening of the Sydney market. His aim, of course, was to wean me from my original plan which would have paid him peanuts in broking fees, and get me to trade both ways, short and long, and on a daily rather than 3-monthly basis. He did this by making me feel important and by feeding me the noise they call market gossip.
He succeeded. It wasn't long before I completely lost sight of my plan and was adrift in an exciting sea of risk and uncertainty - the proper name for this is not trading : it's gambling. I remember one fateful night when I massively shorted the Nasdaq at its opening. It had been a long, hard day at work. I had a glass of red wine beside the computer. My eyes felt irresistibly heavy. As my head sank onto the desk, the Nasdaq soared. I woke an hour later, some US$70,000 poorer.
Altogether I lost about three-quarters of a million US dollars (real ones, before those George Bush dollars), and then I had to stop. I am now too old to execute my original plan, and in any case I can no longer spare enough capital to execute it safely.
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