Forex Trading Tips: Staying Alive

Staying Alive

This week K and I attended the Bloomberg FX 09 conference and aside from getting a tremendous ego boost when we found out that that we have an enthusiastic following on the institutional as well as the retail side, we also got to spend the day with some of the smartest currency traders in the world. The lessons learned last Thursday were immensely valuable, but none more so than the message from Jim Haskel from Bridgewater Associates.

Bridgewater is one of the preeminent hedge funds in the world and Jim is responsible for assessing risk in the overall portfolio. He was clearly one of the sharpest guys in the room but his message was deceptively simple -- above all else stay alive. Haskel recounted how Bridgewater was able to weather the post Lehman financial storm by essentially not trading for a while. “It’s much better to miss an opportunity than to assume unnecessary risk.”

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Listening to Haskel I suddenly remembered the great opening scene of Patton where George C. Scott stands in front of a massive American flag gently swaying behind him and barks at the camera, “No dumb son-of-a-bitch ever won a war by dying for his own country but by having the other dumb son-of-a-bitch die for his country.” I found this fascinating because even Patton, who was the most reckless military leader in WWII understood instinctively that self preservation was paramount for victory.

MacArthur, the other great general of the war, was also famous for never engaging the enemy at their point of strength. MacArthur’s philosophy was always to bypass the toughest Japanese military installations and attack only the weakest.

Although the reality of these great military leaders contrasts sharply with our romantic view of “charge-at-all-costs” war hero it offers tremendous lessons to us as traders. Whether in war or on markets the first rule of the game is to simply survive. For those of us engaged in the day to day combat with price action it is sometimes difficult to remember that winning is not always an option and sometimes just staying alive is good enough.

I can’t remember how many times in my trading career, I’ve let my ego get the better of me only to be saved by stop losses (every trade I make automatically carries one) thus preventing a total blow up of my account. In markets, there will always be tomorrow and there will always be chances to make fresh profits, but only if you have capital left to trade. From the best traders in the world to the greatest military commanders in history we learn that we must always pick our battles carefully and make sure to stay alive to fight another day.

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