Ok, time to reveal what happened at Christmas then. I will tell you what happened but will not touch on the legal stuff - sit back, relax and have a giggle at my expense....
You see over a year ago we devised this system we now trade called grail.
Our backtests (of 3 years) showed us what the method would do and what we should expect. How often we would have drawdowns, how much we should make month by month and what sort of equity curve we should have.
So we began trading it - this story is embedded in the pages of this site and if you want to look at the whole journey then please have a look around and you may get into the same feelings we did.
Month by month we made money. Sure we had a losing month here and there and we had drawdowns - but the whole experience of trading the method with real money was very much as expected. In fact it was almost exactly as expected.
Our journey went from initial excitement of starting off, to a nice steady feeling of expectation. Of course all this time we were not just sat here watching charts - all the time we were testing and verifying what our previous tests had given us.
months and months of tests, all saying the same thing. whenever we had a new drawdown we just looked at our tests to see if this was anything new and, as it clearly was not new, we just kept on sailing on. Day by day.
We began to take this success for granted - believe me, it's hard not to when week in, week out you make money and everything goes exactly as you have planned.
So, what we did was to start looking at how we could make more money from this strategy. - if you look back in the posts you'll see where we did this.
What we did would almost bring us and our account to our knees.
At the time we had a different account called our 'income account' - on that account we still traded grail allbeit with a different leverage. but in that account we had equity targets - so when the accounts reached a certain level we could take out our winnings to live on etc.
This meant that i could give up discretionary trading (something i've always managed to do but hated) and just let this golden method make my wages too. The idea was that having two accounts meant that we could let the main account grow and use the income account to live on. Makes sense yes?
Anyway, the decisions we made next was to be the humble pie maker of a decision.
We sat with spreadsheets and worked out how much of the account was 'safe money'. after some serious calculations and allowing for error we decided that 25% of the account was always 'safe money' - in other words, no matter how bad a drawdown we got that 25% would always be there and would manage to remain untouched. So, we then decided that at certain equity highs we could take out 25% - makes sense doesnt it that if 25% is never going to be touched by a drawdown, then why leave it in there? - well, that was our thinking anyway.
So at an equity high of £40,000 we happily took out £10,000 - which was our initial stake into the fund. So what do we do with this 25% of 'safe money' - do we put it in a building society? do we invest it into national savings ora tax free ISA account?
No, what we did was put it in the place that we believed would give the best return on our money - we put it in the income account so we could trade it.
Everything is hunky dory, swimming along, making money in the main account and making money in the income account - taking our winnings and enjoying the results.
So, what we were now doing was trading two accounts - the income account at a fixed leverage, never moving the stake and the main account which had a rather unique money management system.
The main account staking plan was now being traded on what we called 'virtual' funds - so at £80,000 when we took out the second £10,000 we still traded the account as if it was still at £80,000 when in reality it was at £60,000 with the other £20,000 in the income account but still available.
The income account generated over £40,000 in winnings during the first twelve months that were taken and spent on living and nice holidays etc.
The account went into drawdown just as the main account did, and pulled back to new profits, just as the main account did. Exactly as expected and all was happy in la-la land.
So, now you have pictures of people enjoying life, making money hand over fist and having fun - the traders dream. After all, what could go wrong?
The aim with Grail was to make 1000% per year - 10k to 100K in year 1 and then 100K to 1000K in year 2 - 10k to 1 million as the title says.
In November 2006, just one month later than expected we hit £100,000 for the main account (£80,000 +£20,000 'safe money') Fantastic! the plan was on track.
Think about what we had done here. We had taken an account, worked out how much money was safe and had effectively ran this account at 100% efficiency. - the method did exactly what it was supposed to do - when it did a drawdown it always came back. ....always.
This still did not change in December - it did come back. However what did come in December was something that we knew could come along any day - but that we had not mentally prepared for.
During our 'pre' grail testing we did see a rather nasty drawdown of 525 pips. at best that is a 40% drawdown on a leveraged account and with our money management we knew we could ride it out. - at least we knew we could technically.
Of course by this time it didn't matter - we were untouchable - this has worked for months and months. Sure, we had seen nasty drawdowns but every time we did it re-enforced the fact that the system was stable
December came and so did our monster drawdown - it did not just come along, it swooped down upon us in a matter of days. On november 30th we were at account highs, and by December 6th, just 4 trading days later we were already 26% down.
On the 12th I was flying to New York nursing a drawdown of 38%.
We had been at this level of drawdown before. What was new was the length of time it took to happen. Usually this depth of drawdown took a good 2 weeks to get there and here we were just seven days from our six figure high with £40,000 less.
But now get this - the account is remember a 'virtual' £60,000 - just £40k in the account with £20 elsewhere right? - nope, because the income account was in an even deeper drawdown. the leverage on income was higher than the main account you see.
You can imagine the way I felt in NYC. I had a system that i believed in so much which had still not reached it's worst drawdown from the past. And I had a team of people with just as much money on the line as me. oh yes, I had a ball in NYC :(
By the 22nd of December, the date of my return to the UK the account was a whopping 48% drawn down.
This was represented by a £48k virtual balance which was not there - the extra £20,000 had gone from the income account which was hovering at the £10,000 level - the amount i originally put in it and the main account was at £28,000.
From a combined account high on November 30th 2006 of £110,000 I had £38,000 left.
Nice close for Christmas was that.
Its important to note at this point that the system STILL had not failed. in fact it could go for another 100 pips to beat the previous drawdown from our tests in 2003.
Many of you may be thinking at this point that the system had failed. but it had not. We had failed the system.
What had failed was the way we had managed the account to 100% efficiency. We had worked out that 25% of the account would be safe and then went on to make that safe money unsafe. basically in our greed what we did was create a fantastic system, but one that if it ever did fail would leave the account totally empty. That's 100% efficiency. Brilliant in theory, devastating in reality. Certainly not my finest hour and i'm sure many of you are enjoying the mental pictures of me squirming under a drawdown. Just remember tho that at least ive got to this position :)
So here we are with a realisation that we are deep shit and if we do see the mother of all drawdowns, we are fubar with nothing.
Well, nothing is a bit of an overstatement, we did take like £40k out of it and we still had £38k left so not bad for a 10k start.
BUT, it was decision time. It was Christmas and we closed at the bottom of our biggest ever drawdown with the thin xmas trading days to look forward to. brilliant (not).
The mistake was clear. It was the fact that we took it for granted that the system would not fail us and in fact it didn't - we failed the system. Taking the money out and then trading that money the same way was very foolish and the realisation of what we had done was very humbling to say the least and still is.
We had a choice - continue with the current stakes and risk that in three trading days we are dead in the water. Or lick our wounds, take the hit and live to trade another day.
Over Christmas we decided on the latter. We drew a line under December 27th and reset the clock. Whatever our balance was at the close of business that day was the new starting point. Our money management would be reset to flat and the money left would be pooled inhto one singular new grail as opposed to income and main growth.
And that's what we did. Of course what happened was bound to happen - the next 12 straight days were winners. if we would have stuck with the stakes we were at then within those 12 days we would have seen new equity highs of over £120,000. but there are lots of shoulda woulda coulda tales in this game. Shit happens and we sat in it big style.
We learned a very hard lesson and had to eat some humble pie as im chewing on now to you lot. The lesson is that we never ever take any part of the account for granted - had that extra 20K still been in the account we would have weathered the storm. It wasn't and we didn't.
Since this time we had a 61% month for January and have just had a poor february at - 12% but we move into March with a renewed outlook .
I have also changed my broker strategy. my account is now spread over several brokers rather than just one and whenever I need money, which to be honest aint often, I will dip into it.
After xmas I started trading again with around £38,000 and the last high of the account since then was in the mid $70k's - I took £3,000 for some living expenses (well, a nice shiny new toy actually) and it now leaves me starting March 2007 at around £60,000. It's been a storming start to the year so far so let's hope it continues.
So, that's my story of what happened at Christmas - the season of goodwill :) I hope you've enjoyed the story and that you may learn from it.
This is the true story of what almost brought me to my knees as a trader - I've been trading now for almost 5 years so if you are new in this game or if you are not the lesson is there - never
but never take anything for granted.
Those who know me know that i'm not good at humility and don't take well to making myself look a twat. It's not been easy for me to tell you this story and would have been easier just to close the blog and never return.
However I think that there are many out there who could easily make this same mistake and if I can stop them doing this then maybe one day they will thank me and tip their hat to the Soultrader and his team.
Finally, and to get give this story a tagline for you to remember - Always remember the trader's golden rule - under every silver lining - there's a fucking huge thick black cloud waiting to pour down on you. Make sure you carry an umbrella in your head.
This is the last post of this blog - The aim continues to make the million, but for now it will remain private
