Dear Subscribers,

I would like to address a few important issues about this weeks' drawdown..

1. Most of the drawdown was cause by my mistake of putting too much confidence in the JPY data by openned a long EUR/JPY and GBP/JPY trade at the same time and to make the matter worst, I did add 2 more EUR/JPY trades after the first trade was hit stop loss and double the GBP/JPY trade when it was close to the stops of the first trade. Normally, I won’t feel sick if the mistake I made cost me a portion of my own account but this time the damage was multiply by over 200 times since I have over 200 subscribers trading my system at the time.

More over, since I had too much confidence in that data, I did adjusted the ratio of my hedge system and the other system which I use in my own account in to managed accounts for my clients therefore the drawdown in those account was even larger. The damage was continue to increase when the emails, private messages, phone calls, reviews and posts from the subcribers and clients came to me.

Most of the messages were encourage/suggestions messages and some of them are unpleasant messages. The thing that really bother me was I found out that many of my subcribers were over leverage when trading my system whether untntentional or intentional thus they got larger drawdown than the system itself. Add them all together, I never felt that worst before in my life.

2. If you did over leverage when trading this system whether untntentional or intentional, I think that it is a good idea to adjust the scale down to match the leverage of this system now. Of course it will take you more times to recover from the drawdown if you adjust it now but it’s better safe than sorry.

3. The reason I did make more trades with smaller lots was I think that it will only help the equity curve look less choppy than before. I did not do this because I want to make more commission since I do get the same amount of commission whether I trade this system like this or I trade this system like the way I used to trade. For more details about this issue, please read my reply to Abdelkarim Allal in the thread “this weeks' drawdown” at http://www.collective2.com/cgi-perl/board.mpl?want=listmsgs&boardid=23905963&threadhilite=4306&displ ayblock=&sorttype=&
4. As I explain in point #1, the drawdown was caused mostly by my mistakes of over confidence not by the change of the system, I truly feel that the change in the system will help the equity curve more than it hurt therefore I would like to stick with it even it means that I have to spend more time with the market and still get the same amount of commission/subcription fees. However, I would like to get some feedbacks from most of you about whether you like me to trade this system like I used to or trade it like it is now.

5. If you subscribed to my system long enough, you already know that I rely more on fundamental datas than technical datas because in my opinion the market will adjust the price base on fundamental datas in the long term. Also, my trading style is pick tops/bottoms and go against the crowd so please don’t tell me to stop picking tops/bottoms or don’t go against the trend, etc… because I am not going to change it since picking tops/bottoms and go against the crowd are what I did to have one of the best system at C2.

In my opinion, people who said “Do not picking tops and bottoms” are the ones who don’t know how to pick tops and bottoms. Of course, there are some successful traders using trend systems out there but it doesn’t means that those trend systems will work for me therefore I will keep picking tops/bottoms and go against the crowd no matter what you says. So, if you like to diversify your portfolio and/or like the trend system, find a good trend system and add it in your portfolio.

6. Regarding to the very last couple GBP/JPY trades in this week, those are the trades that I will make no matter it is in the drawdown or not because I rely more on fundamental datas and I like to picking tops/bottoms. Please understand that there is no such thing as a perfect system. All systems will have at least one hole and when the market come to that hole, the system will suffer drawdown.

The only thing we can do about this is to minimize the loss during the drawdown time by tightening the stop and/or reduce the trade size. That is what I am going to do in the next coming weeks. In other words, I will keep picking the bottom of the GBP/JPY or EUR/JPY pairs (depend on the data of the GBP and EUR) then open the trade with 30 lots and 100 pips stop. If you calculate the risk for each trade like that, it will risk about 1.5% of the equity of the system therefore if we have 5 more trades like that hit stops, the drawdown will go 7.5% further but if the market go to my directions, to a certain point then make a small correction/retrancement, I will move the stop of the trade to breakeven or small profit and move the target profit a lot further. Then, I will add another 30 lots trade with 100 pips stop to the system then repeat the process until I think that it’s close to the top.

When I think that it is close to the top, I will scale out the positions (close some positions and move the stop of other positions up). Of course, I will continue to trades the other pairs as the same time too but that is what I am going to do with the GBP/JPY pair. If you think that it is not a good time to do this, you can adjust the scale down ratio to reduce the trade size in your account or even temporary unsubcribe this system until you feel that the dust is settle. If you are FX Auto users, you can chose to only trade the other pairs except the GBP/JPY and EUR/JPY pairs at FX Auto. If you want to know how to do this, please ask FX Auto support (don’t ask me because I don't know how to do that since I have different plarform ) and they should happy to help you with that.

I know that it is very hard to take several losing trades but losing streaks are universal in trading. Anyone who has traded for longer than 1 year will recognize that fact. George Soros lost $1 Billion dollars in the Russian ruble fiasco, but everyone remembers him as the man who broke the bank of England. Michael Steinhardt was decimated in the emerging debt market meltdown of 1994, but he is revered as the one the greatest hedge fund managers of all time.

Please don’t misinterpret this message. I certainly have no intention of generating serveral losers in a row. I know my record lately has been horrid. I am now ready for the market to open on tomorrow. Although much as I would like to, I cannot guarantee success, but I can assure that I will be doing everything I can to going forward.

Thanks a lot for all of your support posts and messages! They mean a lot to me especially during what might be the largest drawdown in the history of my system! Please reply to this post and give me some feedbacks whether you like me to trade this system like I used to or trade it like it is now.

Thanks!
Si Nguyen