Complacency is word we do not often come across in FX trading. Fear, greed, hope, revenge, and panic are the usual ones. These emotions are commonly attributed to newcomers (newbies, or noobs, as they are called in the jargon).

So, how do we spot a Complacent Trader (CT). It’s simple; just look for these signs:

1. He will have been trading for a while, and, until recently, has had mixed success
2. At last, normally under very favourable conditions, he thinks he has found his own ‘Holy Grail’
3. Lulled into a false sense of security he becomes careless about his Money Management, even to the point of dispensing with setting Stop Losses on his trades
4. He compounds this basic, and most stupid, of newbie errors by taking any remotely positive signal his system, or method, offers, thereby increasing his exposure through over-trading
5. There may even be an element of greed appearing in his trading. His recent 'startling' success leads him to increase his trade size, irrespective of the potential quality of the trade. He's had a signal, that's good enough! No time to analyse it, just put the trade on, we don't want to miss all those pips do we?

Why should someone like this be classed as a CT?

Again it’s simple. He doesn’t need to listen to, or take, any of the advice he's read (and maybe offered) over the last few months. His Holy Grail will see him through. His extra months of trading have given him the edge.

It’s possible that he has survived at least one serious draw down, because the trend came to his rescue. He’s so sure his method has that vital edge; it will always get him out of trouble, and, anyway, he’ll pick up some rollover pips while waiting for the trend to re-assert itself, won’t he?

He rarely uses hard stops; the trend is always working for him isn’t it?

Of course the CT hasn’t realised yet that 18 months trading doesn’t give him the right to be successful. Therefore, the CT needs an event to shake him out of his complacency. Such an event took place over the last week or so. A seemingly minor problem (to him) in a small section of the American mortgage market spread out, like a virulent virus, to engulf every sector of the financial industry, including FX.

He sat, and watched (rabbits and headlights spring to mind), as all his smart, clever, carefully planned, trades turned and waved goodbye as they disappeared in completely the wrong direction.

No worries our CT thought. ‘Here’s the good old 150 EMA on the Daily chart. I’ll stick in a Support Zone, and trade the bounce. OK there we go, didn’t risk much but made some nice pips on that bounce. Panic over. Oh bugger, what’s going on? Still, I’ll hold till it hits the 365 EMA on the Daily chart, and play the bounce off that, as well. Seems like a strong Support area, too. WTF! What IS going on? The trend has never let me down before; it’s bound to turn soon, isn’t it?'

Well, the short (pun) side of a long (another pun) story is, it didn’t. Our CT’s long-held beliefs (all 6 months of them) meant as much, in the mayhem that followed, as Icarus’s faith in his waxen wings as he approached the Sun.

So, are there any lessons our CT should have learned from the recent events? I would hope that the main lessons he’ll take from this disaster are these:

1. Always trade with a hard stop loss. Even a ‘disaster stop’ would have saved most of his account
2. Don’t over-trade. Multiple positions on multiple pairs was a good thing when the trend was with him, but it’s a recipe for disaster for the ill-disciplined and over-confident trader
3. The Trend is your friend as long as it’s going your way
4. What has worked before may not work again. So be prepared for the worst
5. If he hasn’t the courage to change his method in order to trade against the long-term trend, as he sees it, then stay out of the market, re-assess things when the dust has settled, and watch what the market is telling him NOW

No doubt there are more lessons our CT can take from this period. I’m sure there are many here who could offer some further insights.

Maybe he should start re-reading this thread again, and listen to his own advice!

Dedicated To PeterFM