Sunday, October 08, 2006

Trading Is Timing

Trading always comes down to timing. What happens to traders who are terrible timers? Can traders who are poor timers ever succeed - especially in the currency market where ultra-high leverage and stop driven price action often forces margin calls? The answer is yes.

Some of the world's best traders, including market wizard Jim Rogers, are still able to succeed. Rogers - and his famous short trade in gold - is well worth examining in more detail. In 1980, when gold spiked to record highs on the back of double-digit inflation and geopolitical unrest, Rogers became convinced that market for the yellow metal was becoming manic. He knew that like all parabolic markets, the rise in gold could not continue indefinitely.

Unfortunately, as is so often the case with Rogers, he was early to the trade. He shorted gold at around $675 an ounce while the precious metal continued to rise all the way to $800. Most traders would not have been able to withstand such adverse price movement in their position, but Rogers - an astute student of the markets - knew that history was on his side and managed not only to hold on, but also to profit, eventually covering the short near $400 an ounce.


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