I hope that you caught my email yesterday about a little forex strategy that’s been bringing in some great returns.

If you haven’t checked out these impressive results yet – they are definitely worth a look.

The DMC Strategy – http://www.canonburypublishing.com/dmcforex/

Fingers crossed at the crease: it doesn’t bode well when economists start using cricketing metaphors.

Here’s a quote from Mervyn King this week:

“Like the English batsmen preparing to defend the Ashes, watching carefully, perfectly balanced in the crease, ready to play forward or back according to the length of the incoming delivery… the MPC will watch the incoming data carefully, ready to adjust policy in either direction in order to keep inflation on track to meet the 2% target in the medium term.”

God help us.

It’s horribly reminiscent of Geoffrey Howe’s metaphorical batsmen, who found: “as the first balls are being bowled, that their bats have been broken before the game by the team captain.”

Back then it was Margaret Thatcher tampering with negotiations on European Monetary Union.

This time, we don’t yet know who’ll get the blame for a poor performance at the “crease”. George Osborne might want to keep his head down.

While the MPC desperately try to cover their backs, this week I thought I’d talk a bit about why some players survive in the markets, and others fall by the wayside.

The difference between these two traders – the survivor and the victim – is surprisingly subtle. Yet, it makes all the difference. In the early days, the trader does not give him or herself enough of a training.

Trader training – don’t fall victim to the markets

Trading can be thrilling, profitable, stimulating, and downright “bang your head against the wall” frustrating.

But one thing it is not – is easy.

It involves making mistakes – and those mistakes will cost you money.

In the early days, those mistakes will be more frequent.

Hopefully, as you progress, they will become fewer – but they will still happen.

That’s something you can be sure of.

What is crucial, is that you survive those early days – where you’re making more mistakes.

Too many traders don’t even make it as far as honing their trading skills – all their money is gone before they get a real chance to prove themselves.

Avoiding the pit of dispair

So, how can you ensure that you don’t fall at the first, second, or even third hurdle?

It comes down to your attitude to loss.

As traders, we’re repeatedly told that we must be measured and stoical about our losses.

That’s true – but we must also avoid slipping into fatalism.

The standard emotional spiral for a trader experiencing a loss goes something like this: anxiety … denial … fear … pessimism … panic … capitulation … dispair …

And somewhere towards the bottom of that spiral we begin to lose control of our senses. Past a certain point, as losses mount, we take on a fatalistic attitude, and grimly watch as our worst fears come true.

It’s happened to me. And – if I’m honest with myself – the blame lies in no small part with my own reckless behaviour.

If I’d been stricter in my risk control, and less dogmatic about my principles being “right” – I would have come out relatively unscathed.

Cutting and running doesn’t mean that you’re admitting that the principles behind entering that trade were wrong. It simply means that you’ve reached your tolerance level.

Accepting this will liberate you from the need to “prove yourself right”.

The keys to survival

So, how do we apply this in practise to our trading?

Personally, I find the following principles helpful to remember …

1. Always trade with a stop loss

2. Understand and confront your psychological pain threshold.

3. Set yourself a maximum drawdown for a day, for a week, for a month. (i.e. the maximum figure or percentage of your trading pot that you can accept losing in that period.) If you hit it – stop trading.

4. The fact that you’ve stopped trading, doesn’t mean that this is “dead time”. You should still be following your trading strategies – just because you’ve hit your psychological barrier, doesn’t necessarily mean that your underlying strategy is flawed.

5. And finally, never EVER seek sanctuary in cricketing metaphors!

In the next seven days …

The big story for the UK economy next week is the inflation figures out on Tuesday. These are expected to remain above 3%, which means that Mervyn King will have to write (yet again) to the Chancellor to explain why, and what he’s going to do about it (polish his cricket bat, we presume).

Thursday sees the release of public sector borrowing data, which is expected to show net borrowing of around £85bn. Compared to the £87.5bn at the same stage last year, we can see how little progress we’ve made down the path to “austerity”.

In the US, we can expect some brighter news on Monday, with retail sales predicted to rise by 0.7% in October, which puts them 6.3% above last October’s level, as the Americans spend their way to a recovery.