I thought I might see some sheep running around the airport”. What do you mean, I said. “You know, highlands of Scotland, William Wallace and all that stuff.” We both started laughing. I knew I was going to like this guy but he had a wicked sense of humor.
He then lost it all and in this article, you will know how it happened including the trading system used to do that…
Don’t forget to share, tweet, like or link to this story at the bottom after you’ve read it.
In The Beginning…there was Scottish Trader Called William Wallace (Ooops…no…) Fred
It is better to have a bit of a background of this story and here are some main points:
- There are 3 characters in this story, Mark McRae, the Trader called “Fred”, not his real name and “Peter” (also not his real name)the forex guru who teaches and charges a lot of money for his forex trading course.
- Mark McRae, a forex trader is the one that is telling this story.
- This story happened in the 90’s which meant that EURUSD wasn’t even traded yet.
- Mark McRae reckons he was in his early trading career and he had a friend which he calls him Fred
- And a few years earlier, he had taken a course on Forex Trading In London with Peter in what he calls ” I’m a guru and this is the Holy Grail Courses.”
- And the forex trading course cost him £8,500 (that was British Pound folks and that’s a lot of money especially in those days).
Here’s what Mark McRae had to say about that course:
I distinctly remember that the course cost me £8,500, which was a lot of money in those days, hell, its still a lot of money for a course today. At the time, I remember coming out from the thinking that I had cracked it.
I was already planning on the car I was going to buy and what sort of massive house I was going to live in. The course finished on a Friday and by Tuesday I was set up with a broker and ready to make my fortune.
Long story short…Mark McRae blew $10,000 the following Tuesday…that’s a week later, to be precise, after he opened up a live forex trading account with a forex broker.
Why did he blow up his forex trading account?
Lack of forex money management or trading risk management as some may call it.
He knew if he went along this path of trading, he would not make money trading forex so for the next 6 months he read everything he could about forex and testing different ideas. He was obsessed with it.
The Forex Trading Course Was Useless
During all this time, Mark McRae still kept in touch with the “forex guru” to whom he paid £8,500 for his forex trading course. Mark realized a few month later that this forex trading course which he paid a lot of money for was totally useless.
But he still kept in touch with Peter who was a really likeable guy.
Here’s What Mark McRae had to say about his early forex trading years:
At the time, I lived in a beautiful village in the heart of Perthshire called Blairgowrie. Just as a side note here. If you ever go to Scotland, make a point of heading up to Perthshire. Everyone goes to Edinburgh or Glasgow but trust me, the farther North you go in Scotland the more beautiful it gets and the people are much friendlier too.
So, picture the scene. I had eventually got my act together. I was making money trading, not a lot but enough to cover my living expenses and it was in the heady days before I had children so there always seemed to be time for things.
I would get up at around 5 am, make myself a big cup of black coffee, put on some Beethoven or Enya and settle in for the morning. My favorite technique was to try to catch a move on the London opening and be finished by midday.
It’s funny you know but even I can see how the action in the market has change over the years. The 5 minute charts just seemed easier to trade in those days.
This left me time for my second passion of going to the movies. Both my wife and I used to be devoted moviegoers. I mean, we would watch every single new release and even the arty foreign ones too. Nowadays, with kids, all I get to watch is Toy Story, The Lion King Or Shrek over and over again.
Back To The Story
About a week before this story started, Mark asked Peter is he had a copy of the manuscript of WD Gann that he was after.
Peter gives him a call a week later and tells Mark that a guy called Fred has just taken his forex trading course and is struggling a bit with it and asks Mark if he could spend a day with him to try to help him understand.
Mark recons that Peter didn’t want to give a refund to Fred that’s why he got Mark involved. Mark wasn’t interested in helping out Fred and he made that clear to Peter.
So Peter tempted Mark with something he knew he couldn’t refuse. Here’s what Mark has to say:
Somehow he (Peter) had managed to get his hands on the manuscript I was after. He wanted to make a deal. He would FedEx it down to me the same day if I would spend some time with Fred. He got me with the one thing he knew I would bite at.
Arrangement were made that I would collect Fred from Edinburgh airport on Monday morning.
About two days before I was due to collect Fred, he calls me. “Hi Mark this is Fred, Peter said that we are going to meet on Monday and I just wanted to touch base with you. So how much money are you making?”
How Much Money Are You Making?
Here’s what Mark had to say about Fred:
Ow, this guy was to the point. I wondered if I had made a good decision agreeing to spend the day with him.
Monday morning comes and into the arrival lounge steps Fred. Big tall guy, over six foot tall. His hair was just starting to turn grey and he was dressed in baggy jeans and a T-shirt. I placed him about 36-40 years old.
“I thought I might see some sheep running around the airport”. What do you mean, I said. “You know, highlands of Scotland, William Wallace and all that stuff.” We both started laughing. I knew I was going to like this guy but he had a wicked sense of humor.
We made some general chit chat on the way back to Blairgowrie and eventually we got in front of the screen where I started to explain how I trade.
Around this time I was really into Fibonacci.
The Real Story Begins
So Mark get to work explaining and teaching Fred about forex. Fred just sat there looking at his with is face resting on his hand while his elbow on the table which made has face all scrunched up like a cabbage patch doll.
Mark kept teaching for about half an hour. Here’s what Mark had to say:
Suddenly, Fred pretended to let his elbow fall off the table. “Oh, sorry Mark, I was falling asleep. You could stun a pig with this stuff”.
“What”, I said, but I knew exactly what he meant.
“Well, I’m not interested in all this crap. Just show me the good stuff, you know, the thing that makes the money.”
“This is the thing that makes the money Fred.”
“I’m not going to do all this mathematical stuff, there’s got to be an easier way to make money than doing all this stuff. Plus, at the rate you make money, I might be 60 before I make any decent money.”
I had to laugh, Fred was an entirely different animal from me. He wanted to trade and make it big but he wasn’t prepared to do the work.
We spent the rest of the day talking about trading and life in general. I laughed the whole day. This guy only knew how to do things one way and that was with both barrels blazing.
Fred eventually went home and things returned to normal. A few days later I get one of many calls that were to come from Fred.
“Hi buddy, I set up my account last week and it’s live today.
“Great I said. “Remember to take it easy.””Its a bit late for that me old matey, I’m short the Swiss for a million.”
I just listened dumb stuck. You could and still do get incredible leverage with Forex. In those days there were no such things as mini contracts. I had just started trading with two contracts and here was Fred on his first trade, jumping right in there with ten contracts. How big is your stop I asked him.
“Stops are for wimps buddy. When I make a couple of grand I’ll close the position.”
Stop Loss Are For Wimps
Mark tells Fred ” Listen Fred, trading without a stop loss is dangerous!”
This was Fred’s reply:
“Don’t worry me old matey. You can sit up there in the Highlands and watch the grass grow while I make the real money down here.”
About three hours later Fred calls Mark again and here tell him this:
“Just made $5000 bucko. Put that in your pipe and smoke it.”
Mark laughed but he was worried about him.
Fred calls Mark a few day later and reports:
“You wont believe this. I was going to short the Pound so I went short 30 contracts and went out for a coffee. Anyway, when I get back you will never guess what happened. I screwed up. I pressed the buy button instead of the sell button and now I’m up $15,000.”
Mark had also been trading the pound an all he got was about $1000 profit but Fred was up $15,000 and he wasn’t out yet…
So Mark Asks Fred: “Are you going to close the position? ”
Fred Replies: “Hell no. Push it until it hurts me old matey”.
Here’s what Mark had to say about that trade:
Fred eventually closed the position later in the week and was up about $45,000. Over the course of the next few weeks Fred made about six trades and was increasing his leverage as he went. He was now regularly trading 30 contracts plus. After about a month and a half his account was standing at $500,000.
The pip dollar value is not the same for all the currency pairs because it varies depending on which currency pair you trade. But to make it simple, they are roughly around $10 per pip. So to make it simple, just say a pips is worth $10.
Now Fred was trading 30 contracts or about $300 a pip. If the pair moved 100 pips that would be $30,000. Contracts in Forex are also commonly known as “lots”.
Back To The Story
Here’s what Mark had to say about Fred:
- It didn’t matter how much he made, he wanted to use the maximum leverage he could and push his leverage to the limit.
- It was madness but no amount of reason was going to stop him.
- He had also had a remarkable run. I don’t remember the exact number but he had very few losing trades.
Mark McRae was getting more worked up about Fred’s trading than he was. He eventually couldn’t take it any more and told Fred he was flying down to see him. Mark was really curious to see how Fred was doing this and what kind of forex trading method he was using.
Fred’s Million Dollar Trading System Revealed
To Mark’s surprise, it was a really simple breakout forex trading system based on the 5 minute chart.
Here’s what it looks like:
Fred forex trading strategy was a really simple system and here it is:
- Basically at around midday Fred would just draw a straight line across the top and bottom of any consolidation he could see on a 5 minute chart.
- If a couple of candlestick closes above the consolidation he went long.
- If he had a couple of candlestick closes below the consolidation he went short.
- There was either no stop loss or one so far away that it didn’t matter much.
- For take profits, Fred just closed the position when he felt he had made enough or judged the market to be turning on him.
How Fred Made Another $100,000 While On A 2 Week Holiday
Fred had already arranged to go on a holiday with his family prior to opening up a forex trading account and since he was really having a good run in trading, he really didn’t want to go but he had no choice.
He and the family went to Disney Land.
Mark thought ” Finally I will get some peace and quiet!”
How wrong he was…
Fred was on the ground for a few hours and Mark Got a call: “What’s Yen Doing?”
Here’s what Mark had to say:
Forget it I said. You need to take a break and spend some time with the family. Silence on the other end of the phone.
A few hours later he calls again. “Right me old matey, I’ve just bought a fax machine, fax me over a chart of the Yen.” I couldn’t believe what I was hearing. He wanted to trade without a dealing station and no access to charts.
“No way Fred.”
“Listen up buddy, I am going to take it easy, I just want to be in the market. Send me a 5 minute of the Yen and I will keep it to ten contracts.” Reluctantly I agreed but made it clear I thought he was off his head. I knew that regardless of what I said he would find a way to trade.
As it turned out, even on his two week holiday he made over $100,000. Obviously going over his 10 contract limit he promised me.
3 Months and 40 Trades Later, Fred’s Forex Trading Account Was Up 1 Million Dollars
Fred really had an incredible run. In 3 months and 40 trades later, he turned his initial forex trading capital of $100,000 into into 1 million dollars.
Fred was using his forex leverage to the maximum and he was succeeding…or so it seemed. But there’s also the saying that “forex leverage is a double edge sword.”
Guess what happens next???
Fred Luck Runs Out…
While Mark McRae was getting stressed out about Fred’s trading but Fred wasn’t even bothered at all. He kept pushing it, trading huge contracts and still using his forex leverage to the maximum.
Then Fred’s Luck Run’s out…
Here’s what Mark had to say:
Now if you trade currencies, you know that nothing much happens on a Sunday night. Asia opens but generally there are no big moves.
The phone rings about 1 am and wakes me from my sleep. “What the F%$* is happening to the Swiss.” He didn’t even wait for an answer, he just hung up. I lay in bed for about ten minutes thinking about what Fred had said and then curiosity got the better of me, I had to go see for myself.
I knew as soon as I saw the chart what was worrying Fred. For some reason the Swiss had gone up over 100 pips on a Sunday night. I had never seen such a big move on a Sunday and I couldn’t find any news as to why this might be happening. Fred must be short the Swiss I reasoned.
I decided to call him. “Your short the Swiss right?” yes, he replied. “I just don’t understand it. I thought I would place my positions ahead of Mondays opening and then this Sh*% happened. What do you think I should do?”
I didn’t know. “Look, you really only have two options, close the position now or wait for the London open and see what happens. Whatever you decide put a stop in to be on the safe side.”
I remember watching that 5 minute chart of the Swiss all night long and about eight am London time the Swiss began to rise again. It had moved another 80 odd pips up. I called Fred. “What did you do.” Silence on the other end of the phone. “Fred, what did you do.”
“I shorted it again. I thought that as it had already moved so much it must be ready for a pullback so I shorted it again. There is something else Mark but I am too embarrassed to tell you.”
“What is it Fred?”
“I’ve been adding contracts and now its looking real shaky.”
I never did find out exactly how bad his situation was that day but I could guess. Not only had he shorted the pair again he had added contracts.
Nothing really worked out for Fred after that disastrous trade. He did have some wins but after about 1 month, he lost everything…INCLUDING his starting capital of $100,000.
Mark says that Fred was the first trader he knew who actually had a margin call.
So if you don’t know what a margin call is, here’s bit of explanation: a margin call happens when you do not have enough money in your trading account to cover the position or you are getting close to the level. If you are close to that level, the broker can call you to put more money into your trading account to cover your position or if not they can close your trade when it reaches that level.
What Happened To Fred After That?
Here’s what Mark had to say:
I still consider Fred a close personal friend and we have remained friends throughout all the years. It took some time but Fred to recover but he did eventual make quite a bit of money in the property game.
The Moral Of The Story
Here’s what Mark had to say about the moral of the story:
- I have met some incredible traders over the years. I even know one trader who makes millions of dollars a year and before you ask, no, he doesn’t share his method with me.
- Of all the hundreds of traders I have met over the years I only know a handful that still trade and make money year after year. All those traders without exception have strict money management principles and a simple method or system.
- Don’t be in a rush to make it in trading. You need to learn this profession.
- You need to have money management principles in place that allows you to stay in the game even when you go through a bad patch and trust me they will come.
Here’s what Fred had to say about his amazing run which all ended too soon:
“I have a glandular problem, I have this huge greedy gland that just wont let me stop. When I got to a million I immediately thought, why not ten million me old matey.”
Here’s what Mark had to say:
Here’s a scary thought. There was a time during all this when I would have believed he could have done it.
I also wrote this post titled: 5 Fastest Ways To Make $1 Million Dollars In Forex Trading (A Numbers Game)
And the main idea of that article is to show how easy it is to make a million dollars if you have a lot of initial forex trading capital to start with.
So in summary:
Fred failed to cut his trading losses fast and that led to blowing up his forex trading account. Sometimes your string of forex trading success runs makes you think you are invincible.
Its only a matter of time before the market will humble you. I’ve had my fair share of stuff ups like Fred and believe me, you never know how greedy you are until you start trading forex.
As Jon Baldwin Says:
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Source of the story: http://www.tradeology.com/million-dollar-trade.html