The Story of Blow Up

The pain of blow-up is an inevitable process that every trader who newly enters the financial market has to go through, and some of them may even encounter several times. Today, I would like to share two real trading stories with you, which, exactly speaking，are accidents. Maybe after reading, you will be a little balanced.

In 1999, two funds of the renowned investment tycoon Soros', the specific names of which I could not remember, both made a bold prediction on the bubble of the technology network at that time, and also made a short sale accordingly. The market, however, continued to go all the way up based on a significant increase. In fact, this is a typical feature of the market bubble running to the later stage.

At that time, one of the funds under Soros still insisted on being bearish, even carrying out more short-selling, which finally, in February 2000, couldn't hold it anymore with all the transactions broke out. The fund suffered a severe loss and had to go into bankruptcy liquidation. Naughty as the market is, however, just one month after the bankruptcy liquidation in March 2000, the bubble of the technology network finally burst, and the Nasdaq stock index finally stopped rising and fell into the bear market until December 2002. What a pity! I guess the manager of the fund at that time must have extended the middle finger to God, thinking this is the fate of a teaser.

On the other hand, what happened to the other fund? Well, the manager of this fund was something. Faced with the continuous rising of the stock market, the manager stopped short-selling timely and ran for rising with extraordinary courage. In the next few months, he made piles and sold at top successfully. How awesome!

Not happy for long, Soros was then shocked by the stupid operation of the manager. In April and May of 2000, the manager thought that the stock market was almost back to normal and he could not miss this chance just like the bull market of the previous year. Thus he rushed into the market like common people and bought long. The final result can be imagined that although the fund hasn't gone bankrupt and liquidated, it still suffers a huge deficit.

So guys, please do not worship the so-called star fund manager or follow the advice of the trade master blindly, cause they will make mistakes just like us. Traders are all just human beings with all kinds of emotions and feelings which could be scared, greedy, hopeful and can not escape the shackles of the human nature.

Another story happened in China. In 2006 and 2007, many domestic gold companies sprung up, and I also stepped into the long march of gold trading in that period. These companies were similar to securities companies with the difference that they mainly provided gold trading, and some formal gold companies also owned proprietary trading. In Beijing there was a company named "GD gold", here I use letters instead of prudential reasons, enjoying a very high reputation in the domestic gold trading industry. Back then, the economic half-hour column of the central two sets of financial channels also interviewed the boss of GD Gold, and the subject of the interview was still about The market trend of gold. It was awe-inspiring.

As a committed gold bull, the boss of GD Gold firmly believed that the gold price would exceed $1,000/oz when the international spot gold price was still about $800/oz back in 2007. His thought was fine, but the point was that he was adamant that when the price broke $1,000/oz, it would go all the way and would not fall below $1000/oz for years. Well, that's the problem.

Just like a naughty child, the gold market was not that easy to control. On March 17, 2008, the gold price broke the milestone of $1,000/oz, peaking at $1032/oz, and then began to fall all the way down until the amount of $680/oz in October 2008, even the financial crisis could not stop it.

In the process of this decline, there were also several impressive rebounds that always tempted the firm long fan of the gold. Therefore, guided by the boss of GD Gold, the clients kept buying at each record low price until blow up, leaving the market frustratedly. Of course, the proprietary trading of the boss also ended with blow up.  

In 2007, there were several reasons for the boss of GD Gold to be bullish on gold, and transactions based on them were okay. However, he ignored a fundamental rule of the financial trading market existing in the investment of anything, no matter gold, oil, real estate, even garlic that things will develop in the opposite direction when becoming extreme. Even in a large-scale bull market, when a commodity has risen a lot for a long time, it always has to fall. When everyone is bullish and buying, under the one -out -of- ten rule of the financial market, if they can make profits, then how the 10% winners can make money? (When gold price stopped falling at $680/oz, it immediately rose after most of the long positions broke out, only taking three years to rise to $1920/oz with an increase of 182% in September, 2011.)