Millionaire Traders

The Wisdom of Experience

Lessons from Franki Law

Cut Your Losses, Retain Control

For Franki Law, trading is all about retaining control. Our favorite
piece of advice from the Hong Kong–based trader is to make
sure that you never lose control of your position because if you
do, you will also lose your power to make intelligent decisions.
Franki believes that it is extremely dangerous to average down or
post margin calls on a losing position. Although you are lowering
your average entry price, requiring a smaller price movement to
return to breakeven, every point move against you also becomes
even more damaging because of the increased position size. At this
point, you are essentially at the whim of the market and can only
go where it takes you. Even if, based on your analysis, you wanted
to take a trade in the opposite direction, you may not be able
to because you are paralyzed by your losing position. Therefore,
sometimes the smartest trade to make may be the hardest one. If
you cut your losses, you not only end the pain, but you also regain
your decision-making power and can examine the market from an
objective point of view.

Averaging Down Increases Risk, Averaging Up

Decreases It

Instead of averaging down, Franki averages up. In fact, many of the
traders that we have interviewed also trade this way. By averaging
up, you are actually lowering your risk because you are risking
profits and not original capital. Franki also tries to milk his trades
for everything they are worth by scaling out of his positions. This
prolongs the life of his trades and allows him to capture as much
of the trend as possible. The way he exits is based on what he feels
is the potential of a move, which is his methodology of ranking
movements. What we like about Franki’s style of trading is the fact
that he ranks the potential movements of a currency. For example,
if prior breakout moves have lasted for 400 pips and the current
move has extended by 100 pips, you can consider that the move
is only beginning to run its course and may elect to take off 25
percent of the position just to bank some profits. If the move has