Christian Fahrner, Learns From Mistakes?

One of the best qualities of a good trader is the ability to learn from his or her mistakes.  Everyone makes mistakes; in trading, every good trader has had a painful period where he misjudged the market, piled on too much risk or perhaps just got a little too cocky after a good string of trades only to lose everything to his vanity in the trades that followed. Christian Fahrner, a trader from Germany who is big on the Euro and the DAX, may have just reached that point, the point where the lessons of his past mistakes could prove handy. 

Fahrner and the Mistakes

It’s hard to talk about Fahrner without talking about the DAX, his “weapon of choice,” and his story is deeply embedded in that of the DAX. It was the beginning of the year, January 2014, a cold month and the DAX was itself experiencing a chill as investors worried over things to come and began liquidating positions on the index.  The two big questions that loomed: Will European growth return and would the ECB step in to save the day? Clouded by global uncertainty and the Fed’s QE tapering, the DAX tanked, taking a nosedive all the way to 9,080 from 9,794.  Fahrner recognized this nosedive and as the DAX began to bleed value, leveraged himself to a big DAX short.  The result had been exceptionally lucrative and Fahrner flipped this move into a 159% gain.

But what followed caught Fahrner, and probably many other short sellers, unprepared. As Fahrner was cashing in big returns, highly leveraged to the DAX short, he did not anticipate the move that began to gather momentum. By the time January ended, confidence has returned and the DAX regained almost all of its lost ground. Fahrner did not foresee that and the same high leverage that brought him big gains led him to crash and burn. From above 100% returns the fall to the abyss of -100%, meaning his equity was now at zero. Undoubtedly, that was a painful lesson on the risks of getting it wrong with high leverage.

 

The Big Comeback

But here is where the story of Fahrner takes a positive turn; Fahrner did not give up, he re-funded his account and began trading again. Not only did Fahrner recover from -100% but he was able to flip into a meteoric rise in gains with a total jaw-dropping return of 873% for the year.  Fahrner continued to trade the range of the DAX alongside the Euro and was able to gather a whopping 2,912 followers, enough to fill a mid-sized building.

Learning From Mistakes?

Now the inevitable question arises; can Fahrner crash once more to zero? Here comes the interesting twist. Now, after Fahrner is flush with cash, rather then continue to roll on high leverage and take big chances with his trade he liquidated his positions, closing shorts on the DAX, longs on the EUR/USD and overall reducing his total exposure to 13.7% on currencies and a mere 3.1% on the DAX. Effectively, Fahrner has massively reduced his leverage with more than 80% of his portfolio in cash. So it seems that Fahrner might have just learned from the past and identified the risk of his leverage; he cashed in his gains and reduced his risk at just at the right moment. The question is will Fahrner be tempted to raise his leverage once again and risk another painful crash? Or did he decide to be more cautious, learn from the past and take risk off the table? Only time will reveal the true nature of this trader.