To say that my year was TERRIBLE would be an understatement.
I did everything wrong, made the same mistakes over and over and well… pretty much just got good at losing money!
Except… this wasn’t my aim, nor goal.
When I look back at my expectations when I was just getting started trading stocks, I still find them hilarious. I distinctly remember being so confident in my own abilities that I was estimating I would have a 60% return… in a matter of months. If you don’t believe me, read about the lessons I learned after trading stocks for 1 month.
Boy… was I ever wrong!
It almost reminds me of those college/university kids who think they’ll get jobs for 150K coming out of school, only to be struggling to get jobs for 40K… let alone a job!
If you are not familiar with my last update (my reflections on trading stocks at the sixth month mark), my trading career was taking a backseat to other endeavours I had. I was also mulling the idea of cutting my unrealized losses and starting over. One of the reasons why was that I just didn’t want to see a large negative number in my account anymore. I wanted a clean slate.
Did I end up cutting all of my losses?
Did I lose all of my money?
You’ll have to keep reading to find out what happened in the last half of the year!
My 7th Month
In the first half of this month, there was a massive rebound in my portfolio. And in this specific instance, I had thought holding onto my loser stocks was making a tiny little bit of sense.
The reason why was that my unrealized losses were basically cut in half!
Meaning that I was only down by a bit over -$500. Considering what it was the previous month… this was a big sigh of relief for me.
At this point I decided to close a few small positions at a loss and offset them by closing a few winners to keep my realised gains balance the same.
Then in the second half of the month I had even more good news. Holding onto my losing stocks was paying off for a few of them. Some had even completely rebounded to breakeven and I was either selling them at a small loss or profit.
Overall this was great news for me as I was trying to trim as much of my stock portfolio as possible. I had invested in way too many different stocks. I also really wanted my account back under control and at breakeven.
By the end of the month I had increased my total earnings by about $40 to around $260. On the flip side, my unrealized losses now totaled less than -$450.
If I had closed everything at this point, I’d be at less than a -$200 loss.
What a difference an entire month can make!
And in hindsight… how stupid I was to not do this!
My 8th Month
This period started off with a bunch of my stop losses getting triggered, which further increased my earnings.
The reason was because I had set stop losses on pretty much all of my winning positions and there was a pullback in most of these stocks.
For the most part I was happy with this as I had locked in some small gains, was increasing my cash pile and slowly trimming down the size of my portfolio.
My goal of having a clean slate was slowly beginning to happen.
This pattern of my stop losses getting triggered continued in the following week when there were a couple big red days in the market. Now my total earnings were well above $300!
However, my losses had also gone the other way… even lower! This meant my unrealized losses had dipped past -$600.
Instead of having the gap between my realised and unrealised profits shrink, it was growing and getting worse. This meant that my overall balance was moving further away from the breakeven point that I was chasing.
Uh oh! Not good at all!
On top of that, I had also started my own YouTube channel and was spending a decent amount of my time creating my first few videos. So I wasn’t very active in my trading, nor paying too much attention to my account.
So in the last half of the month, the market had of course turned red and everything overall started going downhill.
This resulted in a lot of my stop losses to get triggered. Most of those were from my profitable trades. So my realised profits got up to almost $400. Looking at it from this angle… it was great!
But this also meant that my losses got even bigger and my unrealised losses ballooned up to around -$850!
Again… the gap to get to breakeven kept growing in the wrong direction.
I still don’t know why I didn’t cut my losses in the previous month, when the gap to breakeven was less than $200. Now it was more than double that!
Many things are much clearer in hindsight…
My 9th month
The first half of the month was rather quiet and I hadn’t really done much trading. I had a few small gains that I closed, which pushed my realised earnings to above $400. On the unrealised side, it was mostly flat for these first 2 weeks and only slightly rebounded to less than -$800.
In the next half of the month, I decided to go back to educating myself in trading and purchased another book. This time I bought the book “Trade Like a Stock Market Wizard” by a stock trading pro called Mark Minervini. I felt this book would give me further insights into a different type of winning strategy than Ray Dalio’s book that I previously read. I also really liked the fact that it was from an individual trader and not a hedge fund manager.
Meanwhile… my account’s cash balance kept getting bigger as I kept slowly trimming my portfolio over the past couple months. A fair amount of this came from my stop losses getting triggered.
On the market side, overall it kept trending in more of a negative direction. And for the first time in a couple months, my unrealised losses were back at almost -$1K.
If there is one thing that I’ve learned so far… it’s that everything in trading is about timing and making the right decisions… which unfortunately I’m not doing either very well!
My 10th Month
I was making some slow progress on reading Mark’s book, but I was finding it really good and insightful. I really liked the author’s approach, insights and strategy. It was much different than Ray’s.
Meanwhile, my account was mostly on autopilot. I only did a little bit of trading here. This came from closing out a few more winning positions and bringing my realised account balance to just over $500. And since the market went mostly green, my unrealised losses were sitting around -$750.
Around this point was when I was really forcing my mind to come to terms with having to cut my losses on ALL of my losing stocks.
I was preparing myself mentally to take action.
Then in the last half of the month… I finally mustered up the courage to cut most of my smaller percentage losses. However, I still couldn’t do it for the biggest losses in my trading account.
I just couldn’t take the hit all at once.
I needed another week to get myself mentally ready for it.
The next week came, and before the end of the month… I finally did it!
I had closed out all of my positions, including my biggest losing stocks.
I was 100% in cash and my realised earnings were sitting at -$475.
Not good, but also not the end of the world.
My 11th Month
This was mostly an idle month, so I don’t have too much to say. I had only made a few trades. 2 losing ones that I closed and 1 winning trade which was still open.
No big deal, right?
Well at some point in this month I had finished reading Mark’s book. So I was feeling rather optimistic, quite cocky and filled with a lot of confidence.
What should one do when they try out a new strategy?
The sensible thing to do would be to test out the new strategy with small positions and amounts of money.
What did I do?
Remember how I said I was filled with confidence? Well… I didn’t do any of that and thus resulted in me losing a couple hundred bucks.
Just… like… that!
My 12th Month
Surely I would get smarter and learn from my previous mistakes in the last month, right?
I made the same mistakes again… as my confidence was still sky high.
In addition, I had purchased a small course on mostly day trading, which also covered swing trading a bit. I wanted to give day trading a try and see what it was like. A friend of mine was telling me about his buddy who was doing it and was having some real good success with it.
Well… my bad luck streak continued and I just kept losing more money. Seems I couldn’t even day trade successfully!
Then things really took a turn for the worst in the last half of the month.
I decided to organise/group all of my stocks in my watchlist according to Mark Minervini’s strategy. I thought this would give me some good practice determining what stage a stock was in and how close it was to having the volatility contraction pattern.
I was in a couple positions that I felt were pretty solid. However, earning report season was coming up and I was hoping for good earning reports for the 2 stocks that I was in.
One came in that beat expectations and the stock shot up.
The other stock was sitting at a small loss already and I decided to commit a major trading sin. I broke 2 of the golden rules that were written about in Mark’s book.
Always have a stop loss in place that is lower than your average gain percentage and NEVER lower it. Never let a stock loss go beyond a 10% loss (as the bigger and deeper the loss is… the harder it is to recover from)
What did I do?
I completely removed my stop loss as I felt the stock would probably dip even more before fully rebounding. And I also let the stock go beyond a 10% loss.
What happened next was truly unbelievable!
The earnings report came in and it was below expectations. So of course the stock crashed spectacularly.
All of a sudden I was sitting at a 25% loss.
And I kept holding onto it as I couldn’t muster myself to cut my losses at that amount.
Instead… I went back to learning.
I watched a bunch of YouTube videos with Mark in them and from other trading pros.
One thing that I picked up from this was that most professional traders kept some sort of a trading journal. I thought this was a really great idea and decided to go through all of my swing and day trades to see what I could learn. I plotted my entry and exit points. The gain/loss amounts and evaluated each trade.
Even though this was a very time consuming exercise, I found it immensely valuable. I immediately realised that I had several really good swing trades and others that were plain stupid.
While I was preoccupied from learning from my past trading history… you might remember that stock that I owned which suddenly crashed?
Well… it decided to go down even more!
Not even 2 months had passed where I had closed all of my unrealised loss positions in order to start with a clean state, did my account end up going back into the deep red.
By deep red, I mean… below a -$500 dollar unrealised loss.
Just freaking great! I’m back here again with the same problem.
Though I did manage to close 20% of that stock which suddenly crashed and another losing trade that I had made.
How did that all add up at the end of the month?
Well my realised earnings greatly suffered. In fact, it ballooned to an over -$800 realised loss!
Ouch, ouch, ouch!
I could not have ended my first year trading on a more sour and worse note!
I was just bleeding red everywhere.
Be very careful if you are holding a position before an earnings report. Often 2 situations will play out. The stock rises, or falls, by a double digit percentage. If it rises… you get lucky. If it falls… you get unlucky. At this point… this isn’t trading or investing. It is gambling. If you are okay with gambling… stay in, otherwise get out.
Once you set a stop loss amount, never, ever remove it. And never lower it even further. Yes there will be times when this strategy screws you over, but in the long run it protects you from losses spiralling out of control. All it takes is for one significant loss to ruin your portfolio.
Set your stop loss percentages lower than your average gain (winning) percentage, in order to actually grow your account.
Don’t go all in, into a position at one time if you are swing trading. Put out test positions which are a fraction of the amount that you want to trade. This way if you are correct about your assumption of which way the stock could go, you’ll then need to very quickly scale up your position. On the flip side, if you are incorrect (Ex: the stock falls by 5-10% and triggers your stop loss), it’s much easier to absorb this loss since it was only a small test position.
When the stock that you hold a position in starts going up, start selling some of your position into profit. Don’t get greedy and always lock in some profits when you have a winning trade. Just as you scale into a good position, you also want to scale out of a winning position to secure your profits.
Keep a trading journal to learn from your past mistakes and stupidity. Learn what you did well and keep doing more of that.
Finally… DON’T EVER BREAK THE GOLDEN RULES OF TRADING!!!
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