This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
As I’ve been looking back at my trading history, I’m realizing how much I have lost over the three years I’ve been trading.
I started with $1000 in a Scottrade account, and I turned that into $300 through n00b trades, holding on to losers and buying cheap options. I literally knew nothing back then. I refunded and lost a couple hundred more. Then I funded up to $2000 in my Zecco account. Free trades, but PDT rules. I lost a few hundred of that, too. I took a $10k TD account that was only supposed to be safe money (like CD safe) and took it to $9000, refunded to $10k and back to $9000, where it sits now. And you know the story about how I took my $2000 Zecco money to the prop firm, turned it into $2600 and then down to $1200 where I am today, through overtrading, bad discipline and just a really unfortunate situation with BIDU and my order servers shutting down.
Adding it up in my head, after three years of active trading, I’ve lost around $3000. My trading accounts have been around $2000 most of the time that I’ve traded, so I’ve completely blown up 1.5 times so far. People (not on the internets) who know that I “trade” have no idea what my actual performance is, including my wife, sadly. If she did, I’d never trade again! Whether that would be good or bad I’ll leave for you to decide.
Why do I write this?
Part confession–I am Prospectus, and I am a net loser at trading. Honesty on the internet, a cloak in reality. Welcome to my sad world.
Part warning–Trading is NOT easy, and the trading education, especially the self-taught one, does not come fast, easy, or cheap.
Finally, to place these facts in front of me, where I have to face them. It’s so easy to zero the PnL meter and start again. Then being a couple hundred in the hole isn’t so bad. But that meter’s been running the whole time, and financially, as a trader, it would have been better if I had never been born, to use a figure of speech.
What have I gained for my $3000 and three years of effort?
Knowledge of myself–my flaws and weaknesses, but also some strengths.
Some knowledge of the markets, though admittedly I seem to know more about what doesn’t work than what does.
Ability to execute orders along with endless market jargon.
Friends in many traders throughout the world who have offered help and encouragement.
Have I learned how to be a profitable trader? No dice there. In the end, that’s the whole objective of trading, and so far, success has eluded me, or I’ve avoided success, depending on how you look at it.
So there’s a full inventory of where I stand. I’m not going to quit, so the only direction for me is forward.
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
November 20th, 2007 at 10:17 pm
This is a tough racket. At least you are honest!! That is the real test of a successful trader who will eventually make it.
November 20th, 2007 at 11:48 pm
The real question is not your P&L, but rather your style of trading. Is it based on sound price movement principles? Can you easily recognize market direction and stock direction? Are you fighting the tide or swimming with it? etc etc etc.
These are the questions you need to ponder. The more you focus on your P&L you’ll feel like a net loser? I have yet to meet net loser that had done anything positive. While my name isn’t Warren Buffet, I’ve been through this pathetic cycle and I’m not sure I’m out of it yet but I can see the light now. The problem with most net losers (myself included) is that we focus on our net loss rather than sound trading rules and discipline. So this might sound like bs, but fuck the money and focus all the processes that will make you a net winner. Get rich or blow out trying!
November 21st, 2007 at 4:51 am
From What I see, you are under funded to be trading, I would say you need at lease 200k to play in this game, that way you can scale into positions.
November 21st, 2007 at 6:41 am
i imagine your engineering degree cost much more than u have spent so far on your trading education
November 21st, 2007 at 9:13 am
You are writing my blog. I’m in almost the exact same position as you. I’ve gotten better, but last Friday I got torn to shreds playing OpEx. I played it perfectly to my system, so I’m not that angry at myself (I could have lost a lot more if I’d let myself become undisciplined)…but my position size was too large and my losses were huge (relative to my portfolio). Now I don’t have the cash to make any ‘good’ plays with the time premium in most of the movers. That tempts me to start playing the options I can afford which is a terrible idea.
I think my biggest problem is with a 2-4k$ account I’m too tempted to play ultra-risky because with that size portfolio you pretty much have to if you want to make any money. A 1% return on a trade isn’t worth it in a 2k account, it barely covers commissions. The PDT rules also make it much harder because I tend to hold on to a losing position for longer because once I’m out I can’t get back in. I can make 2-3 trades a day then I’m done, so they’ve got to be really good. What tony said about being able to scale into positions is good. You also can’t effectively hedge in a $2k portfolio. If you follow someone like Phil over at Phil’s Stock World he’s got incredible hedging strategies…if you have the capital to put up for them.
My plan is going to be ultra-safe plays only till I get my account back up to 5-10k. Then start scaling my risk up gradually until I lose money, then scale my risk back till I’m making money again and try to find that sweet spot for me where I’m making more money than I’m losing. Of course this sounds way easier than it will be, but I’m not giving up on trading either. I enjoy it when I’m doing it, and I do a good job paper trading (with 100k). I just need to keep my crazy risk side out of the equation.
November 21st, 2007 at 10:30 am
Well, most people lose money for years. I’d argue that it’s smart to be learning on a $2k account. It’d be just as easy to turn a $200k account into $160k.
My $2100 account is down to $1550 after three months of ‘playing’ with options. I’ve learned a few things and wouldn’t want to have another zero or two on those figures.
November 21st, 2007 at 11:51 am
Michael Lomker is right, even though he is one of those liberty dollar nuts :-)
November 21st, 2007 at 2:22 pm
Listen if you can’t make money with $3k why would you make money with $200K. This is the classical problem with most business ventures. The best businesses prove themselves early with very little money, once they prove their value then others infuse real capital into the idea. If you can make money consistently with a small account then you will be able to scale into a bigger account. I will admit that $3k is bit tough to trade with everyday, develop a sample size and constantly improve. However, you do not need $200K. I would recommend $30K. You need $25K just to qualify for the DT pattern rule. and only risk $5K. The goal would be not to lose 5K can can be accomplished if you trade small enough and limit the number of trades per day.
If you choose to stay with the 3K, then go with a platform like IB & ThinkorSwim that will give you two accounts, live and paper money. While you wait for stuff to clear, keep trading in the paper money account. However, you will have to take the paper money entries and exits seriously.
November 21st, 2007 at 10:33 pm
Paper trading is nothing like the real thing. Every time I use the demo mode on my platform I make tons of money because there is now worry of slippage or bad fills and it’s a whole lot easier to allow more wiggle room with fake money. Trading stocks as a beginner and an upstart business entrepreneur are a bad comparison. The worst thing for a new trader is to make money out of the hole. it gives you too much confidence and you think you are the master of Wall Street because you “got lucky”. When I first started trading I bought a stock that was beaten down and cheap (HSOA) or back then it was (HOM)on the AMEX… The stack was at the beginning of a short squeeze and it shot from $7.00 to nearly 14$ in a few days. I was all in so I turned my 7k into 13K in a few days. I thought I was king so I went ahead and put 50K in my account and started aimlessly trading. I had no Idea what could happen on an earnings announcement and was loaded up on two stocks that reported back to back one in morning and one after close. The both were cut nearly in half and i am just lucky I wasn’t on margin or I would have wiped out my whole port. Since then I have gone strictly to day trading with some small position trading.
To really get good at this you need to lose more than you win for at least 6 months and study each loss and psychology behind the reasons for your entry and exit. If you don’t have risk capital (money you can afford to lose) you will drive yourself crazy trying to make money at first. The first year is school, so it’s a tuition.
November 22nd, 2007 at 12:42 am
P- Thanks for sharing. We all breathe a collective sigh of relief when someone (anyone) openly admits how truly difficult this shit is. I wrote a post some months back about how everyone just wants to show winners, but not because that’s all they’ve got. I got flamed pretty good privately by some folks (with a web presence) who are BANKING on the fact that what they show makes it all appear so easy. Traffic. Adsense. Black Gold. Texas Tea.
You’ve documented that you have a habit of changing methods often, and have trouble sticking to the rules of the method du jour. Yet you’ve only lost $3000, gaining countless hours of experience in the meantime. That would probably put you in the 90th percentile of “lowest amount lost during the early days”… you’re actually doing damned well.
I’d definitely agree that you’re a bit short of trading capital to be able to trade as you already seem to do (daytrading in and out over the course of minutes multiple times a day)… as sometimes a prudent intraday trade may require a $100k+ purchase in order to reach an appropriate risk level (say a $120 stock with a 0.10 initial stop where you wish to risk $100… you’d need to buy $120k worth for that one trade). Otherwise you’re cornering yourself into needing to make larger gains than reasonable on too-small purchases just to grow your account. Impossible odds.
Please consider taking a break from day trading and focus on paying off debt/ saving money till you have enough cash to cover a Pattern Day Trader account with its margin (i.e. 30k cash will give you 120k intraday buying power).
Also spend some time doing that deep introspective work where you consider whether your personality will ever get comfortable following preset rules and ignoring urges. That’s perfectly normal and acceptable, just not very conducive to day trading. I know you have an impulsive tendency… I watch WallStreak quite often ;-)
From what I’ve seen of your work, whoever you really are, you are farther than most people ever progress, you have lost less money than most people lose, and you are a very skilled technical analyst and tape reader, not to mention all the experience under your belt now.
I think if you have the casabas to walk away from the computer between 0930 and 1600 for a few months (nothin’ wrong with a little swinging or position trading with some evening research), you’re liable to be wildly successful in the long run. The real question is, “Can you put it down?” If not, you’re not trading, you’re feeding an addiction.
Oh, and take the holiday as an excuse to get completely honest with the wife. If she doesn’t, wouldn’t, or can’t understand, it’s going to affect your motives and sabotage your trading forever.
And if she doesn’t believe in you, you need to know whether that’s because of YOU or because of HER. As you know, the solutions for each are very different.
I think those of us that know you casually believe you’re liable to be a screaming success, and may end up with a yacht moored next to Lloyd’s (flatwallet).
Best wishes and happy Thanksgiving.
November 22nd, 2007 at 1:11 pm
prospectus: i’ve considered carefully whether or not to post this, but i will…i feel its more important than your trading
why are you being honest with us, and not your wife? forget about blogland, and be honest with who it matters to the most…i’m sure that if u explain it to her, she will be supportive…i don’t think that you can get where you want on your personal inventory journey when you are dishonest with the one person who needs to be there for you through thick and thin
good luck…i only want to see you succeed…i hope you take this comment in the spirit that it is meant
November 22nd, 2007 at 3:54 pm
What you (should) want more than market profits is happiness, and you won’t ever feel free until you have nothing to hide. Maybe the wife will understand. Maybe she won’t. Maybe she’ll come clean about her own secret gambling losses! The thing is, even the worst reaction is better than you continuing to hide stuff from her.
If the wife will have none of this trading BS, then you have a really simple choice to make, as far as I’m concerned. What’s really important to you, in the long run? My wife wasn’t on board with what I wanted (not about trading, but other stuff), so I divorced her. It wasn’t a very hard decision, once I finally understood the situation. We’re still friends and much happier than when we were trying to pretend we hadn’t grown apart.
November 22nd, 2007 at 8:57 pm
Mmm. I beleive you gotta come clean with your wife too.
I want to add that you should track R’s and not money. Perhaps you can skip the trade the BIDU trade that wasn’t really a trading fault. So, after that, how many R’s are you up or down? EVERY time I trade the money I lose. I only know how much I have made or lost when the trade is over. Of course if I have a full 1 R loss, I have a pretty good idea what I lost….but you get the idea. The suggestion that you need X amount of dollars is not true IMO. There are ways around the day trade rule. Open multiple accounts, prop firms, etc,… Trade small enough that a loss doesn’t even cause you to bat an eye. I started scalping (recently)with 20 dollar risk each trade. Until I meet a certain goal, I will stay with 20 bucks. If I lose 10 R, I will risk 10 bucks per trade…..until I can make my R goal again. Will commissions kill me? Sure. But I will gladly pay for the experience. Once I had 6.5 percent drawdown on a larger account. I got small, risking just .17% on daytrades. I tracked R. I traded up to 10 R, and I had the confidence to increase the risk per trade. If I looked soley at my account balance, I would not have gained one iota of confidence to trade bigger. And guess what happened. My first trade after I increased size was a loss. But, when I plotted the trade on my “R sheet”, I was looking pretty good. from 10R to 9.3 R. Just a small loss. One trade of THOUSANDS I will make in my trading carrer. So, I just kept tracking R. I know I have given this advice before, but when people start talking about the money, and not the charts, they are not in the right trading mindset. FWIW ;)
November 22nd, 2007 at 11:09 pm
@BAT: Not offended at all, and received in the proper spirit. To quote the donkey, “Only a true friend would be that brutally honest.” ;)
@Richard: Unfortunately, my situation is more complicated with 3 kids in the equation. Knowing what’s best for them can be a challenge.
I appreciate everyone’s concern and advice. Unfortunately, my wife would not understand, nor would she support my continuing trading education. Yes, I’ve got bigger problems than my PnL. But it wouldn’t be Move the Markets without my soap opera drama, would it?
I’m kind of stuck in a terrible spot. My emotions influence my trading, but my trading affects my emotions, and my situation outside of the markets is harmful to my psyche. I’m the anti-Zoomie! The emo continues…
November 23rd, 2007 at 2:06 am
In my “world,” terrible spots do not exist. A spot is just a spot. _You_ are the one that labels it great, or terrible, or whatever. And, you can change the label or remove it completely, with practice.
Along those lines, I have learned that the drama aspect of any situation is completely optional. In every bad case in my past, I even acted in ways that helped prolong the drama. I didn’t consciously plan to do that, of course, but that was the end effect. Because, struggling with a “complicated” situation was way easier than facing up to decisions I didn’t like. And, if I were lucky I could also get some sympathy along the way. What a deal! But it doesn’t actually resolve anything.
Theory: guilty traders always lose. Guilt loves to be fed.
At some point I made the decision to stop suffering. Because, when I could see clearly, I realized that the struggling I was doing was far worse than the things I was struggling against. In reality, no event or circumstance can make you unhappy or happy. It’s always you who reacts to events one way or another.
If various concepts that you are attached to are pulling you in different directions, take a moment to realize that none of them ever really hold up to scrutiny. For examples: No one has to be a trader to be happy, and winning trades don’t wash away the guilt of deceit, and deceit is rarely in a family’s best interests.
But I _want_ to be a trader! But I _want_ to head a family! But I _want_ to get away from my day job! I’m suggesting that the wanting is the problem, rather than the state of having those things or not. You can have goals without allowing them to control your emotions or your well-being.
I know this was rambling and repetitive, but I’m typing it on a blackberry and can’t edit very well.
November 23rd, 2007 at 6:13 am
Richard, that was the best post I have seen on MtM.
November 23rd, 2007 at 7:45 am
P- I’m also a father of three, divorced after 16 years, and let me just say that I know how having kids in the situation, and wanting more than anything not to get them caught up in the middle and hurt by it, can complicate things beyond belief and cause you to doubt your every decision, because their well-being is more important than your own desires. I know there’s no easy answer and none of us here wishes to throw stones.
Feel free to email me if you want to discuss this more privately, but I’ll just say this: depending on how bad the situation is, sometimes what’s best for the kids is not what you might first think. Also, be careful that your trading doesn’t become a way to try to financially “solve” all of this; it will fail and can make you suicidal.
Above all, know you have our thoughts and support no matter how you decide to handle the trading or the personal situation.
November 23rd, 2007 at 12:09 pm
I was going to say that $3k is so minor in the grand scheme of things that a man should have the right to trade it however he wishes, win or lose. Many aspiring traders lose tens or hundreds of thousands and some even trade borrowed money and pay for their hubris for years after. Whatever else you’ve learned, you’ve learned how to keep your losses small, and underrated but important first lesson. Considering the size of your account now, even if you lose it all, the money isn’t going to totally change your life.
On the other hand, I think Richard and Will are right on every count.
Your business is your business, but think of the future. Let’s say that your dream comes true and you really click and your P&L curve smoothes out and slides gracefully, elegantly upwards. Now what? Will your wife be happy that you’ve made a thousand dollars or will she be livid that you’ve been hiding this from her? You can earn money after you lose it, you can get a new job after getting fired but it’s very hard to earn back that trust.
November 25th, 2007 at 4:55 am
I lost 90K in one year. 3K is definitely better