Trading Tales of Woe - Part 2

AVERAGING UP PROBLEMS

James' story:

I lOST 18K ON GLOBO EARLY ON WHEN TRYING to INTERPRET ACCOUNTS AND MAKE JUdGEMENTS AND AVERAGE DOWN I FIND IT HARD TO BUY SHARES AT HIGHS SO CAN’T AVERAGE UP.

I need to be clubbed around the head. SNoozebox I lost 14k because averaged down

NT comments:

Well I won’t club you around the head James! James knows exactly where he is going wrong but can’t seem to put it right. He only wants to buy more of shares as they go down rather than buy more as they rise. To be a success he needs to change that or else he won’t succeed. Don’t keep buying more of something as it falls. Both shares he mentioned went bust in the end so looks like he lost all on both. Another reason to get out of a falling share and not buy more.

OVERUSED CREDIT 

Graham’s story:

I spreadbetted indices using credit I couldn't afford (total losses / debts exceeded £100k). So many things learnt from this. I lost a house, 2 cars, a relationship, my self-esteem & confidence. I learnt that trading on emotion and with no direction or plan was suicide. Tipsters, a gambling tendency and a lack of discipline were my downfall.

NT comments:

Graham has realised and spelt out what went wrong and it’s important for beginners to take note. Trading destroyed his life totally. That’s because he just gambled with no discipline or planning. He also brings up something important: only ever trade with what you can afford to lose. As you can see if you don’t and try and win back what you lost using credit it can destroy you. Never use credit.   

Barbara’s story:

I started trading a lot during 2017. I shorted some UK stocks, and went long on some US ones. I got lucky with the UK ones (it seemed like anything I shorted was cursed, and a week or two after opening the short, some terrible news would come out about it and it would gap down and I’d close out with a jackpot), and in the US market, it was just impossible to lose when going long. It almost frustrated me at how easy it was to make money – I’d read all these books about stake sizes and stop losses and I was religiously adhering to it, only to wonder why, because anything that went down always came back up with a vengeance, and every bet seemed like a sure win. All the time I spent reading and studying was a total waste of time because any idiot could make money in this market. That actually kind of annoyed me!

I can’t remember what I started with, but I don’t think it was more than £2k. By the end of 2017, I know I’d made around £12k (as you know, one could use a lot more leverage back then so it was easy to make exponential gains). I didn’t bank any profits. I kept it all in my account.

I stuck to my guns.  I was up 11 months out of 12. I eventually got worn down, and I found a way to break my rules by simply buying more stuff, which I could easily do with my larger account balance. 

Then February came, and I remember sitting in the airport on my way home from my holidays watching my account drop by about £100 a minute. I had far too many US equities, and half my stuff had no stop losses because I’d not had one triggered in so long I’d become lazy and not placed them. In my 12 months of trading experience, everything that went down always came straight back up. I couldn’t think straight and act because I was in a busy airport, so I just froze. Then I had to get on an 8 hour flight and wonder what on earth was going to be in store for me when I landed!

I lost 50% of my previous 12 months’ gains, just like that. Even stuff I had been £500 up on, that had been ticking along for weeks, I had allowed to go into negative. How stupid is that? I just had no idea that the market could move so fast. I had no plan to deal with it.

I also let several losses continue to sit there, waiting for them to recover. My account was in negative for a good 2-3 months. I clearly remember the moment my account balance ticked up to £0.00 and it felt like a massive victory. I now know that if I’d cut my losses quickly, I could likely have made some profits during this time, rather than doing nothing productive at all - just waiting and paying interest.

From this experience, I like to think that I have learnt more about psychology (of the market and of myself), but I must admit I am now in panic mode and I can’t seem to find any strategy that is working in this current environment.

NT Comments:

Some awful moments for Barbara. It can happen – you start doing too well then overconfidence can come into play. There will be some periods when shares keep on rising and you feel like you are a shares God. And as happened with Barbara this will tempt you to overtrade as your balance rises, raise stakes. Then you’ll start to take risks, raise stakes some more. Then all of a sudden things turn, too late you’ll realise you weren’t so great but you can’t believe it so you freeze and don’t bank the profits. Barbara needs to start again, stop trading manically and build a portfolio slowly.

Ed’s story:

I bought AA shares which plummeted. I bought because it was such a big name and couldn’t imagine the shares going down. They did keep going down but I thought they   must come back up I mean it’s the AA!!

I took a big loss and learned a big name doesn’t mean a share will go up.

NT comments:

Ed learned a real lesson, just because something is a big name does not mean it is a good idea to buy it. Lots of famous names have a torrid time. Carillion, Woolworths, Northern Rock, loads of them. The AA might have had a nice ring to it but Ed simply had not done his research. If he had he would have seen the AA’s net debt was enormous – in the billions! I was actually short of the shares. Also I hear the phrase “They must come back up” a lot. Again here a stop loss would have saved Ed from losing too much. But praise here too. Ed did sell them and took a loss.  

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