Friday, May 19, 2017

May 19, 2017   

A Big Lesson from a Big Loss

    Good morning fellow traders. As some of you might have noticed I've been posting my daily pnl on twitter for a little while now. I feel this keeps me accountable and puts a certain pressure on my shoulders to keep trading well day by day. Also, it might serve as inspiration to others as to what is possible in a trading career. Over the course of the past few months I have felt much more consistent in my trading. In fact, I've been gaining profits in about 90% of my trades. This fact has undoubtedly helped me transition from trading being a side job to becoming my main income source.

  Unfortunately, profiting 90% of the time does not equal success in trading. Why's that? Simply put, if your one loss is bigger than your nine profitable trades. None of that "consistency" matters if that 10% of the time you lose will wipe out that 90% percent of the time you profit. I have experienced this twice this month alone. By writing this out I look forward to correcting the bad habits that lead to this. Along the way, others might find this useful as well.

 Yesterday is when I realized that this could not go on. I lost 17,480. Yes. That's right 5 figures in one day.

   Effectively, wiping out not only last week's profit but also last month's profit. A few more of these and my trading career would end at the age of 22. Ignoring the loss will not make me a better trader. I will just end up making the same mistake every 2 weeks or so. This is why I want to put full attention to this loss. I want to remember this loss each and every trading day. This way I will avoid it as much as possible.

  Let's get to the bottom of my loss. Nothing will tell the story better than my chart from trading GLYC. Let's take a look.

As you can see, early premarket GLYC had a high around 7.40. Just before 9:00 am it reached a low of 6.40. I was anticipating a short into a bounce towards that premarket high level. At about 9:13 am I started shorting  heavily. I was so confident in this trade that by 9:27 I was short 9000 shares with a 7.15 average. Well, you can clearly see what happened. At market open it spiked to 8.65. At this point I was down about $13,000. Gladly this didn't last long. Started fading and by 9:55 it was at 7.25. I looked at my unrealized profits and with a sigh of relief I see I'm only down 900 dollars now.

My gut feeling told me to cover and take this small loss. But, my untrustworthy heart filled with ambition made me stick to the trade. As I waited for a wash under 7 came 10:00 am and the reversal began. At around 10:20 am there was the VWAP cross towards upside. Covered all at 9.10 average when the clock ticked at 10:29 am.

 Where did I go wrong? FOMO. Fear Of Missing Out. I was afraid I would miss out on what seemed like an easy trade. As of late we have seen what sometimes is called a No Bounce Market. This is exactly what I was anticipating from GLYC. This led me to believe that the premarket bounce would be the last I would see for the morning. I shorted way too early. Not only that but I oversized. 9000 shares short in premarket. I had used up most of my buying power. I simply was not prepared for a spike at market open. I did not plan an exit if the trade went against me.  I was overconfident due to my consistent profitable trades. That 90% profitable trades meant nothing because with just one trade I would wipe out that 90%.

 On the bright side if I hadn't covered I would have effectively ended my trading career with a huge blowup. Yesterday, GLYC ended up reaching a high of 11.45 and looking at premarket today I can see it has reached 12.22 as I type.  Each bold sentence above could have its own post. Those are my weaknesses. My bad trading habits that I must work on. In the following posts I will dig deeper into how I will combat my bad habits and become not only a 90% percent consistent trader but, one that can control his losses and not wipe out all his profits. In doing this it will take me to the next level of my trading career. A career that will inevitably be cut short if these things are not improved upon.

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