Sunday, November 17, 2013

My biggest losers - a lookback (part 1)

Few people do this but I think this is important, I'm going to write a post about all the huge screw up trades I've made over the last 3 years since I've started trading US equity and futures markets.

1. First big loss was NFLX. I bought NFLX around 88 and sold at 67, for about a 23% loss. Notice NFLX was in a massive downtrend, and I was bargain hunting here. Also notice how once I exited NFLX, it closed above the 21EMA soon and rallied to above $100.

2. Next 2 trades were the start of the most painful phase of my trading "career". TZA and TVIX. I bought 200 TZA at 28 or so, then bought another 200 to average down my cost to about 26.5. I also bought 130 shares of TVIX at 32. This was around Christmas in 2011.

January 2012 was a really strong bullish month for SPX, so I averaged into TZA and bought another 300 shares, my average price was about $24.5. I also bought another 85 TVIX at 17(wow!) and my average price on it was $26.

February 2012, market continued to go up, I continued to average into TZA and TVIX, while religiously reading zerohedge daily and talking crap about the state of the economy and where price "should really be" based on fundamentals. I had accumulated another 70 shares of TZA and another 50 TVIX, so I had about 770 shares of TZA and 265 shares of TVIX. Average price on TZA was a bit lower and TVIX was about a dollar lower as well.

March 2012 and April 2012, I do nothing. I hold onto TVIX and TZA and watch their value drop everyday, helplessly. It was horrible. TVIX continued to drop. Kind of late to figure out what contango and its relation to VIX is! At the end of April, TVIX is trading at $6 or so. I'm down almost $20 per share of TVIX.

May 2012, markets start selling off a little. This is the time to exit! My positions start to improve, so I sold all my 770 shares of TZA at $20.8, so about a $2300 loss on it. I also sold all 265 shares of TVIX at $8.6 for a loss of about $4500. So I had lost about 7000 dollars on these 2 trades, and I was relieved to have sold them. Holding onto these losers was misery.

3. By this time, I had found a new way to lose money. Options!! Buying calls and puts? Nice, so all I need to do is guess up or down, put down less than a $1000 or so per trade, and if I am right, I could double my money or more! Traded SPY, MT, AAPL, WAG, NFLX, GRPN and LNKD. Biggest loser here was the LNKD puts, I bought like 4 contracts to begin with, and kept averaging down again until I had about 20 contracts, and lost almost the entire value on these puts. Another 3000 dollars or so down the drain. I also bought many SPY puts and lost money on it. Probably another few thousand dollars in losses.

4. As I was experimenting with options, I discovered Twitter and all these amazing traders making all these winning trades using futures. So I figured thats what I should do. So I opened a futures account, made a few decent trades. I also heard this phrase "if you cant make money trading, then trade corn". So I decided to trade corn. The reason people say that about corn is because it trends. The genius that I am however, decided to short corn right before the start of one of the biggest bullish trends the year. Same story, shorted 1 contract, added another contract higher. Averaged into it again with a third contract. Fourth contract and a margin call got me out of the trade. Loss of about 20 points per contract, about a 8000-1000 dollar loss. Ouch.

There have been others, but I think I'll go over them in another post some other time. One good thing is, after these trades, I started keeping meticulous trading logs. So although I made mistakes, I logged them and studied them.

Notice the theme through out -

1. I bought things that were dropping. I shorted things that were going up.
2. I did not know when I would be wrong on a trade.
3. I averaged into losers.

Isn't that amazing? The cardinal sins of trading, laid out here for everyone to see.

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