What can you learn from my $5,000 loss?

Triumph

I have always been a risk taker and I also loved the thrill of gambling. Many think trading stocks is just another form of legalized gambling. In simple terms, it is, but anytime you are risking money to make money, it’s a gamble. It doesn’t matter if you are buying real estate,   mutual funds for retirement, or low interest CD’s from a bank. The lower your risk the less it feels like gambling, but in the end, you are making the most educated decision you can, hopefully, to generate a return for the money you’ve invested.

I have chosen to run a business in which I trade my own money and I’m 100% transparent with my subscribers on trades I recommend because I take them myself.

I put my money where my mouth is and in this case, I choked on it, big time. If you follow any trading service, blog writer, or commentator and they show you win after win and never  a significant loss, then they are most likely hiding something.

Trading Strategy vs Trading Personality – There are countless trading strategies that you can follow available on the market today that cover various time frames of investments from day trading to long term investing. Too often novice and even the most experienced trainers focus more on their trading strategy than developing their trading personality.

What is a Trading Personality?

A trading personality is your personal identity as a trader.

  • How does your own personality affect your decisions?
  • How trusting are you of your trading strategy?
  • Do you feel anxious when holding onto losing positions? How about profitable ones?
  • Do you like consistent profits weekly? monthly? or yearly?
  • How often do you watch your investments? Do you check on them through out the day or every few months?
  • Are you a risk adverse or willing to take on big risks?

Trading Personality is the psychology of trading that affects your trading strategy. It doesn’t take very long to master a trading strategy, but it does take a while to develop your trading personality. Once you have developed your trading personality, consistency can be had.

I lost $5,000 on an single trade today, and I shouldn’t have. Before I go into the details as to why, let me explain the trade.

The situation: YINN (China) had been in a consolidation range from the middle of July 2015 to August 17th after a significant drop from April of 2015. I had been watching it carefully for a break through support of $27.00 as covered in my Week in Review 8.16.15.

YINN 8-14-15

On 8/18/15 I notified my subscribers that YINN (China) had broken support. I didn’t take the trade because the Fed Meeting notes were going to be released that week causing a great deal of market volatility.  Also I wanted to wait for another day to see if price would be confirmed to the downside just to be safe.

On 8/19/15 price was clearly confirmed and a new downtrend had officially started. At the time, there were many new breakouts in other markets I decided to take instead. However, if I was the to play China to the downside, this was the last real chance. As discussed in my free e-book, this is one of my favorite trade setups.

My Trading Personality prefers the earliest possible entry to reduce my risk and mental fatigue

  • I don’t feel comfortable taking chances once a breakout extends too far past it’s ideal buy point.
  • I don’t like to give stocks room for big moves against me.
  • I don’t like the stress of settling for less profit.
  • I like the comfort of getting the best price possible and stressing over when I take profits, not when need to decide a loss is too big

 

YINN 8-19-15

By Friday 8/21/15 YINN (China) had already made a significant break out and was starting to get more news attention. I had already bagged a 25% gain trading JNUG (Junior Gold Miners) and I was euphoric from such a large win.

Don’t think for a second people don’t trade because it’s not fun. It is! If you’ve ever been in Vegas and won big on a slot machine or table game, there is little that can match the euphoria of making money so fast. The stock market gives you the means to make money very fast and with that comes the euphoria that can seriously cloud your judgement. Acknowledge it and prepare for it!

gordon-gekko-300x205

“Don’t get emotional about stocks. It clouds your Judgement.” – Gordon Gekko

8/23/15 Fresh off the high of a 25% gain, I saw no end in sight for China to recover and I talked myself into jumping in and continuing to ride the move down. Why? Because it was going to keep falling, it was all over the news and I saw the move taking place a couple days earlier. My trading strategy dictates that I only enter positions unless when there are clear breakouts, clear continuations of existing trends, or specific volatility trades.

No.. I saw this wave and I wasn’t going to miss out on this one. Here is what I wrote to my subscribers:

Order Cancels Order
Buy YANG (Inverse China) Stop @ $119
Buy YANG (Inverse China) Limit @ $110
(To be sold at market close if profitable)

 

I am watching China’s market and it’s already making headlines. As of this writing it’s down a whopping 8% which is similar to some of the major crashes the DOW saw in 2000 and 2008. In normal conditions, I wouldn’t want to jump in an ETF that is already down for 5 days in a row for fear of a reversal, but in this case, circumstances are different. (Notice I’m talking myself into the trade)

 

 

This is a bearish market forming.

I only want to day trade this. When I get in my position tomorrow I will check in at lunch time 12:55 – 1:00pm PST to see where it’s at and decide if I want to get out. If I see a large drop at the last 5 minutes of trading, I will hold it over night. If trading is rather flat, then I will sell out.

With China trading on opposite hours of the US, anything could happen after our market close and wipe out my position.

Chart of China breaking support of $26.00 and starting the first leg of a major downturn.

YINN 8-21-15

Where I want in on YANG (Inverse China)

YANG 8-21-15

I was determined to get in no matter what. Issuing a stop order to ensure I got a fill, but still making a conservative attempt to get a better price with a limit order if there was a chance to get in on a dip.

greed is good

But the real question is why? I was already up $6,900 for the month. Why? Because $6,900 is not enough, this was the gold rush! The markets were in a downfall. It wasn’t just China, I had been forecasting these drops for weeks. These weren’t going to be short lived moves down, I could ride this for the biggest gains this year! I was really wanting to have a 50% trade this year. I’d sold out on many occasions for profits in the year that, if I held, could have been 50% gainers or more. I was getting impatient and this was clearly an opportunity.

The opportunity was there all right, but my trading strategy dictates that I get in within 1-2 days after I identify a breakout. However my Trading Personality ignored that rule. This situation was different. The market was different and it still is, we are in the middle of a China Market meltdown, I highly doubt we will see a significant recovery this week.

Just because the market is different doesn’t mean you can increase your risk levels beyond what you can deal with.

I let my greed for more wins dictate my trading. I successfully identified the markets, but I didn’t follow my strategy. I let my greed conform my trading strategy to my trading personality and as a result I paid the price.

8/24/15 – Good Idea, poor execution

Watching the Chinese stock market Sunday evening, I was ecstatic! China’s market was crashing! It was down over 8%! My stop buy order would get filled and we would see a huge price drop in YINN (China) and thus my order for YANG (Inverse China) would be hugely profitable!

Guess what.. I wasn’t the only one watching over night. YANG (Inverse China) gapped up over 26%! I paid a 26% PREMIUM.

Here’s what I posted that evening:

Today’s Updates



YANG (Inverse China) market stop order filled @ $149.44

What an insane day in the markets. I regretted putting in my market buy order for DGAZ (Inverse Natural Gas) and YANG (Inverse China). On China alone I was down over 20% on the position today. It was insanely gut wrenching and in fact, a dumb move.

I wanted to catch the mania. I missed out on YANG (Inverse China) last week because I was putting in orders for other markets instead. I acted impulsively to what I saw after hours last night instead of focusing the trade in a conservative manner like I have done for all the other trades this month.

I’m okay with the 6.86% loss in UGAZ (Natural Gas). I saw I was going to get stopped out and the stops I had in place did what they should. It’s unfortunate it gapped down today and I lost more than I had accounted for, but that’s an acceptable risk. Jumping in front of a moving freight train isn’t acceptable risk and that’s what I did with YANG (Inverse China). 
The best and safest opportunity to play that market was last week when I was tracking it’s first break through support. I would advocate never to jump in like I did today out of fear on missing big move.

I may get “lucky” and China will have another bad day tomorrow and my position will show some profit. If it does, it’s only because it’s luck, it’s not because I earned it by trading properly. I’ll be happy with luck, but luck doesn’t generate consistent profits.

Sell YANG (Inverse China) Limit @ $160.00 (7.07% Profit)
Sell YANG (Inverse China) Stop @ $135.00 (9.66% Loss)

YANG 8-24-15

 

This is not the ideal risk/reward ratio, but I put in a stop order and I got the worst possible fill so this is what I have to deal with. I’m already down 5.52% in the position so I see it now as a 4% risk vs 7% reward despite what the actual outcome may be. We are at such price extremes that picking a stop is pretty much a a dart throw.

However my stop isn’t without logic. I am putting it just below the low that was tested early in today’s trading and a few minutes before today’s close. That’s the best I can come up with and even then I won’t have any control if there is an opening gap down tomorrow.

Fortunately I shouldn’t have to wait all night to know as China’s markets are opening soon and will close before 12am PST.

I was correct that China was going to fall, in fact every market was affected. The DOW dropped 1,000 points. However, because I was so focused on jumping right in, I didn’t stick to my trading strategy. Global markets were plummeting. I was also in SPXU (Inverse S&P 500). At one point I was up almost 30% in SPXU. I didn’t even put in a stop order, but I could have cashed out at any point. I was playin’ this market. I saw this coming. I didn’t have to worry too much about my position in YANG (Inverse China). The Chinese market was going to fall.

Guess what? That evening, it fell another 5%. I was clearly going to make back all of my losses in YANG (Inverse China) and turn a profit.

8/25/15 – I’m out!

 

can I move in

Because of my stop-buy order I bought in at the top @ $149.44.

I had a stop sell order at $135 to try and limit my losses.

China had another 5% drop in the markets that evening, but when the US markets opened YINN (China) gapped up almost 20% on morning news that the Chinese Fed was lowering interest rates.

This caused a massive morning gap down in YANG (Inverse China) down in the morning of trading?

I was stopped out today at $111.36 for a whopping 25.48% loss in just 2 days!

And to rub salt in the wound, I sold out at the bottom of the day. Eventually the US markets realized China was really no better off and YANG (Inverse China) closed another 18% higher than it opened for the day.
YANG 8-25-15

Lessons learned?

  • Know your Trading Personality. Know how your personality will affect your trades.
    • Risk is my personality and greed was my failure
  • Only take trades when your strategy dictates and do NOT deviate
    • I have a very well tested and honed trading strategy
    • I still haven’t fully developed my Trading Personality (though after this public exposure of my failure, I’d say it’s a major step forward
    • My biggest losses have always come when I took on risks outside of my own trading strategy
  • No Stop Buy orders!
    • (A stop buy order is when your order becomes a market order once the stock has passed a certain price. In volatile markets this can be dangerous as you can pay much more than you expected)
  • Use Stop Limit Buy orders
    • I don’t issue buy orders during the day so if you absolutely want to be in a stock because you think it will take off, put in a Stop Limit order to ensure you only pay as much as you are willing to pay
    • (A stop limit buy order is when your order becomes a limit order for your predefined price if a stock moves up past a specific price. This ensures you only pay the limit you specify.)
  • Use Stop Limit Sell orders in extremely volatile markets
    • Because the opening gap down in YANG (Inverse China) my stop was triggered, and then YANG went up another 18% before the market closed.
    • If you can’t watch the market all day, your stop order can be easily triggered.
    • A stop limit sell order may never be filled, but chances are and enormous gap down usually is not the best place to exit anyway

Final thoughts….

Not many traders will provide full exposure to every trade they make. You will get emails of how great they are doing and sometimes they have losses, but their track records still remain amazing, and honestly, unrealistic.

If you want to follow a trader that does more than “I’m long XXX at $20” then the next day “Sold that position for $22” and you want REAL content with a full trading diary of every trade and play by play, then consider following me free for two weeks.

Learn from my success and failures in a pure transparent format. Ask me my thoughts on any trade and accelerate the development of your own trading personality.

Thank you for reading!

Jasen Baker

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