PART 1
I’m smart.
Really smart.
I’m smart enough to be a day trader; to trade for an hour a day before lunch and make a fortune.
I have multiple university degrees and an IQ that is WAY above average (I measured it – its real easy online). I can do this.
I can also handle risk. I like to punt at the races and have read everything there is about risk from Bernstein to Blackswans and beyond. I even did a thesis on it once. I understand risk and I’m not afraid of it. The makings of a perfect trader, no?
So, it should be real easy to make money day trading with CFDs. Afterall if ‘Joe’ can make $20,000 in no time at all (thats what the ad said) or ‘Bill’ the retired shop worker makes $10,000 per week with 2 hours work, then I should be able to clean up. Right?
Wrong.
This is the story of how I managed to lose $5,000 in very quick time. While I’m probably not that smart, I’m not stupid either. I’d read all the horror stories of people losing a fortune and have a library full of books on trading strategies and risk management. I should have been able to do it.
The story began many years ago, back when oil was below $50 per barrel and the Dow at around 9,000. I had recently left the investment bank where I worked on the trading floor (you’ve seen the pictures of dealers yelling down the phone – I was working among them). I wasn’t a trader, but it didn’t seem that hard. I decided to give it a go in between our new born baby, and working full time. An hour a day they say? I can fit it in before breakfast.
I opened a Contract For Difference (CFD) account. Really easy to do; just sign a form send it off. The same day I was emailed my password and instructions on how to instantly fund the account with my credit card. Voile! I was away on my career as a day trader.
Where to start? Forex, gold, a million types of equities and thousands of exotic derivatives. Metals, oils and agricultural products I didn’t even know existed. I was like a kid in the proverbial candy store.
I had been ‘trading’ equities before, so that seemed a nice way to start. Nothing too fancy, just a contract over the Dow. I had my risk management tools (commit no more than 2% of capital, etc etc) and bought a contract. If the Dow went up 1 point I’d make $20, if it went down I’d lose $20. It went down, it went up, it went sideways. All the while the screen flashed red, blue, red, blue. I was making money, I was losing it. Eventually my stop loss got hit (see I told you I was smart , I used a stop loss to limit my losses) and lost about $400. Oh well. A few losses are to be expected.
I looked at my charts again. I was certain that a nice triangle pattern was forming which meant the Dow was going to close up (despite just losing $400 on the way down). It had had a very low volatility for the last few months, not moving by more than 50 points up or down over the last few months. The VIX index was bottoming out, and appeared ready for a rebound (if you don’t know what I’m talking about, don’t worry, nor does anyone else).
I bought a binary option. The Dow was yet to open, but it was time for bed (I’m on the other side of the world). The option cost me $200 and would pay off if the Dow closed up by more than 100 points. If it did, I would clean up, if not, oh well.
I work the next morning and hurriedly turned on CNBC. Dow Up 220 points! Biggest one day gain in 6 months. Woo Hoo! I am a genius. I quickly logged onto my account and had made just over $2,000. I am so smart, I am so smart. That was easy. Time to do it again. At this rate, if I compound my winnings, I’d be a really rich inside 6 months (try doubling $100 ten times and see how much you are worth).
The next step – find and set up the monster winning trade.
TO BE CONTINUED!
7 comments
3 pings
retirebyforty says:
November 28, 2010 at 12:43 pm (UTC 10 )
sweet!
I want to see how this turn out.
uhnw says:
November 28, 2010 at 12:46 pm (UTC 10 )
The downfall is now posted.
BeatingTheIndex says:
November 29, 2010 at 12:16 am (UTC 10 )
I guess some lessons are not learned for free. At least it’s 5,000$ only, which I am presuming here that it was an amount you can afford to lose.
I tried forex years ago and I found out that it’s very close to gambling, some people will disagree as they found a way to make money. To each his experiences, I got out with +$100 and stopped it!
Will says:
May 23, 2011 at 1:31 am (UTC 10 )
Out of interest, exactly what type of contract over the Dow did you take out?
“…bought a contract. If the Dow went up 1 point I’d make $20, if it went down I’d lose $20…”
Cheers
uhnw says:
June 7, 2011 at 10:32 pm (UTC 10 )
I was using CFDs and various types of options.
uhnw says:
November 21, 2010 at 2:09 pm (UTC 10 )
unfortunately its all downhill from here.
uhnw says:
November 28, 2010 at 12:00 pm (UTC 10 )
Thanks for the mention!
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November 20, 2010 at 10:04 pm (UTC 10 )
[...] High Networth with My Life as a Day Trader – or How I Lost $5,000 Overnight (Part 1) This is going to be a very interesting [...]
My life as a day trader – Part 2 – The downfall » Ultra High Networth says:
November 28, 2010 at 8:36 am (UTC 10 )
[...] by uhnw This is the second in how I managed to lost thousands trading with highly leveraged contracts for difference. Click here for Part 1. [...]
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