This is the second in how I managed to lost thousands trading with highly leveraged contracts for difference. Click here for Part 1.
My downfall
There is an old saying in financial markets; that they go up the stairs and down via the window. Guess where I am - that’s right, at the top of the stairs.
The downfall happened bit by bit. I’d love to say that I had a huge position on that would have made me millions if it had come off; or that my computer broke down and I couldn’t access my broker, or or or. It was death by a thousand cuts. But, in the end they are all excuses. In hindsight, I’m just not a good trader.
The first come stumble came a little while later. I had been trading up and down, never losing much, not really gaining much, but I had several thousand dollars above my original stake in the account. I then I saw the ultimate trade. My Brent crude oil futures chart showed a breakout. Oil was still by $50 and I knew it was going to go right up (I was right, my timing was just a little off 
). I bought an oil barrier option (basically if it hit the barrier on the downside it was knocked out and I’d lose). This contract was highly leveraged and cost a small fortune to put on (about $500 from memory). I went to sleep happy in the knowledge I’d be rich tomorrow, as every $1 movement in oil price was going to make my about $1,000.
Awoke at 5.50am very excited and turned on Bloomberg.
WOW!! WOW!! Oil up to $52! First time over $50 EVER! I’m rich. I’d struck my own Texas Tea. I happily logged onto my computer and……
No money in the account. A processing error? Maybe their backoffice was screwing it up.
I checked my statement. The barrier was hit??? How could this be? Oil went up, a record close, way above where it started (from $49 to $52). I checked my chart. Looked fine. Then I checked it again.
Oh.
Oil had gone down first and had done about 3 cents below the barrier. 3 CENTS! Seriously.
I was angry, sad, depressed, mad, all at the same time. Big deep breath – Its fine. The books all say not to get emotional about trading, so I meditated for a few minutes and put my next trade on. Sold the ASX 200 and off to work.
The End
Do you ever have one of have one of those ‘oh shit’ moments; that sinking feeling in your stomach when you realise you really screwed up? I had mine about 2.18 pm that afternoon.
The ASX 200 went up 50 points, which normally would not have been a bad thing. Except that I suddenly realised I didn’t have a stop-loss on and I couldn’t access my account from the office (damn firewalls). I watched in agony has the market rose another 5 points before closing out the afternoon 55 points up. Another large amount lost.I’d lost thousands in a about 24 hours.
I was sick of the whole thing.
Over the next few days I frittered away the last remaining few hundred dollars in my account; buying deep out-of-the-money currency options for $50 each hoping that FX would move suddenly. I wasn’t going to throw good money after bad. Why didn’t I just take the cash out? I don’t know – I was probably just so angry that this seemed a way of flagellating myself. Then it was over.
My lessons
Trying to become a day trader was one of the most expensive lessons (financially) that I ever had. It cost me more than my undergraduate degree (Thanks to Australia’s HECs system). At one point there I had $2000 initial capital plus thousands in profits – now all gone. I am not a trader – my dreams of shouting ‘BUY” “SELL” down the phone, all while sitting by the pool surrounded by beautiful women were gone.
Post Script
I’d love to say I learned my lesson – but I didn’t. I had one more bout of insanity. The very nice sales person from the CFD provider rang me to make sure I was ok, because I hadn’t been trading for a few months. We talked and eventually I put another $500 in, which I promptly lost on 3 FX trades. I was like a lamb to the slaughter. A few months later I closed the account.
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1 comment
1 ping
ODWO says:
December 1, 2010 at 3:06 pm (UTC 11 )
Actually, Pigs get slaughtered in the trading world. As well as gamblers trying to “make it back” as quickly as possible, from their losses.
So … what did you learn from all this? There is the answer(s) to your questions. For someone with such high net worth, I’m kind of surprised you took the plunge like you did … versus just taking to 1000 shares of a blue chip and collecting dividends.
And … (no, I’m not picking on you) … a true DAYtrader never holds a position overnight. NEVER. If you do, you are not a DAYtrader anymore, instead, more of a position trader. Or worse! A gambler betting on unforeseen elements that you can’t control when you are not sitting at your PC. (Rookies should NEVER play Forex either, too much spike and whipsaw action – Repeat after me .. NEVER PLAY FOREX unless you have at least 5 years experience under your belt … no matter what some idiot says they made playing the FX)
Sorry to hear you lost money. You could’ve prevented it but that’s another story. (DAYtraders do not hold overnight … because of what exactly happened to you) But, that’s how people learn .. but most just blow out their account and either keep refilling it (same results again & again) OR finally learn how to read charts and position trade the right way with minimal risk. Trade what works. Not what pays the most, because it also loses the most too. FYI .. I traded Futures and options (as a trade hedge) for 6 years. I don’t daytrade anymore. It’s a rough thing to do and lots of stress with the daily/intraday moves. Instead, much easier to “Swing trade” and just capture the trends. (And how do you know when it’s trending??? If you can figure that out, you have another stream of income to use at your whim). Betting/gambling it’ll go this way or that isn’t the answer. I’ll sa it again, you NEVER DAYTRADE in your sleep. LOL.
Cheers.
P.S. — The major indices give a few concrete entries (long & short) every year. Figure that out and you are already ahead of the game. And money in your coffer.
Every Trade. No exceptions to these rules either.
1) Have an entry price (if you miss it, wait for the next one)
2) Have a target (when you will get out – price level)
3) Have a stop loss (no stop loss? Please, just donate your money to a better, more worthy cause)
If you don;t have any of those, you’re guessing (or gambling that you are smarter than the markets – wink!). I can see a trending trade setting up a week or 2 in advance. Just a matter of the trigger. (market structure low or high signals – figure those out for long and short trends)
Consider this free advice. Use it too your benefit or demise. Luck or BS doesn’t count. (wink) Happy hunting! “8^)~
Carnival of Personal Finance #285 – Google Search Money Stories Edition | Realm of Prosperity says:
November 30, 2010 at 12:36 am (UTC 11 )
[...] Jim Smith from Ultra High Networth presents My life as a Day Trader or How I lost $5,000. [...]