“How did I get here? Why?”
This was the question that went through my mind when I compiled the Profit/Loss of my trading record over the last 10 years. Negative $100K.
It all started in 2006, when I started attending a business school part time. I wanted to get an MBA under my belt and as a part of “getting ready for finance classes” I decided to open a brokerage account to see what investing was all about. As it turned out, I would not learn much about stock trading from the classes I took and ultimately getting an MBA did not make me a better trader.
The trading journey went well initially. I started small. Opening an account at Sharebuilder.com (it is now https://www.capitaloneinvesting.com/ after being bought by ING and subsequently Capital One) and put in several hundred dollars. Had a few wins but Sharebuilder was designed for investors and not traders. Its commision was way too high and it did not really provided much tools. So I changed ship to Scottrade and eventually ended up at Ameritrade (now TD Ameritrade) and added more money to my account.
I only had a few thousand dollars at this point in my account and I thought the best way to leverage is to buy stocks that are cheap. Obviously 10% increase for a $0,50 stock is much larger than a $5 stock. This was why I started trading penny stocks.
I was doing this completely blindly. No knowledge of how to read charts or indicators. I was only focusing on fundamental analysis and thought that would give me some clue about the companies I was putting money in.
I did attempt to learn how to read charts and indicators for a brief period, but I concluded it was not a reliable way to predict which way the stock would go. How wrong I was.
I had some successes short term but would eventually lose all the gains. However, because of these winning trades, it made me confident to increase my account size further.
Ups and downs with Biotech stocks
After increasing my account with a few more thousand dollars, I started looking into biotech stocks. I was working as a laboratory technician at the time so I figured with some scientific knowledge, I could figure out which stock would go up or down.
I spent hours and hours reading these biotech company reports, learning what drugs / treatments they were developing. In the end, it didn’t really matter because most biotech companies do not generate any revenue and keep spending money on development / human trials to try to get their products to market. In other words, the stock price of these companies was destined to go down as they burn through their capital.
Why didn’t I just short it you might as. Well, I did not know I could short stocks at the time.
Stock market meltdown 2008
Around this time, the financial crisis happened and I got really excited. I knew the market could not stay low forever and many stocks would eventually come back. I wanted to increase my account size so I could take advantage of it. This is when I came across to 0% APR credit cards and 0% APR balance transfer offers.
At the time, these credit cards were offering 0% APR balance transfer that I could even transfer the money directly to my bank account. Essentially borrowing a large sum of money from credit cards. I have had always paid my bills on time so probably that’s why I was getting these offers in the mail.
I took the offers and got several thousand dollars.
My “cheap stocks are good” mentality was still very much dominating my trading style. Stock price was pretty much my only indicator at the time. “This stock has come down this much, it’s so low. It has never been this low. It should go up now”. That was my thinking process.
I would continue to trade this way for s few years, made some money here and there, but would eventually blow up my account.
Around 2011, I found out that I could borrow against my 403K (it’s a non-profit institution version of 401K). I took out some funds to cover the credit card loan and put the rest in my brokerage account. I also started learning about options trading and how to use indicators.
Even though I started to learn about all these tools, I never really understood how to use them. I felt I knew it all after reading a couple of books and started trading big. Never understood risk management and trading size management.
Needless to say, I did not understand implied volatility or fully understood some of the common option strategies that could bring in consistent income. To me, at the time, making 10 time return was the only way to trade.
Needless to say I got wiped out by 2013 and stopped trading completely. I still remember the day I lost almost everything I had in my account…..
Kids and a new job
One important thing to point out is that I never really focused on trading to start with. I always had a full time job, and a side project. My dream was to create an online business and getting 100 times return. Of Course it never materialized and after my son was born in 2011, I had less and less time for myself and my projects.
In 2013, my daughter was born and I decided to change my job. My hands were full and it was not until late 2014 that I started thinking about trading again.
By this time, since I had a new job, I was able to transfer my 403K accounts to IRA accounts. Now I was able to trade in IRA accounts.
A new hope
In the last couple of years, I continued to learn more about trading. Now I understand more about options trading and has developed a trading system that has a lower risk (still work in progress).
At the time of this writing, I am still negative $100K combining all the accounts that I have traded in the last 10 years (normal brokerage + IRAs).
I am determined to get back to zero and beyond. My aim is to document that journey here and in a few years, I will look back and see how I managed to do it.
I am going to share what I learn and the mistakes that I make. Hoping that I could help someone out there who is just like me.