$13,000+ loss (HDII)

 

(I wrote this for myself the day of the loss, but decided to post it as I think it could be beneficial to others, especially considering the comeback I've had after such a demoralizing loss.)

What happened

-         Tim Sykes alerted and  bought a stock with breaking news, the stock spiked from 0.025 to 0.065.

-         The stock pulled back to 0.052 where I dip bought

-         The stock bounced to 0.059 but I refused to take my gain, I got greedy and wanted more of a bounce

-         The stock proceeded to crash some more, and I double down

-         The stock bounced again and I still hesitated to take the gain

-         I finally decided to take my gain but I did not get executed and the stock began to tank some more

-         I added more on the dip, I was all in with my entire account

-         The stock became illiquid and I was unable to get out

-         The stock continued to drop with small bounces, none of which I got out into as I was expecting a bigger bounce

-         I had 500,000 shares in a stock that had traded about 30,000,000 at this point, but now the stock was only trading about 15,000 shares every minute

-         I kept thinking “there’s no possible way this stock can keep going down”, but it did

-         I decided I was bag-holding the stock until the day it perked up again, I thought might as well instead of loosing half my account

-         After some time sitting with the loss, I decided to take the $10,000 loss and move on. I placed my orders when I saw a big bidder that would fill my position. But a few seconds after I placed my order the stock stated dropping well bellow the big bidder and I did not get fills. I was simply getting screwed by market-makers

-         Went back to the mentality of bag holding since I couldn’t get out

-         The stock market closed and I held over the weekend

-         After sitting with the loss all weekend I decided I was getting out the next day no matter what and starting fresh. I knew I could make it back but I needed some money to work with

-         Come Monday morning the stock kept going down and I got out in the first few minutes

-         With the loss settled in my mind I took a deep breath, accepted the lessons it provided, and went back to good trading habits and making profitable trades

-         I went on to have my best month ever, which would not have happened if I didn’t take the loss

What went through my mind

1.      This stock looks strong, will buy the dip

2.      Got a perfect entry, lets see it get over 0.06, they have good news and this is a rocket ship

3.      Didn’t get to 0.06 and now it’s coming down, don’t want to take a smaller gain than I just had

4.      Now I’m loosing, I’ll average down and get out on the real bounce

5.      This is struggling to bounce more but let’s give it time

6.      This is not going anywhere, let me get out

7.      I’m not getting executed and the stock keeps dropping below my limit

8.      Now I’m loosing again but I don’t want to take a $400 loss, I’ll get out for breakeven on a bounce

9.      Now I’m down $3K, that’s huge! I don’t want to take that big a loss! It has to bounce soon and I’ll get out for a $700 loss

10.   I’m now down $6K and this isn’t bouncing, I’m in trouble. I hope it bounces so I can take a 2K loss

11.   This is incredibly illiquid now, if I sell I’ll only be driving the price down even more

12.   I doubt this goes any lower

13.   Now I’m down 10K, I hope this bounces so I can get out for a 6K loss

14.   I cant believe this keeps going lower

15.   Now I’m down 12K, I’m bag holding this forever aren’t I…

16.   If I don’t take the loss I’ll be stuck in this for a long time and I’ll be missing out on future opportunities, I just need to take it on the chin and move on

17.   I’m glad to be out. Good lessons. I’ll never put myself in that position again.

Lessons learned

-         Take safe profits

-         It’s better to miss out on profits than to let a gainer turn into a looser, at least scale out into strength

-         I can be wrong at any time

-         A stock can always keep going down, especially if it becomes illiquid

-         What I say I’m willing to risk isn’t really what I’m willing to risk, it’s just an excuse to avoid taking the loss I already don’t want to take… So how then can I say I am willing to take a bigger loss if I don’t want to take this smaller one?

-         No matter how big the loss, it can always get worse even if I’ve never experienced it before. So cut it while it’s still in comfortable/familiar territory.

-         NEVER risk more than 1K on a stubborn hold. 1K is easily recoverable, anything greater it a much bigger burden on the mind and a bigger setback in terms of time to recover. Ideally do not risk more than $400 on big positions

-         Never take for granted the success and opportunities that come around

-         Do not force trades

What good came of this

-         I now truly understand the importance of the following:

o   Cutting losses quickly

o   Not going all in

o   Using small positions, not huge parts of my account

o   Not adding to losers

-         Glad it happened now and not later with a much bigger account, I can still recover from this loss fairly quickly if the plays are there

-         It opens my eyes to the potential one trade can have, if I can lose this much on one trade then I can also make this much on one trade with the right setup. Will focus more on longer term setups (1-3 days)

-         Will remind myself to be more cautious and not be gunslinging thinking trading is a foolproof way to make money

-         Reminded me that there’s more to life than trading and making money. Loosing that amount of money sucked but it’s not the end of the world, which means that if loosing it isn’t all that important then neither is gaining it. I need to be more grateful with the freedom trading gives me, and take advantage of it

How will I ensure this never happens again

-         I will never go all in with my full account again. Preferably never with more than half, and ideally with not more than 10%. This is to ensure that even if I make the worst decisions every step of the way (like I did today), I will not be jeopardizing my account. Now THAT'S a foolproof plan to never be in a situation like this again

-         I will be more diligent in selecting stocks that are plenty liquid even before a move caused by news. Or at least liquid enough to accommodate my size

-         Suppressing my ego and taking a loss even if I was just up on the trade. If I didn’t take the gain then that’s on me, the least I could do for myself is take the loss and end the pain, as opposed to letting the loss become bigger and get out of control. Always be in control!

Final thoughts

Part of me going in so big has to do with the fact that I’ve been on fire lately and was up $16K so far in the month of December (3 weeks in). But I still felt like I needed to go faster and make money quicker. That caused me to be betting a lot bigger in order to make bigger returns. I need to see this as a longer term thing. I have a bigger account now so I can afford to play with 10% of my account and still make some decent money if the plays work out, not scalping. Maybe this will force me to play these longer term setups a lot better. The challenge for me now is going to be accepting to make a few hundred dollars in a day as opposed to a few thousand which I was getting used to. I will still aim to make upwards of a thousand every day, but will be more mindful of the risk and will take profits along the way and not get greedy. I’ll mostly scale back on panic dip buys and accept the smaller gains for the time being while I grow my account and confidence again.