"Losing $450,000" =/= "losing 100% of your account" OP said this guy was a successful position trader with 6 years experience. So clearly he is not clueless about risk management? Even if you are extremely reckless, the account will not literally reach 0 unless you have a leveraged blow up, or you have all your money in one stock that goes to $0. Op said there was "not a dime" left over which is definitely triggering my BS detector.
If you are trading huge chunks of your capital all on each trade, "you have no risk management". I do not care how long have you been trading. The famed Timothy Sykes who was a hedge fund manager with $10 million, most of it his friend's monies lost a good chunk of it. He had to shutdown his hedge fund over the huge losses. Option sellers James Cordier had powers of attorney controlling how much, $100 or $200 million ( I don't remember the exact amount) and lost all of their monies? On top of that, he and his clients all owed monies because of their losses on top of that. If you do not have any risk management, you will lose all your monies. Only question is when? All you will need is more monies to start over again.
Just to frame again, 54 trades in total doesn't make someone an experienced trader. Even if these trades were carried out over six years it's unlikely to come from a mind that sufficiently has had to deal with a string of losing trades. A more accurate description would be "newbie trader w/o edge panics and/or oversizes, blowing the account".
Okay. I already acknowledged that options are a good way to blow up. You'd think Op would mention options if that's what happened. It's not a common definition of day trading. Trading stocks it is almost impossible to reach 0 unless you're basically trying on purpose to lose it all. Maybe Op misspoke about the "not a dime" thing and what he actually meant was that the guy lost most of his money, like 70% or something before he decided to stop. Plausible. But when you combine it with the other things I think my skepticism is still justified. BTW In my experience I lost way more money on buy and hold than I ever did on trading. The majority of stocks eventually go to $0, especially small ones, so if you have no picking skill you will just lose and lose and lose and lose more while you sleep. If your only plan is buy and hold then you have no logic for exit other than emotional pain of huge losses. If you are flat at the end of the day you need to work to lose and it's easy to stop. It forces you to evaluate your decisions every day. Fair point. It is quite a small number of trades so maybe the 6 years experience doesn't mean as much as it normally would. But it should be enough time to give a feel for volatility, and discover that you shouldn't be putting like 50% of the account on a single stock. I mean, the level of stupid risk needed to get an account to 0 is pretty hardcore. Assuming it's a true story I don't think this was a lack of understanding of risk management, but more likely some kind of gambling addiction / compulsive behavior.
This is why you dont trade low float peeny stock BS. The majority of WORTHWHILE stocks never come close to 0. Buy and Hold is a good strategy....if you know what you are doing and arent trying to hold BS stocks.
Yeah. I know now, but I did not know as a newb 10 years ago. If you pick stocks randomly you will dramatically underperform the indexes. Here's an excellent paper that explains why: http://csinvesting.org/wp-content/u...inder-Do-Stocks-Outperform-Treasury-Bills.pdf If you know what you're doing, everything you do must be a good strategy
Only mentioned the option sellers as an example. Timothy Sykes trades stocks so, does not invalidate the fact that if you take on too large a position on one trade like he did, also, not having a stop loss to minimize his losses, no way he should have lost a good chunk of the $10 million in his hedge fund. Total lack of risk management when you leave a trade on as the losses piled on. This is just on one position on one stock.
I want to bounce back on the risk management part. "Risking 2%" day gambling is not the same as 2% risk. 1- When that liquidity slip or whatever happens you are dead. 1 shot. 2- The fees are going to be tremendous. The spread could be 10% or more of your stop loss on these small TFS. 3- The big one: Taking 5 trades a day with 2% risk each is not the same as a well thought dozen "position" trades a year with 2% SL... A day gambler with a strategy that goes through a losing period better adapt fast or they could be down 50% in a week, even with their "2%", and from what I've seen they all have idiotic 5 to 1 risk to reward with very high winrates, no way they can make alot of returns here. And even if they are the perfect superman that can adapt instantly and run several strategies on several instruments at the same time... Even superman will get blown out it's basic stats you take enough trades you WILL have periods with alot of losers EVEN IF YOU ARE SUPERMAN and if each of those is a 2% hit... Say goodnight. Ultimately day gamblers are all idiots, investors think they are idiots, actual short term (weeks) speculative traders think they are idiots, market makers think they are idiots, hft think they are idiots, quant traders that are all intraday think they are idiots, even the SOES bandits the original day traders think they are idiots. And I am thankful for them as we have a constant influx of noobs to laugh at.
Day trading or position trading, risk is risk. Your friend didn't understand how to calculate risk and position size for day trading. Would be interesting to know what system or setup he was using. Did he ever ask you or anyone else for help?