ThePropTrader wrote: "Assume you made 200k on that BIDU trade after you've heavily averaged down. The next time you would be in a similar loser situtation you would average down even more becuase you remember how much you made the last time you averaged down but this time the stock rips several $ more in less than 5 minutes on yet another news and never turns around in time until you blow through your 400k capital and get a huge margin call that you cant pay. Now you are definetly screwed! This type of trading is a recepie for suicide." I can't stop myself from relating this story. I had friend who had an account worth 4 million dollars at the top in March 2000. She traded the hot stocks. for years, since 96, anytime she would get into a position that moved against her she would double down (sometimes several times, sometimes holding positions for months, meeting margin calls (small) by writing checks from the equity line of credit she had on 2 houses she had bought a few years earlier (the houses had zoomed in value in the California market). WHen the big sell-off occurred in the spring of 2000, she got wiped out by a margin call, but still had about a million dollars worth of equity left in the 2 houses she had bought. (She claimed they had sold out her positions without even giving her the opportunity to meet the call, a few years later the case made it to arbitration and she lost). She vowed to come back, and eventually, by the Oct 2007 top she had recouped alot, she had a 900K account and 1.5 million in home equity. Through 2008, As prices declined, she went right back to her old ways, doubling, tripling down. on ridculous stocks that had lost 80% of the value from their 52 week highs. Stocks that HAD TO bounce (and the oversized positons she had in place would bring her back in a hurry).. On Wednesday 11-19-2008, after the close, she called to demand that I tell her that I expected the market to turn up. I told her we were close to a short-term bounce but prices hadn't turned yet. She was at the end of her rope, in the course of the year she had maxed out ALL the equity in both of her houses. She had maxed out her credit cards with cash advances to the tune of 165K, and on that Wednesday she had another margin call that had forced her to do 2 things: she had to shunt stocks from her brother's account into her own AND she had to get a transfer of funds from her mother's life savings into her account (to meet the margin call that day (different broker than the case that went to arbitration). The next day, Thursday, November 20, 2008 she got the margin call that she couldn't meet and due to the excessive borrowing and relative worthlessness of the positons held, she virtually bankrupted herself. Adding to a losing position is a dangerous thing to do.
Sad story, but that insanity occurred only intra-day, and EOD I was flat. Besides, even after the last entry in the options, my size was 147K (about 35% of account). Not to justify my action, but I KNEW I had to stop. I could easily have added extra. Piece of belated consolation for me: BIDU is trading now at $442
vertigo3 + ThePropTrader, that's a sorry tale, if I ever heard one. She literally lost her home....Shocking. Why can't people just trade on sim till they convince themselves that their system works?
My worthless impression is that focus should be more on flawless execution of a system instead of on results.
Neke.. DELETE BIDU permanently from your list. When I traded stocks and they "mis-behaved" (or I did with them ;;-)) I black listed and never traded them again... I did not even see a quote of them for weeks.. too many other stocks out there to risk emotions on one. Happens with manic tech and biotechs more often... Think a big oil or retail stock would behave like this?? My criteria for stock selection required next to no gaps.. Stocks that gap all over the place will get a swing trader..
Her system did work...for a time. I'd say a system that increases your account several times over in 4 years is a successful one for those particular market conditions. Unfortunately, it was a 50 ton Brontosaurus that was ill equipped (or unwilling) to adapt when the comet came. What was missing was the risk control and also a dash of common sense. Also, assume you did start sim trading in 96/97...given the results you experienced, I doubt anyone (even cautious traders) would continue for more than 6 months given those results. Jesse Livermore (who blew out entire accounts more than once) took a bunch of his profits and opened a trust fund with enough money to keep his family comfortable in the event he ever blew up again (he did).
Probably the finest piece of advice offered on this thread. It should be everyone's goal here to at the very least do what Livermore did with regards to permanently withdrawing some profits to set aside to take care of basic needs - forever. I've a long way to go. But one of my goals is to put $3 million away earning a safe 5% interest. This will pay me $150K a year - with no effort - forever. My family can live on that. In my mind, if I've accomplished nothing but this, then I win.
If you blow out your account, it is no guarantee that it won't go deeply negative. People who do highly leveraged trading will find that blowout does not mean your obligation ends at 0, under the circumstances of a huge unexpected move against them (like 9/11, when the markets were closed for a few days). and that $3 million account won't necessarily be safe.
You said you planned to swing trade more this year. If you'd bought 50 FEBRUARY puts last week instead of the rapidly expiring Jan ones, you'd have collected a nice profit today.