Ok John, the whole story - classic beginner's mistake, compounded by stupidity and misfortune. I know people don't tend to talk about the size of their trades or accounts, but I'll give some detail anyway. Call it a cautionary tale for new traders.
I started out my share trading account with about R80k. Was very excited to be active in the market. Buying stocks and holding onto them was not interesting enough, and I enjoyed the adrenaline of buying and selling. Through the SFM site and the forum I discovered warrants and waves. Didn't pay too much attention to the way the instruments were hobbled by time- decay, wide bid-offer spreads, absent market-makers etc. I was more interested in leverage and low trading costs.
I opened a warrant account and moved about half my trading funds over. Started playing with warrants, and couldn't believe how easy it was to make money. The truth was I didn't have a clue, and I was simply going long, with gearing, on liquid TOP40 stocks. It was like shooting fish in a barrel, and any monkey could have made money. When I had traded my account up to R120k I thought I was god's gift to trading, and I couldn't miss.
So... I took another R100k out of my house.. it was spare money I had stashed in my access-bond. I threw the whole lot into the market, geared-up on a TOP40 wave. Within about 2 days the trade was up by around R45k. I wanted to take the profits out, but thought I would let it ride one more day.
The next day was red, and took me down close to break-even, but still positive. So I hung in for another day to see if it would climb back up. The next day the index was down -4%, and I was looking at a substantial paper-loss. So I hung in, waiting for it to climb again as it always did.
The market moved mostly sideways over the next few days, and I hung onto a paper-loss of about R40k, convinced it would turn around. Then we had another big move down - another -4% day. And the gearing on my wave was getting higher, and the barrier closer. My paper-loss was looking huge, and I started understanding concepts like 'stop loss', 'taking losses early', and generally, understanding leverage when it moves against you.
I had a sleepless night, but resolved to take action rather than hanging-in blindly for any longer and facing a complete wipeout if the barrier was eventually hit. I felt better about taking the decision, and the next morning I logged on and closed the position, for a loss of about R130k. In other words, all my initial trading capital, plus all the money I had previously made on the account, plus some of the additional money I put into the account.
The next big decision was to stay in the market and not run away burned-out. I spent a lot of effort trying to understand more about market mechanics, learn some technical analysis, understand trading psychology. I got back in and made back my losses over the course of the next 6 months or so. A happy story in the end, but I was close to a complete wipe- out, and an exit from the market before I had really started. Since then I've read a Jack Schwager book where one of the traders says something like "your first big loss the best trade you'll ever make". I agree whole-heartedly, because it really did peel back all the illusions and confront me with some truths... the market doesn't care how much you make or lose. You are responsible for your own success or failure. You are in control of your trading, not at the mercy of external forces. You can't trade someone else's point of view - you must follow your own system, which you trust and has been proved successful . Your previous trade has no impact on your next, and previous trading success or failure means nothing. And I've lost my fear of the market - now when I put a trade on, I'm relaxed and content with the outcome, regardless of what that may be.
