How I Lost $1000 in 30 minutes (and What I Hated Learning Afterwards)
Losses.
They happen.
To everyone.
Jay-Z (formerly known as JAY Z), the GREATEST rapper of all time (do not debate me on this one) spoke about his infamous loss of ninety-two bricks (cocaine) and making it all back on songs like “Never Change” and Jeezy’s “Seen it All”. Despite debates of this claim’s legitimacy, losing nearly two million dollars worth of (illegal) product and miraculously making that money back is a very impressive feat, and can be heralded as a story of taking a huge loss and somehow finding a way to still succeed.
This is so not one of those stories.
As I watched my account crater from an SPX credit spread gone sour (more on this later), those two songs kept playing in my head. “Hov lost ninety-two bricks and made it all back, I can turn this around” saying this to myself. I hastily placed another spread order to correct my previous L, only to have SPX shoot back up again. I sat hopelessly as I watched another $500 disappear from my account. Only 30 minutes into the trading day with a grand’s worth of forced donations to the S&P 500 — not a good way to start.
There is no worse feeling in trading than a losing trade that could have easily been prevented. “How is this possible? I’ve had a 90% success rate with this kind of trade”. This is definitely like losing those ninety-two bricks and then losing another ninety-two (and/or the car exploding).
It is situations like these which explain why over eighty percent of non-professional traders flame out and quit before their first year. You’ve spent months probably saving up to open that TD Ameritrade/Schwab/Robinhood account. Overconfident, you start throwing trades out there based on some “strategy” you’ve made up/heard from a friend that pretends to trade/paid an obscene amount of money to some online charlatan to learn how to “beat the market”, which is usually always a strategy that they’ve also completely made up (I’ve personally done all three). You do this only to watch reality and your balance sink in, and then you’re wondering why you’re even doing this in the first place (done this too).
Most people in my situation probably would have logged out of their brokerage account forever, never speaking of this again and only be reminded of this during tax season when writing off that loss (more on that later, maybe). For some strange reason I have decided to share this horrible experience with the world and what I’ve learned:
I. ALWAYS SET STOPS
This is pretty crucial. Stops are typically the limit you’ll allow a trade to stay open before you take your profits or possible losses. For example if you’re one of those people that I laugh at that emptied their savings accounts to buy Snapchat on IPO day in hopes of making a quick buck, setting a stop limit on a price that you would be comfortable losing would’ve had you out with a paper-cut loss, instead of everyone else that lost half of what they put in by July.
In my case, I chose to risk double of what I was planning to gain from this trade, being that I was in a credit spread that is typically unlikely to go bad. However both trades went bad, and so had to be mechanical with cutting those losses. Had I been emotional and not stuck to those stops, a thousand dollar loss could’ve easily become a FIVE THOUSAND dollar loss, which leads to my next lesson.
II. STICK TO YOUR RULES
The number one reason why I lost a record amount of money in a record amount of time is because I broke all of my rules. For starters, I usually don’t trade news-reliant indexes like SPX before 11am (especially during the Trump Era), because I usually want to get good context with moving averages and where I believe the market is going and not going. This allows me to sit and watch comfortably and just go with whatever the market is giving me that day, which alleviates the feeling of gambling. Like an idiot I disregarded all of these rules and put my first trade out at 9:38am, only to try to chase the market on one of it’s most volatile mornings ever. During that time I was frantically reading news headlines, refreshing my account every 5 seconds, and feeling my anxiety go Super Saiyan. Not fun. That half hour felt like 8 days, and had I waited until 11am when things were more predictable I probably would not even be writing this article.
In addition to breaking my time rule, I broke another time rule: I set up a credit spread that was expiring the same day, which I typically never do since I prefer to hold overnight and let time decay do it’s job (I will explain all of this one day, I swear). This type of strategy I typically do but it is not day-trade friendly, so I was completely out of my element from the beginning. When the trade went bad I made no further analysis and figured I should do the opposite credit spread (and foolishly making the same expiration mistake again) to at least cancel out my loss. This totally backfired as well. Had I stuck to my rules I could have easily made $500 in 30 minutes of work, rather than losing double for no reason.
III. PAPER TRADING IS GREAT FOR EXPERIMENTING
Probably in another article I’ll explain the dos and don’ts of paper trading, but basically your brokerage gives you a fictitious amount of money (usually 100–200k) to trade with reasonably up-to-date market rates. When used correctly paper trading is great practice, and can prepare you for when you decide to make that jump in actually putting skin in the game.
Since I was on a roll of rule breaking, I obviously broke my rule of experimenting with strategies I’m not fully comfortable doing on paper first. Instead I stupidly fed into the fear of missing out on a couple hundred bucks, which led to me losing a lot of hundred bucks. There is no such thing as FOMO in trading; there is always opportunities to make money. Never let your emotions cloud your judgement into the feeling that you’re missing out. Think about that next time everyone in your group chat is raving about the hot penny stock or mob-controlled biotech pump and dump.
FINALLY. MOVE ON
Losses happen, GET OVER IT. Don’t let a couple bad trades psych you out of trading. Get out there and go lose some more money! *sarcasm*
Disclaimer: I am nowhere near a professional and I was not in SPX during the time of writing this article. I decided to wait a few days to lick my wounds and gather my thoughts.
