My Biggest Loss Ever and the Lessons I Learned

As many of you saw today live in the chatroom, I had my biggest loss of my trading career: a $38,000 loss on Apple, right at the open. The loss was so bad that I had to leave the chat, so I could evaluate what happened. Social media is full of traders posting big wins and bigger losses, so this is nothing new. I decided to write this email though to share with you what happened and what lessons I have learned from this experience.

I am used to having losses left and right in the open session, which is the most volatile time of the day. However, this loss was significant not just because of the dollar value, but because I had no plan for it. It was not part of my TradeBook. I had no edge on that trade and I thought it “should” work. If it did not work, well, I had no plan for it. As Mike Tyson has said, “Everybody has a plan until they get punched in the mouth.” Now, imagine me (or you) getting a huge punch in the mouth, without a plan.

On October 13, 2020, Apple had a big run. It was up over 7% as investors were speculating about Apple’s “event” and the release of its new iPhone and services. I held 500 Apple shares overnight as a swing trade. In the pre-market, Apple gapped up around 1.5% and I was therefore already up.

I thought the move up was going to go higher and I decided to load up even more in the pre-market, believing that Apple would rip higher at the open. By 8:40am it was trading just above VWAP and it was a perfect setup for my TradeBook 1-minute or 5-minute Opening Range Breakout. At around 8:42am Apple lost the VWAP in the pre-market, someone dropped around 300,000 shares and until the open, Apple was being traded below VWAP. I knew I should get out and I had absolutely no place being long while a stock is being traded below VWAP in the pre-market. I did not! The TradeBook for 1-minute or 5-minute ORB ups was not there. I did not exit, and I held onto my position at the open and even added more to it;  another deadly sin that I myself tell people not to do. At 9:30am it sold off heavily (as one could expect) and it turned out to be a very nice 1-minute ORB down, instead of up.

I eventually exited my big position at $124.60 with a massive loss. What did I learn?

  1. I eventually exited my big position at $124.60 with a massive loss. What did I learn?
  2. When it lost the VWAP at 8:42am, I should have exited before the Open. I was hoping it could claim the VWAP and go higher. It did not.
  3. If I was exiting the trade before the Open, I could have taken a 1-minute ORB down on it, but since I was in there long, frozen like a deer in the headlights, I could not.
  4. If I had not been in a psychological mess over that loss, I could have taken a reversal trade like Brian did around 9:53am. I just couldn’t though.

Trading is a game against yourself. Who should I blame? No one, except myself. I had no plan, no edge, and no TradeBook. I have absolutely no excuses. Is the market crazy? Is trading impossible? Not at all, it is me who must take responsibility for my actions. Blaming others and the market is just an excuse.

Why did I do it? From time to time, we all get away with these kinds of mindless gambles and then we get excited as we try to repeat them. More often than not we can, but that one time that we get a slap in the face from the market, it may very well not be that easy to recover from. For me, that loss was only around 3% of my account, but it hurt, and it shook my confidence. It was also of course embarrassing.

As I am writing this email, I am listening to our monthly psychology “Mental Edge” session with the amazing psychologist Créde. Her subject matter was “Mind Traps” and how to avoid them. If you missed this webinar, do make sure to watch the recording later in our new Education Center.

On Wednesday, Mike is presenting an important webinar on risk management entitled:

Fundamentals of Risk Management & Risk Controls

By: Mike
Date:  Wednesday, October 14, 2020
Time:  8:00 PM ET
Location:  Webinar Room (Lifetime Members only)

There is no way to eliminate risk in trading, but there are ways to manage it. Without exceptional risk management it will be extremely difficult, if not impossible, to build consistency and longevity in your trading career. As you saw today, I threw risk management out of the proverbial window and paid the price for it. All of the best traders have found a way to successfully manage their risk in trading. In this Success Webinar, Mike will dive into some risk management techniques that you can implement in your own trading.

Make sure you ask your questions beforehand here, and then attend Mike’s webinar live to show your support. Each webinar is only about one hour, but they often take us several hours, if not days, to prepare them for you. Your live presence means a lot to us and motivates us to strive to prepare the best possible webinars for you.

To your success,
Andrew