Sunday, February 20, 2011

Why Still Losing Money?

A former trader who joined me in December has performed like a roller coaster and now back to square one from where he started. I wrote an email to him in my earlier post but it doesn't seems to get into his head that something is wrong with the way he trades.

This trader has been struggling since the floor closed in 2005 but never give up losing quite a fair sum and digging deeply into his savings. I admire his stamina.

As usual, I asked him, "How much would you like to make a month?" He told me his objective is to make S$3k to S$5k a month. He would be happy and satisfied given that he has not been making money for so many years. I was surprised at the low target since this amount is what he can easily make in one day on the floor.

The floor days are over, many floor traders have given up trading, losing out the edge to the Algos, even many existing traders are finding it increasingly difficult to make a decent profit. New breed of traders are taking over, it's a renewal process, change is inevitable and when a trader don't adapt, losses will force him out of the game.

Why is it so difficult to make even S$3k/5k a month? Even for an old bird? Just $200 a day consistently, 10 Simsci ticks or 5 Nikkei ticks. This trader with 20 years of trading experiences, having made a small fortune from trading, knowing his technicals yet still unable to make it after 5 years.

Something must be wrong somewhere for a well educated overseas graduate who is hardworking and determined. He is not short of trading knowledge, so why?

Can I use the word STUBBORN? Nobody would be willing to admit having a stubborn personality, there would be all type of excuses and explanations to justify their actions.

This trader has chosen not to reply my email advice, too lazy to analyse what went wrong, believing that he is trading right and his strategies should work out. I tried to pull him out from falling into the drain but he chose to jump in instead.

He had 5 straight losing days last week and I can sense some desperation in him when he visited me at the arcade. He needed a break.

He lost in December, recovered the losses and made money in January, then blew them away in February. So, 3 months without income, that's the same story for most traders who are not making it. Expenses will kill them with anxiety setting in leading slowly to depression.

I told the trader to go back to basic, check his trading journal on his performace in January why he performed well for the month (he told me he kept one, hopefully, though I have my doubts). How is he able to record the journal with so many trades, he basically didn't even plan his trades.

Of course, looking at his daily trading statements, I have already sound the alarm bell to him before he slide down into losing territory, I knew something was not right with the way he trades.

His trading volume increases tremendously scalping form home without increasing his profitability. He trades a few different contracts including overseas contracts like DAX, S&P, Currency futures, Nikkei, Tw and the core Simsci. I didn't like the small profits that he makes with the increased comm, a recipe for disaster waiting to happen. He lost his focus.

It does not make sense for a trader trying to make S$200 while the comm adds up to more than $300 a day. It's totally not logical, obviously he's trying to make more, his impatience is his greatest weakness, he is just not ready yet to increase his size.

Scalping is not for someone trading from home, when a trader's profit per trade is small, he is definitely on the wrong track, success rate will be low in the long term.

This trader told me that he increases his trading size after the good performance in January, didn't average on bad trades but being stopped out most of the time. Explanations again that I find it hard to accept but nevertheless, he's trading his own money and only answerable to himself. It must be small profit target but big stop loss levels.

I have emphasie many times to go for good quality trades, just one or two trades a day to make that $200, be patient to wait for that rabbit, it's boring, it's tough but can be achievable. That's the objective for a beginner, accumulate and build up the base, the foundation neccesary before increasing the size.

13 comments:

coconut said...

oh yes, i remember that episoel (of mine) very well!

after losing almost half of my account in one trade i continues to trade and drain almost all of my account dry. that year was 1998.

Balasubramanian said...

I just thought for a moment that you have written about me - few months ago. I was stubborn too and wanted every trade to be right and as a result was averaging down, ended up loosing a lot.

After sincere advice and suggestions from seniors like you, LED - I have been able to overcome my stubborness and I do not chase the money ( market rather) any more. I have realasied that just follow your rules, money flows in.

Fat88Trader said...

Yes, a friend just told me yesterday that most beginners fail initially because they are too eager to trade, are afraid they might miss the market movement, so they chase the market.

Going through the trades at the end of the day help a trader to improve on his performance, identify good and bad entries, avoid making the same mistakes in future.

It's easier said than done, but no matter how difficult it is, just push on to realise that dream.

coconut said...

yes, have a strategy but let the market tells you how much you are going to make (or lose), not you tell the market how much you want (like 3-5k a month).

i was a trader in transit from a short term to position trading that i made the biggest mistake of all. my "first" position trade was long USD/YEN and i made around 30,000USD, wow how smart i was! then the disater cable trade where i also average on a losing position. worse, i then return to my normal short term trading where i almost gone burst.

so i think there is nothing wrong with the strategy your friend is using, it is the mind set that need to change.

Luke said...
This comment has been removed by the author.
Fat88Trader said...

Well, his strategy to scalp the futures from home is definitely wrong when a scalper need speed and take small profits.

If he is doing day trading and light scalping then it's ok.

coconut said...

very quiet when the market taking a dive. had lunch with my brother yesterday and he voice his concern over the market.

"how ah? the market is very bad", my reply "just sit tide". in fact he is one of the lucky few who managed to pick up some shares during the crises together with his passed holdings.

he is retired and live comfortably with the dividends he receive and rental income. there is no reason to fear and interrupt with it.

i end up told him that if i'm him, i will sell the property and put them in the stock market progressively. there is a big variance (spread) in the 2 market, i don't believe in diversification.

Fat88Trader said...

Interesting, sell the property and go into equity.

Property price too high?

Equity undervalued?

Coconut,

List 5 stocks that you think a investor should look into after selling the property.


A good friend who manages a small portfolio bought into SingTel at $3.04 last week which he felt offers good investment. He hold it for longer term.

coconut said...

yes for long term investment just like your properties obviously.

i woun't name the names but since adready in properties, i will look in the same area specailly commercial property stocks.

the public is still overweight physical than paper.

although one should do it when the market crashes but i think there are much room for the stock market to out perform properties in s'pore.

this is a "relative investment" opinion, but if one is not in property or the stock market, its a totally different story altogether.

haha, but i must say that i'm a very bad investor. listen at one own risk.

coconut said...

haha i think its a big mistake that one should even hear my words on investing.

i must emhpersize i'm not suggesting to jump into the property or the stock market, in fact the opposite is true in my case where i'm i feel both the prop and the stock market are in a correction mode.

as a trader, i'm bias on the down side.

Fat88Trader said...

I made small money last week, profits just enough to pay comm. I felt lousy.

The reason being I was not objective, bias towards upside in equity, I felt it was cheap yet it went cheaper and cheaper.

The Singapore market corrected more than 8% since the year of the Rabbit and recovered nearly 1.7% on Friday.

Of course, Funds are getting out and will definitely come back in again once they shake out all the weak retail traders. They can buy at a very much cheaper price, that's how they get their indecent bonuses.

If they fail in their bet, close shop and set up another Fund, that simple, it's not their money.

coconut said...

i try my best to look at your angle but i couldn't agreed.

the funds or the big player, we need them or otherwise the market will not move. it will not be tebulent or volatile as it should be. you and i will probably looking for a another job.

as you rightly said, swim with the sharks but don't get eaten by them. without them, there will simply be no left over.

eliaunsec56 said...
This comment has been removed by the author.