Avoiding Greed

This is how greed made me lose $15,000 day trading. 

If you’ve been following my blog, then I hope it has been very clear that I am very proud of the personal finance progress my wife and I have made. About a decade ago I was facing deportation, and was given the gift of being able to stay in this great country. Before my immigration troubles, I had dabbled in day trading stocks with some level of success, and was forced to liquidate my account to make ends meet as my immigration case lingered for about three years.

When I was given authorization to stay and work in the US, I got busy trying to make up for lost time. While I was trying very hard to make some money quick, I lacked the foundational understanding of personal finance and budgeting. I didn’t even have specific goals other than to “make as much money as possible as quickly as possible.” In my mind, a lack of goals and a lack of foundational personal finance understanding puts you at risk for bad decision-making. That was exactly what happened to me.

In 2011, I was able to restart my Ameritrade trading account with a $2,000 deposit. I had maintained an eye in the markets, and already “knew what I was doing,” so I hit the ground running and it did not take long before I hit a hot streak and the account started growing. I was attending community college and managing my family’s small business, and this time I was armed with the ability to trade on my cell phone, so I was trading very frequently (but this time I was restricted by “pattern day trading rules”).

My trading strategy was simple. Utilize technical analysis to identify entry points and areas of support, and put my entire account into the position. I sometimes owned stocks for less than five minutes. The risk exposure was huge, but I kept winning, so all was well for a couple of years. I remember walking around York, Maine during my “mini honeymoon” in October 2012 and, my account on that day was at an all-time high of over $18,000. Here’s what my account growth had looked like until then:

Sounds, awesome right? I was certain I was going to be the next Tim Sykes, perhaps even bigger. All I needed to do was change nothing about my strategy. I was going to cross over $25,000, get over the pattern day trading restrictions, get some leverage from Ameritrade, and probably make millions! 

Those were very greedy thoughts. The money had come so easily that I did not appreciate it at all. My first trade after hitting +$18,000 was a $3,000 loss. I started chasing that loss, and bad decisions started snowballing. When my first child was born in August, 2015, my account looked like this:

 

Needless to say, I am no Tim Sykes. I eliminated my trading account that August to help finance the purchase of our first home. Although I own stocks again today, I never placed a day trade again, and I have a significantly more conservative investment approach today.  

Avoid What I Did:

This story outlines my biggest money mistake. I have many regrets about how I handled this situation, and would avoid this again by doing the following:

• Have goals: I didn’t really have a clear understanding of what I wanted to achieve with my trading account. This made me too loose with my trading.
• Control risk: Once my account hit $5,000, I should have never had more than $5K on one single trade. Putting all of my money into trades gave me great results when I was winning, but the losses were also too great when they started happening.
• Take a break: Once I started losing. I should have walked away for a while. Instead, I increased my trades the more I lost, which led me to eventually losing all of my winnings. When you’re hot, keep going. When you’re losing consistently. Step away and reevaluate your strategy. 
• Be accountable to someone: I traded in a silo. My wife never knew what my account was up to. Had she known, she might have given me some thoughts that would have made me more conservative. One thing I like about Tim Sykes and his community is that they keep each other accountable. I think this is important for traders. I am trying to do this now with my personal finance goals. This blog is part of that accountability piece. 

I miss my trading days, and might one day return with a small percentage of my net worth. For now, I am enjoying my pursuit of purchasing passive income-producing assets that will create generational wealth for my family.