Sunday, February 6, 2011

My story.....Part 3

I started writing about my initial experiences with trading around a couple of weeks ago and this is the third part of the series. The response of the readers to this series has been simply amazing and even a tad surprising as I did not expect so much interest in my humble beginnings. I guess many of you readers are able to relate to my initial experiences as a trader. In case you have missed the first two parts of the series, I highly recommend giving those a read first. Here are the links to Part 1 and Part 2.

Last time, I had left you readers at the point where the markets had left me battered and bruised. Over half of my investment gone in a matter of months. But I don't know what hurt more, the monetary loss or the shattered ego. It is the first time that I had really faced failure in my life and it wasn't pretty. Also lay shattered my dreams of easy money. But looking back, I see that the initial failures weren't entirely useless as I learned some less lessons from it that still stand me in good stead. These are some things that I learned in my early days as a trader and the market didn't have to tell me twice. Some of these lessons, and some of these have now become rules, are:

1) Never hold a stock during earnings. Ever. No exceptions.
2) Don't think a stock is "cheap" just because it has fallen a lot.
3) You will never be the first one to get any news. Somebody is always trading that news before you even came to know about it.
4) Good earnings doesn't equate to higher stock prices. Similarly, bad numbers doesn't mean lower stock prices. Trade the reaction to the news, not the news itself.

More such lessons are given in the post - Know when to sell, one of the most read posts of this blog. Yes, that post was written from my own experiences.

Coming back to my story, I know I had a lot to learn. At least, I knew know that trading wasn't easy. Quite possibly the toughest challenge I had ever encountered. So, I did what I guess most people would do in such a situation. I hit the books. I tried to learn as much as I could. And the only way I could do that was by reading all that I could get my hands on. I didn't trade for almost six months. Didn't even look at my account, or what was remaining of it, for days at a stretch.

One of the first books that I read was the book on CANSLIM by William O'Neil. It seemed to be a strategy that worked. So, I got down screening for stocks that fit the above-mentioned system. One of the other books I remember reading that time is the one by Darvis. Reminisces of a Stock Operator was another fabulous read that I would recommend to all you readers. Back to CANSLIM, if I remember correctly, the way the author developed this strategy was by studying long time charts of successful companies. That idea appealed to me. My thinking at that time was that all these books were fine and I was learning something from all of them, but in order to be successful, I had to come up with a strategy of my own. Something that tilted the odds in my favor.

Sometime during this period, the technical bug also bit me. I was already "using" charts but had little clue why I was doing what I was doing on them. Now, I got introduced to a whole new world of technical indicators. There were so many of them! I was slowly getting an idea of what kind of trader I wanted to be. I didn't have the patience to be a purely fundamental trader and besides, the arguments in the favor of technical analysis made sense to me. So, I decided I would screen for stocks on the basis of CANSLIM and that sort through them using technical analysis. Surely a mixture of technical and fundamental analysis was a touch combination to beat!

I think I will end this post here now. I will leave my experiences with my newly acquired knowledge for the next post. These posts are a lot more draining compared to the regular posts! But if you readers are expecting a happy ending in the next post, you are sadly mistaken. If only it were that easy!

Take care and good luck!

7 comments:

Julia Clara said...

Nice read about your experiences as trader.
I trade Forex Market, as well I wrote on my blog about how I started, etc etc ..

see you.

p.s. I will put you on my blog list ! :)

positiontrader said...

Thanks Julia! I shall check out your blog too.

peektrade said...

Pretty good , all successful traders started with failures. Thanks for spending some good time and writing 3 parts. I'll also try to link this post to my blog..

positiontrader said...

Thanks! I shall finish the story in the coming weeks. I am hoping that by reading these posts new traders will realize that trading is extremely challenging and they should not get disheartened by initial failures. Also, there are no short cuts to success in trading. Or in life for that matter!

Anonymous said...

Great post! Looking forward to part 4. I've been trading for 8 months and down some (~$1K) - reached a point of frustration (ego) and haven't logged into my account for the past week (I've cashed out of my positions). Extremely frustrated at losing but glad to stumble across your blog.

Thanks for telling the other side of the story, in a world where most traders don't even bother posting/recounting.

positiontrader said...

Thanks Anon! Yeah, be careful of those who just brag about their profits and do not even mention the losses.

Anonymous said...

THX for sharing