Quote from gmst:
Classic
I bow before you Sir!
When where these days and which stocks/indices/currencies lead to your biggest winner and biggest loser.
Also if you can tell, your best month and worst month PL and when they happened?
The 145k day was the exact top in silver in April 2011, at the prior Hunt Bubble top of $50. I had been long a moderate futures position from the low $20s, and then a couple of weeks before the top, when silver was around $40, I put some money into $45-$50 strike calls in the front 3 months. I was on holiday in a hotel at the time, and remember waking up in the small hours during the Monday globex session and seeing the market had ramped up from $45 to 47, I exited my futures in the 47 range and just hung on to most of the calls until the buying went into a frenzy. I exited in the $48-$49 range. Some of the calls I had paid 8-20 ticks for, and ended up exiting when they were 300 or 400 ticks in the money. So $1k positions made $30-40k in profit. The futures made about 25k and the rest was from options.
To top it off, I then loaded up on puts and made about another 60k the next 1-2 days, unfortunately I then fucked things up and despite being very bearish, didn't really capitalise properly on the subsequent collapse to the low 30s. That could have been even more lucrative. I simply became lazy and complacent due to the large gains. The lessons are: i) if you successfully predict a market move, prepare properly, and use the right trading vehicle, it is possible to run small amounts of money into large profits in a short period of time, without taking too much risk; ii) if you don't prepare for all contingencies, you can fuck things up even if your main view is right iii) big gains can make you lazy and complacent - some of the worst blunders come after large winners. Laziness and complacency usually costs you a lot of money.
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The $60k loss happened twice - one was temporary intraday, one was my net result at the end of the day. The temporary one was in the 2002 bear market, there had been a lengthy downtrend and European stock indices, which i traded, were in the dumps. I felt they were oversold. The US then had a huge rebound rally after hours, up 3-4% or something. Europe gapped up the next day, then slowly, very slowly, started grinding lower. When it got to breakeven, I thought it was ridiculous that Europe was flat when the US had closed 3-4% higher since the European close. So, I started getting long. The market rallied a bit, then fell back, then started trickling lower. Every so often the market would appear to be at a temporary low, I would buy some for a 'scalp', and plan to exit on the next bounce. But, the next bounce was always a bit later, and a bit smaller, than I was expecting. Also, the liquidity in the market I was trading was poor, and I had got into a much bigger than normal position. Eventually the market just kept grinding lower, and I could never get out of my position at what I considered to be an acceptable price. I turned a 2-3k loser (when i first realised by trade idea was wrong) into a 60k loser, just by trying to make back 1-2k to soften the blow. I distinctly remember leaving the office, then having a pint in a local pub, calculating how many years worth of beer consumption I could have bought for the amount of money I'd just lost (the answer was about 30 years).
This made me realise that the biggest losses come not from initial trading mistakes, but from trying to avoid taking the hit from those initial mistakes, trying to 'make back' your initial losses. It's the last part of a bad, big losing position that really kills you, not the initial losses. So your 3k loss becomes a 10k loss by trying to salvage it back to breakeven or a small loser. Then your 10k loss becomes 20k because you try to reduce it to a 5k loss by averaging a bit and 'selling the first bounce'. Then your 20k loss becomes a 60k loss, when you finally realise its insane to have on a big position with no edge whatsoever. So, in the end I just realised I had fucked up, and puked out my position at the market. The market did then go quite a bit lower in subsequent days, weeks, and months, so if I had not exited I would have been totally screwed. The other lesson from this is just because a move doesn't 'make sense', doesn't mean it can't happen. Maybe some whale was trapped in Europe and liquidating on the early strong open, who knows. The point is that even though my initial trade thesis was sound, it got disproven by the market action, so I should have not just exited, but reversed and got short. If I'd eaten the 3k loss then played the short side all day, I could have been up 10k or more by closing bell. After that I almost never averaged a loser, and never got close to such a large loss when doing so.
The other 60k loss was temporary, during the day of the 9/11 attacks. The first tower had collapsed and triggered a selling panic, then the second tower collapsed and did the same. European stock futures were open and trading all day. After the selling panic from the 2nd tower collapse reached a climax, the market liquidity dried up and I started placing some bids lower down. I got filled on some, the market stabilised, then started to bounce back. I had a nice profit. Then, the marked turned down a bit, it looked like a typical partial pullback, and I expected we would continue to rally. However the market then started selling off hard. I then saw a headline "explosions reported at the Pentagon, and the market was now about 3% lower than when I had entered, in a total selling panic with few bids and wide bid-offer spreads. Instead of hitting those bids and getting flat, I was thinking I had just let a fat profit turn into a big loss, and didn't do anything. The market kept selling off much lower, luckily I had been smart enough not to trade too big (I was about 50% net long, no leverage at all). Eventually, all the bids disappeared entirely from the market for a few seconds. I considered this was a capitulation moment, and placed a couple of orders at silly prices, like down 50% on the day. I called the risk department and asked my P&L, they said I was down about $60k. My recovery plan was to wait until the market became orderly, then if the next move was down, I would cut my losses, if the next move was up, I'd go 100% long (cash only, no leverage) and hold until the momentum died out. As it turned out, bids re-emerged, offers started getting lifted, and the selling had totally dried up. I went 100% long quickly, kept a relatively close trailing stop, and then just sat and watched as the market rallied over 10% with growing momentum. Finally it petered out and I exited. For the last hour or two I just traded the back and forth volatility and made some more, ending up a fraction below $100k on the day, for a 160k swing in a few hours.
The lesson from that is, when it's fast market conditions, and/or major breaking news, always respect momentum and if you are on the wrong side of it, GTFO immediately. There is no such thing as oversold (or overbought) in a fast market, especially not a market crash driven by wild and crazy news. Every minute you must be prepared for momentum to turn on a dime, and be ready to jettison your entire position in seconds. If you do get caught, just get out at the market, unless you think things got to a total capitulation point, and have enough experience to accurately judge that.
Anyway, those are my stories, hope you found something useful in them.
