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30 May

The Biggest Mistakes I’ve Made And How You Can Learn From Them

by

In January of 2011 I left a 10 year career teaching in public education to work for Patriot Publishing to teach trading on Wall Street. While the guys I work for are friends of mine, it was still a difficult decision leaving safe and secure public education with tenure to teach on Wall Street where only the strong survive… something I’ve written about before after reading the 10x Rule by Grant Cardone.

It took me over 3 months to get my newsletter up and running and at the end of March 2011 I started trading a $107,000 company portfolio. Due to my success, the company increased the balance of the portfolio adding $150,000 to the balance. For the last 15 months I’ve been teaching trading by placing real money on the alerts I send out and in that time I’ve grown the balance from $257,000 to $327,000 or 27%.

Now I’ve made a lot of awesome trades over the last 15 months and while I’m positive this swing trade system works effectively… what you don’t see in that 27% return is a handful of horrible trades that you can learn from. This is painful to write about yes, embarrassing yes, but the reality is Wall Street is ugly and learning from the good and bad is wise.

There’s 4 trades I’m going to highlight here, 1 that almost sent me back to teaching in public schools (Despite getting out without a big loss) and 3 that erased over $100,000 in profits earned. Yes you heard me correct, had I simply traded better 3 times in the last 15 months I’d be up about $170,000 in profit or $257,000 to $427,000 – a massive 66% return in 15 months.

Mistake #1

  • Date – August 2011
  • Ticker – BERX
  • Type – Long the pump and dump
  • Errors – Going for the big score, not taking profit, doubling down, not respecting stop losses
  • Loss – $19,400

Summary: Just before I took a 2 week vacation to Florida I loaded up on a pump and dump actually alerting the trade while driving south from New York to the sunshine state. This was my first big loss as a trader but it clearly wasn’t big enough for me never repeat the same errors again. To think I actually had a profit on this trade before it became a loss makes it even harder to reflect on.

Mistake #2

  • Date – August 2011
  • Ticker – EK (Now EKDKQ)
  • Type – Short the Reuters, Bloomberg hype
  • Errors – Going all in, shorting a real small cap overnight, underestimating mass media touts
  • Loss – Almost got fired

Summary: While I lost less than $1,000 on this trade, it almost cost me my job because I almost blew up the company portfolio. I went all in short EK after Reuters and Bloomberg suggested industry sources said EK was unloading patents that would price their stock around $10. The price per share spiked of course and I shorted heavily into it going all in. I wasn’t down much at the close so I held my position overnight, something I know not to do on real small caps. Sure enough, after the close the rumor was verified when EK said they’re looking to unload their patents to the highest buyer. I was down almost $20,000 in the after hours, took a margin call and assumed it was only going to get worse in the morning. I did not sleep that night worried more big news in the morning could gap it up $2-$3 per share which would have been losses of $100,000 range. Luckily futures tanked that morning and I mean tanked big… it’s the only thing that saved me… I was able to get out of all my shares just off even on the bid hiding size and filling chunks before the market opened. The price sky rocketed for the next 2 days and that’s the closest I’ve ever been to losing a teaching job.

Mistake #3

  • Date – January 2012
  • Ticker – TVIX
  • Type – Long hedge
  • Errors – Going for the big score, not taking profit, doubling down, not respecting stop losses
  • Loss – $41,000

Summary: When the market broke out in late January I was convinced a big pullback was coming so I hedged my swing trades with TVIX, an ETN that’s 2x the VIX. On 2 separate occasions I was up big on this trade… as much as $15,000 but I had a price in mind and refused to sell for a profit until it hit that price. There was a 3rd time I was up on this trade before I would not be given another chance to break even. The market continued to climb and the big pullback I expected seemed like a fantasy with all major media outlets reporting nothing but good earnings on companies and good news out of Europe. Then the crap really hit the fan after Credit Suisse halted new share creation… the price didn’t fall hard right away but in hindsight it is now clear that broke the 2x VIX relationship and once that news got out heavy short sellers worked to capitulate funds buried in Credit Suisse’s ETN. Looking back, the halt of new share creation would have been an excellent time to get out and just take a small loss. How I let a $15,000 profit turn into a $41,000 loss is beyond me… just thinking about it is embarrassing, especially since it’s not even a stock.

Mistake #4

  • Date – May 2012
  • Ticker – RARS
  • Type – Long the pump and dump
  • Errors – Going for the big score, not taking profit, doubling down, not respecting stop losses
  • Loss $31,000

Summary: Like BERX, I drank the pump and dump juice again this time trusting a penny stock promoter who indicated they’d be covering this one later in the week. I was up over $5,000 in 1 day on this trade… I’m a 5-10% guy rinse and repeat, how did I not lock it in?! I’ll tell you how… I was so caught up in front running the next big stock promotion that I let thoughts of $50,000 profit stand in the way of 1/10 a teachers annual salary in 30 minutes work. Greed and common sense ruined me on this trade. To make matters worse I had the chance to stop out with a $5,000 loss early on but instead chose to double my bet because I was convinced the stock would be heavily touted later in the week. Needless to say the promoters never returned to the ticker like they suggested and I became a bag holder.

What I’ve learned after almost 1,000 trades is that 996 good disciplined trades and 15 months of work can be ruined very easily by 4 mistakes if you don’t have and stick to your plan. My trading strategy put me in a position to be up $170,000 in profit 15 months but because of stupid mistakes I only have $70,000. Wall Street does not take survivors and failure to learn from the mistakes of the past is a sure fire recipe to fail again. With that in mind I’ve come up with a new stop loss strategy that I’m teaching to my subscribers to make sure I never take a 4 digit loss again, let alone a 5 digit loss. Based on my strategy and the size I trade, for me, a losing trade will be about a $500 loss moving forward and a winning trade about a $2,500 win. A 5:1 ratio in this industry is awesome and not easy to achieve… but honestly, even if you only win 50% of the time even with a 2:1 ratio you can make steady profit and beat Wall Street. I’ll update this blog post in 6 months around January 1, 2013 at which point there shouldn’t be any big losers to blog about and another $100,000 in profit.

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2 Comments

  1. WadeBrown

    Thanks for the lessons. Tvix is a nasty tease. Took $1,500 from me.

    Reply
  2. Doug Walls

    Geeeez Jason, have you ever heard the term that pigs get fat , ( and HOGS get slaughtered ??? ) Think about this extremely hard. I read this whole page, and reading what you went through sounded EXTREMELY scary !!!! I have made it a rule of thumb that when ever I find a pump and dump, I SERIOUSLY stay the heck away !!! I am happy with finding about 5% to 10% a week in swing trades. Whenever I find a stock I like, I immediately go over to STOCKPROMOTERS.COM and if the stock is on their list, I move on and find another stock. This is what I call discipline. Its hard but I rather be a pig and get fat than a pump and dump buying HOG and get slaughtered. Good luck next week. Or I should say good discipline next week !

    Reply

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