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My Rules of Trading and What Happens When You Break Them

The past 2 weeks have been a bit rough and I am still a bit gun shy.  I am working to rebuild my confidence and start making profitable trades again.  First I will explain the rules of trading I established for myself.  I will then explain how I managed to break all of them and how much of my account I gave up while learning these rules.

The Rules

Rule #1, Cut Losses Quickly.  This is a rule from Tim Sykes and he makes no secret that it is the most important rule.  Everyone who has read or watched any of his free content knows this rule.  This is so important because when you trade lower priced stocks, almost all of them are eventually going to zero.  You never know when that is going to happen and you don’t want to be trapped in the trade when the stock does go to zero.

Rule #2, Plan Every Trade.  I keep a pen and paper at my desk and sketch out a basic plan before I make the trade.  The notes include the stock symbol, position size (number of shares), entry point, and 2 exit points.  I include 2 exit points, one is a stop, the price where I will get out to protect my account; the other exit is the target price, where I hope to sell and take a profit.

Rule #3, NEVER CHASE.  Plain and simple, if I miss my entry point that’s it, I missed it.  I will never buy above my entry point again.  It is better to keep my account intact and use it to fight another day.  There will always be another spiker, when you miss one use it as motivation to find the next one.  Never sulk and think about what could have been, because it is not what happened.

Rule #4, Stick to the Plan.  A plan is only useful if you use it and stick to it.  Not only must you make a plan but you must stick to that plan.

Rule #5, Cut Losses Quickly.  This rule is so important I listed it twice.  Everyday before I trade, I read all these rules and remind myself that they are the ticket to my future success.

A successful trade, in my book, is one that is executed according to these rules.

Sample Plan

Here are the actual notes I was taking on 10/8.

Note the top line is the only position I took, my position (P) was 1000 shares for $5.03 each.  My stop was $5, and my target was the top of the initial spike.  Given I had an issue selling and sold below this price, I made a plan and stuck to it for the most part.

Everything else on there was part of a watchlist for the day.  I keep a few notes on each one as the morning progresses.  I have noted some entry points for DNR and UUU.  Neither got to the target price so I didn’t trade either one.

Breaking the Rules of Trading

On 9/21 I was watching the market and all the weed stocks were continuing to blow up.  IGC, one I had traded last year was in play and moving fast.  It had closed at $2.14 the day before and opened at $2.70.  I decided that if it broke through $3 I would buy it and ride the spike as long as I could.  I placed a buy order at $3.05 but was too late.  Another order at $3.25, too late again, $3.50, $3.75 I couldn’t catch it as it was moving too fast.  Finally as it blasted above $4 I placed another order at $4.05, it executed at $4.03!  I bought 6000 shares for a total cost of $24,184.95.

I was happy to finally be in as this had the potential to keep running!  After the order executed I realized that I was actually too late again, my order had filled because the price had reversed.  I was suddenly staring at a $1,000 – $2,000 loss.  What a disaster I had created for myself!  Not wanting to just give up 10% of my account, I looked for reasons not to sell.  I got a nudge from someone on twitter encouraging me not to sell, they thought it would come back.

As the day progressed the price rebounded, I placed a break-even limit order at $4.03.  As the price moved quickly above and back below that price, my order never executed.  Not enough people bought at that level to take my shares.  As the price slipped further from $4 I was a wreck mentally.  I kept looking for and finding reasons not to sell.  In the back of my head I kept saying, the first loss is the smallest, but I managed to drown out this voice.

Planning Again

At the end of the day the stock completely crashed closing at $2.81.  I never sold and was looking at a loss of $8,000 on paper.  I took my time over the weekend and came up with a plan, I would sell at the first sign of weakness after the markets opened on Monday.

Monday morning rolled around and the stock opened at $2.57 and started dropping, I sold as soon as I could at $2.38.  The sale was $14,292.01.  This was a loss of $9,892.94, about 40%.  This was also about 1/2 of my trading account since I was using margin.  The rest of the week I kept my trade sizes small and cut my losses quickly.  I have begun picking back up again but am concentrating on trading based on the rules listed above.

As an additional reminder I have scheduled an automatic text from myself everyday at 9:25 AM.
“Cut losses // Make plan // Don’t chase
-Future self (you’ll thank me)”

Since this time I’ve had a few decent wins and several small losses.  I’m still a little trigger shy but I am conditioning myself to be a profitable trader by first minimizing losses; now I am working on maximizing profits.

Final Thoughts and Notes

I had a long delay between this post and my last, I needed time to get my head right and wait a few weeks before I revisited this story.  While I wish it hadn’t happened, I will use this as a learning opportunity and will hone the emotions in a positive energy.  90% of traders lose, I’m working everyday to join the 10% on the other side.  Check back often to see where I am on my journey.

All my trades can be found here: Profit.ly
Profit.ly is the social media for traders.  I encourage you to post all your trades as well.

In my next post I will tell you about the Pattern Day Trade rule and how to get around it.

Thanks for reading and happy trading!  Follow me on twitter of all trades live!

Facebook: the Biggest Loss EVER! plus BITCOIN: It’s Your Move

In the past 2 weeks, I have become a little more active in my trading, Bitcoin is on the rebound and Facebook recorded the biggest single-day loss in the history of the stock market.  Bitcoin it’s your move. This may be the last chance to get in cheap(ish).  Facebook and FAANG decline, what you should make of it.

Bitcoin’s $6,000 Bounce

Bitcoin, as you can see on the graph to the left, has been a bit of a roller coaster in the past 6 months.  With its all-time high of over $19,000 from December seeming like a distant memory no one was quite sure how far the price would fall.  In June the price dropped just below $6,000 and quickly jumped back up above it.  After getting back over $6,000 it seemed to stall for several weeks, which led to much speculation about the end of Cryptocurrencies.

Nothing could be further from the truth, Bitcoin is not dead and likely has a long future ahead.  Many institutional investors have been flocking in since the beginning of the year.  Some governments around the world are holding large quantities and even Goldman Sachs, the bank with the closest ties to the US government, has invested heavily in setting up their own Bitcoin exchange.  Goldman is one of the few large, well recognized, well-established banks that is welcoming the world of cryptocurrencies.  In my opinion, they see the writing on the wall and don’t want to get left behind.  If you can’t beat them, join them!

At this writing, the price has rebounded above $8,000, essentially bouncing off of the $6,000 support level.  The coming weeks may see a strong continuation, $10,000 will provide a challenge; if it can break through that, the sky is the limit.

Bitcoin It’s Your Move

This is quite possibly the last time that Bitcoin will trade this low.  A year ago today Bitcoin traded at $2,800 and the early investors celebrated with lobster and champagne.  While Bitcoin is a long way from its all-time high above $19,000, it is currently trading at an attractive level for those wanting to get started.

I invest in Bitcoin with Coinbase, follow this link to start your own account.  We will both receive $10 worth of Bitcoin if you purchase at least $100.  While I believe the price of Bitcoin will grow exponentially in the next few years, there are no guarantees.  Invest only what you can afford to lose.

FAANG and the Fall of Facebook

FAANG is an acronym for the big tech stocks that seem to have limitless growth potential.  Facebook (FB), Apple (AAPL), Amazon (AMZN), Nexflix (NFLX), and Google’s parent company Alphabet (GOOG, GOOGL).  These stocks have been exploding, gaining between 50% and 150% each year since the great recession ended in 2010.  The bigger the gains the bigger the falls.

NFLX was trading near its all-time high of $420 per share when it’s earnings report came out, the share price has dropped to $340, a 20% decline in about 1 week.  This was a result of slowing subscriber growth.

FB was trading at $217 per share but when it reported a loss of users, it dropped to $175 in a single day.  This loss equated to more than $100 billion, the largest single-day loss in value of any stock in the history of the stock market.

AMZN reported strong earnings but with the constant attacks coming from President Trump’s Twitter account the stock has declined since the earnings report’s rally.

GOOG, GOOGL, and AAPL all showed strong earnings but have been declining over the past week, too, most likely being brought down by the rest of the FAANG stocks.

Your take away from this earnings season is to understand that all stocks can be dangerous.  Stocks are capable of falling faster than they gain.  The market has no sympathy for anyone who decides to play in its dangerous waters.  If you are an investor you can ignore this headline.  If you are trading, take note and know that no matter the indications, it is dangerous to hold a stock during an earnings report.  Past results have no guarantee of future earnings and growth.

The Trades

Here are the trades I have made over the past 2 weeks.  These moves have brought me $792.61 in total realized gains, not bad for part-time work!  Follow me on Twitter for all my trades live!

7/16 Sold 13 shares of GOOG for $1,180.00 each, total sale $15,334.85.  Profit $509.90, about 3.4%.
I had bought those shares on 6/13.
I sold these before earning because I did not want to take the risk of losing the gains I had already made.

7/16 Bought 56 shares of TSLA for $309.32 each, total cost $17,327.39
7/17 Sold the same shares for $312.00 each, total sale $18,429.15.  A profit of $139.42, about 0.8%.
When the share price declined, I took the small profit that was available.

7/17 Bought 48 shares NFLX as it rebounded from the poor earnings report.  The share price was $383.84, total cost $18,429.15.
Sold them a few minutes last as the price reversed direction.  Shares sold at $380 each, total sale $18,234.80.  A loss of $194.35, about 1%.

7/18 as oil prices have jumped around I saw that MRO was at an attractive level to buy in.
Bought 920 shares of MRO for $20.17 each, total cost $18,557.49.

7/24 sold all 920 shares of MRO for $20.74 each, total sale $19,075.49.  A Profit of $518.00, about 2.7%.

7/24 Bought back into TSLA, 66 shares for $301.56 each, total cost $19,907.57
I missed several great cash-out opportunities because I was working and not able to watch it.
7/27 Finally sold for $302.95 per share as the price began to plummet.  Made a profit of $81.91, about 0.4%.

7/27 Bought 548 shares of TWTR, for $36.44 each, total cost $19,974.07.
I was thinking the share price might rebound after a bad earnings report sent the shares on a premarket slide.
I was wrong, the price continued to decline, I sold when the price reached $35.98.  Total sale $19,711.80, a loss of $262.27, about 1.3%.

New CRYPTO Investment

As the week drew to a close and Bitcoin continued to look strong I bought into RIOT, a company whose primary business is the mining of cryptocurrencies.  I bought 1,300 shares for $7.69 each, total cost $10,001.56.  As the price of Bitcoin rises this stock will likely follow.  If the price of Bitcoin declines this stock is likely to follow.  I will hold this stock until I can cash out a good profit or Bitcoin collapses.

Final Notes

Every Friday I contribute $50 into my Brokerage account and $105 to my IRA.  I did so on both 7/20 and 7/27.

On 7/27 I bought 25 shares of MJ an ETF that follows the legal weed industry.  I paid $26.50 per share, $667.45 total.
This is part of my retirement, my goal is about 25% in this ETF and the other 75% in PRGFX, a fund that follows the S&P500.
You can always view all my current investments here.

I had a side hustle come through for a nice profit of $1,270.00.  I deposited this into my brokerage account on 7/17.

R2B coin, a new cryptocurrency, that I put $543 into back in February, is scheduled to begin trading on 8/23.  The current listed value is over $32,000. Follow this blog to see if I can actually sell the coins for anything close to that.

I have made several high-risk, high-reward bets in the past few months.  Follow this blog to see what makes a profit and what goes bust.  Real Profits, Real Losses, FREE LESSONS!

Thanks for reading and Happy Trading!