Sunday, 25 August 2019

WE WENT DAY TRADING 'LIKE A PRO' FOR TWO MONTHS : HERE ARE THE RESULTS

This man is just 24 years old. Then he went into day trading. Source

We are not trading pros. Neither are most people, unless if they can actually sustain a lifestyle through pure profits generated from trading activities.
But the dream lives on. We crave for those stereotypes of easy living that come from being a 'pro' trader. Financial independence, working from home, work all day and party all night, underpants as work attire, and all those things...

Wrong! We can tell you that trading is a slog. So many things to work on; tedious bookkeeping, back office functions, dealing with bad calls and losses, yelling at brokers, etc. Trading is about as sexy as pictures of former prime ministers on motorcycles: not very.

 Don't take our word for it..

If you really to want to day trade full time, not only do you have to commit completely, you will also need to be strong, mentally and physically. But if you have the skills and the passion, it won't feel like work. The money can be good too, but it shouldn't be your primary consideration for trading. 

You might think we are full time traders. The answer is naw: we still need to make ends meet to feed the wife, husband, kids, and cats. Here's a reality check : if it's easy to live as a full time day trader, you'd probably see real famous traders out there.

But how about those who are subpar, or just merely good enough? They end up becoming full time trainers and gurus! You will see their wares and services on your Facebook ads. You know, the ones where they put their butts on someone else's cars for some reason.

After all, the easy money is made from the wallets of other people, not via profits derived from the market. The 'get rich quick part' is reserved for the trainers, not the customers.

Trading & investment guru starter pack. Link.

We think we have the passion and the skills (Editor's Note : possibly delusional), so we decided to go into full time day trading temporarily. The results will shock and possibly disgust you.

This year, we managed to find a two-month window to fully dedicate ourselves to trading Bursa Malaysia counters, full time. No other work, no frills, no forex, no other markets; just boring old stocks and warrants. We will share our trading performance over those two months.

From our experiences, we will also share what we did right and what we did horribly wrong. There were periods of sublime trading followed by subpar gambling. There were triumphs and collapses. There were giddy highs and irregular bowel movements. Perhaps this case study will help you decide if you still want to pursue the full time trading route.

We omitted the names of the stocks traded as we consider them valuable and sensitive info; we have gone into these names multiple times during those two months. You might even find them in our TradeOfTheWeek entries.

On the other hand, you will see exactly how much we made and lost. [Editor's Note : we only disclose active trades and the names of the counters to subscribers of our Telegram Group ;) ].

Strategies employed for these trades are the same as the ones you can freely find throughout this blog. No secret sauce there; perhaps you can copy our approaches and do better than us.
 
We are not pros. But we are diligent, and we can be aggressive traders if the situation demands it. 

MONTH X

Not trying to be cheeky, but we also omitted the months in which we went headfirst into the hot tar pit that is full time day trading. We will drop some hints here and there just to irritate you.

Each line in the chart below represents a trade and its outcome. There are gaps in between some of the lines; these were trades in which we 'broke even' (stocks/warrants that were bought and sold at the same price; our only costs were the brokerage fees). The Y axis are the profits/loss, represented in thousand-ringgit increments.

Ideally, we want to see more lines in positive territory (duh!). But losses come about as often as profits; the trick is to minimise downside while optimising the upside. We ended month X well within positive territory. Indeed, it was among our best months this year. (Editor's Note: if all our months look like this, we'd have been able to bid adieu to our day jobs. But...)


Notice a few important things here:

1) The two 'outliers'; these were the really big profits. These opportunities are rare. On average a single big opportunity is found each month.

2) The winning and losing streaks. You can see that we do a lot of 'testing'... small trades exited at small losses when we are proved wrong. Either we were too early, too big in sizing, or too wrong.

3) The big loss at the end of the month. We will explain this in a bit.

Our two big successes come from:

- a sudden and exceptional blue chip stock rally where we capitalised early by trading big.
- a new listing with continuous momentum. We hopped in and out until the stock peaked - this all happened in the span of two weeks.

In principle, we could just target these two types of trades : exceptional blue chip rallies and positive momentum listings. But bro, markets don't throw up these kinds of opportunities often.

To sustain our business, small trades are necessary to 'pay the bills'. These are the little RM500 or RM800 in profits that eventually builds up if there were enough profitable trades done. Sometimes we trade small to satisfy that trading urge. Other times we had to trade just to offset paper losses in our longer term core holdings.




In a really great month, our success is down to 1) our core position gaining strongly in value and (2) our small trades bringing in big profits. The one above is one of the great months.

But obviously this is not an easy business. Our first six trades of Month X (one win, three losses, two break even) yielded exactly -RM5,594. And this was supposed to be a good month!

Nonetheless, our seventh trade brought us into positive territory. we managed to support this capital position with a few good small trades until we managed to hit an even larger jackpot later that month. Forgive the gambling terms, but we wouldn't call a pot of gold by any other name.

Going through a single month of solid, full time trading is not easy. It is positively punishing. Our trades during this month were mostly momentum plays consisting of new up-and-coming counters that have regained footing somehow.

We are sector agnostic, so we had exposures in oil and gas, tech, construction, property, you name it. Such an active trading strategy is only applicable when the broader market is positive. It was at the time, nowadays it isn't.

Unfortunately, with great rewards come great risk. At the end of Month X, we managed to collapse spectacularly in a single trade that almost ruined us.

We took it in stride and analysed the loss. The causes are as predictable as it were obvious.

1) Sizing too big
2) Speculative
3) Loss limits were not strictly followed
4) 'Hopeful' and 'revenge' trading - we also like to call it 'desperation driven gambling'
5) Bought at peak
6) Fatigue

What happened was a very human failing, and one of the main dangers of discretionary trading: not following our own set of very rigid rules to manage risk.

The reality is this : if you follow your disciplined trading rules in 29 days out of 30, the one day in which you didn't could kill you. We took this lesson to heart, even though this isn't really the first time we have made such a mistake.

The market first giveth; the market taketh away.


WHY DO CHARTS??

Charting every trade, every movement, every P&L, is a useful, profitable, and cathartic process. The point about these charts is that they immediately give you perspective.

Maybe you're pushing too hard with too many reckless trades [slow down!].

Maybe you're just too tired to trade all day, every day [just stop and take a couple days off!].

Maybe an obsession with certain counters are destroying your accumulated profits [switch counters/sectors!].

Maybe you're becoming too trigger-shy, exiting temporarily losing trades that prove to be winners after you have exited [take a chill pill & go binge watch a guilty pleasure teen drama on Netflix!].




In trading, this is the one piece of conventional wisdom that we agree with : when going through a series of bad trades, trade smaller. The monthly trading chart tells us to do this.

Without some sort of visual guidance to press the point, the trader could remain ignorant. He or she might be in self denial.

Again, perspective is super important. Bless the charts.


MONTH Y


Now this was arguably a better month than Month X, even though our eventual profits were smaller in total. This is primarily because we have a more consistent series of profitable trades, suggesting good judgment (aside from the outlier, six trades yielded at least RM2,000) and a tight control over risk management.

The outlier that yielded us RM9,000 in profits was an outlier opportunity : it was a newly issued warrant that somehow collapsed in price beyond all reason. We got in at the bottom and won big. Funnily enough, we got into repeat trades (in the same counter) and lost part of these gains, eventually we only kept half of that figure. The biggest loss for this month was the very same counter!

What did we learn from this? It's simply to avoid repeat trades as much as we can. And to be grateful of outlier opportunities.

Despite the extremities, we managed to trade a few thematics consistently. Tech was a favourite sector that month due to intensifying market speculation about the participation of companies bidding for a big project. There was even a little oil and gas play that we somehow managed to profit from - it's one of our worst sectors in terms of personal trading experience.

Overall, Month Y's net profits were considerably larger than Month X. It simply means:

- we kept more of the profits.
- we avoided the losses better.

Comparatively speaking, we had shown a month-on-month improvement as traders.

And then at the end of each month, we'd do a little review session. Call it therapy; Feel free to use the following for your own trading. These comments are either true wisdom or falsehoods. Each month brings new challenges.


We are not pros, but maybe check back with us in 5 years?




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