Year One: A Trader's Journey

Published: November 2017

...to those on their journey...

Year One: A Trader's Journey

Table of Contents

Introduction

Thank you for showing interest in Year One. Have you ever wondered what life might be like if you left your 9am-5pm job to pursue your passion? If so, then this book might interest you. Year One offers a glimpse into my life after leaving my salaried, full-benefits career in Silicon Valley to pursue my passion for trading stocks. This book shares the ups, downs, lows, and sideways during my first year.

Year One was originally intended for personal consumption. It was my safe place to reinforce, discard, and reflect on my daily trades. As my trading career progressed, questions arose about trading stocks, working for myself, and working from home. Family wondered the status of my trading. Former co-workers reached out to me (thank you!) to inquire about life away from the office, how it felt to boss myself around, whether it was hard to give up free buffets and the companionship of co-workers and guaranteed income. Strangers found it odd that I was willing to risk my money and security to peek at life beyond the corporation. Critics said it seemed late in life to follow my dreams. Writing this book quickly became an obligation. I wanted to share the journey with anyone and everyone interested in pursuing happiness, regardless of the odds. My hope for Year One is that it provides sincere insight into what it takes to make it on your own in the first year away from the comforts of routine. While it was written from the perspective of a stock trader, it may prove applicable for anybody seeking a new endeavor.

Year One was written to be a short book; intentionally longer than a blog post or tweetstorm yet possible for consumption in one sitting. Readers may still uncover new information upon re-reading. Twelve chapters correspond to each month of the 2016 trading year. Chapter titles correspond to the central theme experienced during each month. Year One is not a technical analysis book. Do not be surprised by the lack of technical discussion within the pages of this book. This is intentional. Information presented in this book is best communicated through narrative, rather than exhaustive fundamental or technical analysis. However, chapter 11 does provide some basic technical and fundamental analysis of the DryShips (DRYS) stock in 2016. For stock traders searching for a dedicated technical analysis book, I recommend Welles Wilder’s New Concepts in Technical Trading Systems (1978) and Thomas N. Bulkowski’s Encyclopedia of Chart Patterns (2005).

For clarity, here are the key lessons in Year One:

Chapter 1: Origins

I was inspired to trade stocks by two relatives, both named Bill, both stock traders. Bill from Illinois invested heavily in Anheuser-Busch and real estate during the late 1970s. He consumed Budweiser like most people ought to drink water. I reckon he believed drastic beer consumption expedited his return on investment. Nevertheless, he did well for himself. Uncle Bill from California was an artsy broadcast professional who invested in stocks and bonds. He talked with me regularly about stocks during family dinner on Sundays. We watched the Google Initial Public Offering (IPO) in awe, as the price continued to climb in the weeks and months that followed. During college, I remembered all the discussions with Uncle Bill about stocks. I grew convinced that I needed to open a (small) trading account.

My first trade was Yingli Green Energy Holding Company Limited (YGE). The trade thesis was admittedly naive: solar energy will eventually replace petroleum and fossil fuels. Unfortunately, the U.S. recession was imminent and my choosing a Chinese company to lead humanity’s eco-friendly alternative energy efforts was silly. Luckily, within two months, all shares were sold for a small (-8%) loss. Today, the YGE position would be down -99.3%. Despite the small loss, the YGE trade had a tremendous effect on me. It represented the freedom to invest at my sole discretion from the convenience of home. The decision of which industry and company to invest was entirely my own. Therefore, the success, or failure in this case, was entirely my own. This concept changed my life. The YGE trade planted the seed for a lifelong goal. I promised myself that, at some point in my life, I would learn how to research and master the art of stock trading. I promised myself to work hard, save a large amount of money (at the time, $10K seemed sufficient), and dedicate myself to online trading. Nine years later, the opportunity finally presented itself.

On a sunny October evening in San Francisco, sprawled out across an outdoor couch on the 9th floor roof deck at Twitter headquarters, I closed my eyes and listened to the familiar chorus of dissonant taxi horns and vagrants shouting from down below on Market Street. Sipping coffee, feeling insulated from the world, considering my future. It seemed, finally, I was afforded the chance to dream up my own future. Approaching six years at Twitter, we had undergone major changes since our tiny 100-employee startup grew beyond 2,500 employees. The least of the changes was our IPO in November 2013. The stock market had found me, whether I was ready or not. Now a de facto stock trader in the middle of Incentive Stock Options (ISOs) and Alternative Minimum Tax (AMT) with Twitter (TWTR), the memories of YGE rushed back to the forefront of my mind. Perhaps this was the universe’s way of nudging me, providing me the opportunity to step aside from technology and focus on stocks; fulfill the promise made to my younger self. I grappled heavily with the choice of maintaining my existing career in the booming tech industry or venturing out on my own towards the shores of uncertainty.

Perhaps it was the coffee or the California dreaming or the San Francisco state of mind...in that moment, I was certain that I just saw the future...my future...and in my future...life was upside down. I was no longer working for a company...I was trading stocks for myself. I submitted my letter of resignation the next day.

My goal was specific: trade stocks. Milestones were set: understand how to read SEC filings, balance sheets, press releases, and learn the reasons why a stock makes significant moves up or down on any given day. The financial expectations were defined: none. No need for money or quick profits. While it would be great to have a big win or two in the first year, expectations were set low.

The primary goal in January was to learn and absorb knowledge through market observation, reading books, watching videos of live trading sessions, etc. Trading education is tricky. The approach most fitting to my personality type was simply to immerse myself in all possible resources and allow the education materials to organically compete against one another. I wanted all raw data possible. I would reach my own conclusions about what to learn, from whom, why, and either discard the remainder or revisit later. I started with the basics: support and resistance levels, risk-to-reward ratio, etc. While I subscribed to several monthly ‘alerts’ services and chat rooms, I tended to ignore most of them and learned a lot from the traders who consistently beat me and took my money day after day.

My personal approach to trading was admittedly cautious. This was intentional. The world of trading was so new, exciting, and dangerous. This truly is a field which demands respect and undivided attention. One wrong move costs money. Too many wrong moves can end a career and send a trader into a depression, at minimum. Trading would certainly be one of the most difficult endeavors of my life. Patience and bankroll would need to be part of my edge, for now.

January trading was strictly intraday. The strategy attempted was to find the bottoms of large cap names like Starbucks (SBUX), Apple (AAPL), and Ferrari (RACE). In retrospect, this was not much of a strategy. It was beyond naive to trade large cap stocks, especially on an intraday basis, while ignoring the overall downtrend of the stock market in early 2016. Holding shares for the long term would have worked great for me. Intraday, on the other hand, was the wrong timeframe. Lesson learned. Furthermore, it became apparent how significant large cap stocks are impacted by external forces such as macroeconomics, analysts, television personalities, and so much more. Fear on the television about a company could easily translate to rapid decline in the stock price. Losses for the month trading these large cap stocks was minimal; nothing to lose sleep over. Yet, the losses provided invaluable lessons and trading experience.

The best (and easiest) trades in January was exercising stock options in TWTR for pennies and selling for significantly higher. Talk about edge; a sure win with substantial profitability, although a boatload in taxes. Unfortunately, buying and selling TWTR became practical. I watched with a heavy heart as the share price drifted lower each week. My most profitable trade in January, aside from TWTR, was YANG, the Daily China Bear 3x triple leveraged fund, which seeks the daily investment results of 300% the inverse in price performance of the BNY China Select ADR Index (the China Index). If the Chinese stock market continued to crash, then I wanted to profit from the downturn. From my experience investing in YGE, history told me to approach Chinese stocks with skepticism. The YANG position was my first endeavor into feeling bearish about a stock or the general direction of the market. I remained ignorant about how to read SEC filings or a balance sheet. I was fully aware that I did not know much, yet, but had no idea just how little I actually knew.

Chapter 2: Reactions

“You quit your job to gamble on stocks?”

When one willingly walks away from a career, fancy title, guaranteed income, esteemed corporation, etc., they should not expect others to share the enthusiasm for a risky new venture. Friends and family probably will express worry about any decision to abandon what can be considered safety and security. Drastic news fuels proportionally drastic reactions.

Traders especially might face bewildered looks, blank stares, raised eyebrows and/or full-blown visible panic; rarely will people share the enthusiasm of trading stocks for a living. In general, one can expect friends and family to share stories of those who have lost money in the stock market or gamblers or people who robbed a bank. One recommendation from personal experience is to respectfully smile, nod, and listen to all warnings. Thank people for sharing their stories and concerns; they legitimately care. Avoid defensive remarks; this is bad form. If you are currently in good financial health, remember that prior success does not ensure future winning. For the traders, analytical rebuttal is futile. Do not attempt to distinguish speculation versus investment versus gambling. Nobody will be persuaded and, frankly, nobody needs persuasion besides yourself. If you are convinced of your path, then nothing else matters.

In the second month, exorbitant commission fees inspired me to search for an alternative broker. Nobody wants to spend $100, $200 or more each day on commission costs, particularly in the learning phases of trading. This led me to the realization that, in trading, one does not simply compete against Wall St. and their army of statisticians and computer scientists who build algorithms; the retail trader also competes against their own broker. If trading profits do not surpass commission fees paid to the broker, then the trader is simply paying to participate. In addition to the commission costs of my big box broker, the bigger issue, for me, was the inability to easily short stocks. Frustrations ran high when I could not conveniently short Valeant Pharmaceuticals (VRX) during the drop from $90 toward $30. My broker had marked VRX and the bulk of all stocks ‘Hard to Borrow’ and prompted me to call them if I wanted to find shares to borrow. This was simply unacceptable, in my view. Trading was going to be hard enough without being forced to get on the phone in order to short a stock or, even worse, go long on every trade. If I was going to succeed in trading, I needed to eliminate all limitations. I searched for a new broker which allowed me the freedom to conveniently capitalize on both the long and short side of a trade without picking up the phone.

In addition to YANG, I traded commodities such as gold via the bullish triple-leveraged fund (NUGT). The price action for NUGT routinely dropped and/or rose $5 - $15 per share in the morning session and could skyrocket in the opposite direction sometime mid-day or around the closing bell. The range in price was very new to me which presented a new dimension of psychological pressure. The rapid swings from +$500 one minute to -$200 for a few minutes followed by +250 for a couple seconds before dropping to -$700 shocked my mind and emotions. I found myself cutting losses before a trade turned profitable at some later point in the day and grew anxious and worried about losing in trades. Too many times I tapped out and cut a loss rather than remain calm. I found no edge in trading gold. I was also trading too many shares at a time. The experience of wild price swings led to a small account drawdown. Nothing to worry about and nothing to lose sleep over; nonetheless, an unprofitable, red month.

Aside from trading, I sold my property in San Francisco. I had no interest in becoming a landlord and frankly no interest to stay in San Francisco. The bulk of my time was now spent trading in Oakland, Berkeley, and small cities in the east bay. Fortunately, the San Francisco real estate market was booming; the sale closed in a week.

Chapter 3: Upgrades

In the third month of trading, I built a trading desktop and found a new broker.

Rather than pursue a gaming-style setup, my preference was to secure a large, flat, all-in-one, touch-screen computer to serve as my center monitor with four USB-C and HDMI outputs for future monitor expansion. I immediately replaced the stock hard drive (5400 rpm optical drive) with a large capacity solid state drive. The results were stunning. Operating system boot time decreased from 90 seconds down to 10 seconds. Load time for my trading platform decreased from 35 seconds to 5 seconds across five monitors. Next, I supplemented the technical upgrades with subscriptions to a newswire and financial charting service.

Upgrades come with caveats. Additional bits of technology and information do allow a trader to follow more tickers, sit and stare at their screens longer with added comfort, and research faster. However, one must understand that no new trading material will guarantee success. No new equipment can guarantee better entries or ease the mental gymnastics required for successful trades. In trading, success is not guaranteed. A trader can only search for what they perceive to be an edge. Some traders find edge with more monitors while others find edge with fewer monitors.

In addition to the technology upgrades, I also focused on my mind and body. My sleep schedule, diet, and exercise had been horrible up to this point. I had gotten plump. One of the benefits of trading is the flexibility to stop working during the lull or tense periods and step away; literally walk away. So, when volume dried up, I began to get up from my chair and run a couple miles. Running quickly became a combination of physical and mental therapy. For a mile or two, I could focus entirely on my breathing and heart rate which reduced the stress of trading. When running, I could also process all the new trading information or linger on ideas presented by other traders. Getting to bed at a decent hour on the west coast remained a difficult task. I was only able to consistently achieve five or six hours of sleep, so, I began to prioritize two-hour naps from 1pm-3pm at the end of the trading day. At first, I felt guilty, like a pampered baby. Here I was, a grown man, taking naps for the first time in 30 years, while other people my age were stuck inside meeting rooms. On the other hand, I literally woke up every morning to trade my life savings while half asleep; this was a stressful and serious industry. Naps became a necessity.

One upgrade to my trading I wished for most, but never found, was a dedicated mentor or trading buddy. Nobody to blame for this but myself. I was too proud to bother anybody in the chat rooms or Twitter. Information is abundant online, so it seemed I should simply listen more and read more, re-read repeatedly, and observe more. I developed the habit of talking to video lessons and Tweets and writing questions inside all my trading books in lieu of having a group of trading buddies. I saw no reason to bug professional traders online to ask questions because I did not want to appear as though I sought to cut corners. In my view, I would be trading from this point forward, so any questions would be assignments for me to figure out on my own. Provided my background, I realized better than anyone the power of having Google and Twitter at my fingertips. I grew stubborn in my desire to find answers for myself. I wanted no handouts.

This perspective has its faults. Today, I advise people in year one to find a community, trading partner, or someone to talk with about your new endeavor. Do not exist in isolation more than necessary. Reach out when you have exhausted your available resources. Talk through your frustrations and hear a fresh perspective. Find someone to learn from and be open to teaching somebody. My self-imposed isolation undoubtedly prevented me from meeting great people, making smarter trades, and expediting the learning curve. Perhaps I could have realized profits much sooner.

Trading in March left much to be desired. Ironically, I failed to research for myself on several occasions and jumped into trades mentioned in chat rooms and watch lists in attempts to trade alongside the experienced traders. Unfortunately, I did not know them or understand their trade thesis. As a result, I lacked a carefully formulated plan. One ought to face consequences for such lazy trading. It is far better to have less money trading your own ideas than to see profit trading someone else’s ideas.

Chapter 4: Expectations & Reality

New retail traders enter the market each year. Many will enter under the misperception that trading is easy or that trading leads to fast money. Many will join with small accounts (less than $10K) or be bound to the restrictions related to Pattern Day Trader (PDT) rules. Expectations meet reality, eventually. New traders will learn about the limitations of small accounts, including frequency to trade, margin account restrictions, and so forth. Many new traders hope for the outlier cases they have heard about, usually over the internet, where some random individual turns a small account of perhaps $5K into $100K. The internet is filled with people willing to sell services which fuel these dreams. Yet, most new traders will fail. Why?

People overestimate their abilities. Predicting whether a stock symbol on a screen will move up or down appears easy; it is anything but easy. Our natural human reaction is to factor in our prior accomplishments, such as education or our advanced degrees and certifications, business savvy, IQ, riches, wealth, and more, when we attempt to make sense of the market and trade. However, trading is less about intelligence and more about understanding. On the road to grasping this reality, most traders will underestimate how grim trading can be at the start of the journey. Rather than wonder how many hundreds, thousands or tens of thousands will be made trading in year one, they should consider themselves lucky to simply stay afloat. When the going gets tough and the new trader loses over and over and over and over, most will give up. After all, one definition of insanity is repeating the same actions and expecting different results. The definition may be true for binary events. However, trading is not entirely binary. Sure, win or loss is binary. However, how much we win and how much we lose is not binary. Traders make progress by repeating the same actions with slightly improved performance each time. Over time, success occurs. Most traders simply quit at some point along their journey to success.

The reality of trading stocks for a living is to first flush the rosy idea of instant, pain-free, success from your mind. Realistically, plan for a period of losing. All traders will pay a market tuition fee, but tuition costs vary. Tuition cost is largely determined by each trader. Tuition is more expensive should you allow your ego, fear, and greed to influence your trades. Do not allow the market tuition cost to wipe your account clean. Furthermore, initial profits should be expected to be minimal while initial losses will likely surpass any profits. Accordingly, the reality of trading is to start when you have adequate financial cushion. If you will need profits each day, week, or month just to pay utility bills or otherwise satisfy your adult responsibilities, then you place yourself at an unfortunate disadvantage. There is nothing wrong with balancing a part-time job while the market is closed until trading habits and profitability become consistent. While it may sound insensitive, this dose of reality is meant to communicate the cautious reality of trading and starting any new high-risk endeavor. Preferable to sound insensitive yet communicate truth than to spread ignorant optimism and watch anybody go broke. Stay cautious today. Profits will come, eventually.

Please approach trading like you would with any other career and remember that any worthwhile career requires time for mastery. New traders will be confused for the first several months, or longer, while they learn the process of trading. This is normal. Like learning how to ride a bike; the progression from falling to riding takes time. There is no need to attempt overnight riches at the cost of financial and psychological trauma. In full disclosure, this could be a long, hard, journey. Embrace the journey. Remind yourself that most successful people endure a similar long and hard journey on their way to the top of their field.

Chapter 5: Rules & Routines

We all have physical routines and mental rules in our lives, whether they exist consciously or subconsciously. If a person diverges from their physical routine, they might not achieve peak performance. For example, someone who has recently given up coffee will probably feel sluggish and unable to focus, at least for a few days. Similarly, traders tend to establish, whether consciously or unconsciously, their own preferred physical routines and mental rules. Some traders do not sleep much while others enjoy abundant sleep. Some traders tweet all new trades while others remain silent. Some traders take part in physical exercise before trading while others do not ever exercise. Some traders make detailed plans for their trades while others wake up thirty minutes before the opening bell and ask professional traders which stocks to trade on Twitter. Physical routines and mental rules can impact the overall success or failure of a trade. What physical routines have you established for yourself? Are they optimal for performance or can you improve them?

It took five months for me to establish my physical routine. Each evening, in the after-hours trading session, I recap my daily trades in my trading log. Everything from the catalyst for the trade, the trade plan, the proposed entry and exit points, commentary on emotions before, during, and after the trade, the reason for exiting the trade, and tangible ways to improve a similar trade in the future is documented in my trading log. The next hour is spent researching stocks for possible trading the next day. The whiteboard which sits on my desk displays ticker symbols and notes for the following morning. Midnight is a rather late bedtime for west coast trading yet there seems to be no other practical way for me to sleep before midnight. The morning alarm sounds at 4:30am. It is not uncommon for me to snooze the alarm once or twice; sometimes three times. Eventually, I will rise, exercise, shower, caffeinate, and launch trading tools for additional research. I distill tickers down to a few possible trades and prepare for the opening bell at 6:30am.

In addition to physical routine, traders slowly begin to establish trading rules. Rules differ from physical routine. Rules are mental policies a trader follows to execute trades with the best possible chance for success. Rules are vital; they exist to keep your account healthy, so you can keep trading. Rules might account for price and volume action, when not to take a position, where to set the exit price for a trade, etc. Some traders post their rules online. You may find that you do not agree with another trader’s rules; this is normal. Some rules make immediate sense and can be considered for your arsenal whereas others might seem counterintuitive. Once you establish your own rules, try to stick to them and, when necessary, adapt accordingly.

In May, my rules finally started to take shape. For example, I would not hold any positions long or short leading into an earnings announcement. However, I enjoyed taking a trade shortly after the earnings results. I avoided trading between the hours of 11:30am and 1:30pm unless a breaking news story provided ample opportunity for a good entry point on a trade. When considering a short position, under certain conditions, I liked to begin my entry near the 20-day Simple Moving Average (SMA). For me, these are rules made sense according to my own personal experiences. However, these rules might not make sense to you. Your rules might contradict my rules and that is fine.

As for trading in May, the results were less than desirable. I found myself overtrading, flipping positions from short-to-long or long-to-short, doubling down on size, and generally being impatient when waiting for a move. I was ignoring common sense and breaking existing rules. In retrospect, I was breaking a handful of my future rules which would not exist for another three months. To ignore my own rules was to ignore sensibility. There was nobody to blame but myself in allowing my weaknesses, as a trader and a human, to prevail over any strengths. I let myself down. I defeated myself. The inability to follow my own rules really stung. The feeling of disappointment resonated with me strongly. I felt like I deserved to lose more money. However, the money would not be gone in vain. I would observe my flaws and mistakes then make the necessary adjustments. I reviewed my trades and rules, added new rules, amended existing rules, and moved on.

Chapter 6: Seasonality

Seasons are not equally profitable. Summer means vacation for adults, summer camp for school kids, and internships or studying abroad for college kids. Nothing wrong with a trader stepping away from the trading desk until more favorable conditions return to normal.

In June, we decided to visit New York City. The plane ride from California to New York allowed me time to learn more about cryptocurrencies and peer-to-peer lending. I read a couple books on technical analysis and finally started to read Matt Krantz’s Fundamental Analysis for Dummies (2009). Once we arrived in New York, trading seemed obligatory, although trading for the sake of trading is not wise. The low volume and choppy price action was a limitation and trading with a single laptop screen posed significant challenges. However, the changes to my physical routine I experienced during that one week in the eastern time zone made every single lost dollar completely worthwhile.

I woke up in New York each morning around 6:15am to the sunrise and birds chirping. This was a game changer for me. I could not believe I had jumped out of bed, exercised and showered, and now found myself taking a stroll through New York City in search of the city’s best coffee a full two hours prior to opening bell. California-based traders might appreciate that. At any rate, for the first time in my trading career, I found myself wide awake and researching stocks in the natural daylight just counting down the hours until opening bell. Everybody was awake and moving around in the eastern time zone during the pre-market. I could hardly believe my eyes; this was the promise land for trading. My life instantly changed. Somehow, someway, someday, I promised to make the move towards the eastern time zone. With the proper setup, mindset, time zone, and patience, I would reach my full potential as a trader.

For the remainder of June, I began to consider the possibility, and practicality, of moving out of California to a location in the eastern time zone. Frankly, the destination could be anywhere in the world east of Chicago and West of Norway. This geographic range would provide better trading hours than California. I felt a sense of relief for the chance to escape not only these inconvenient trading hours, but the traffic, the pollution, and the overcrowding and hype of California. Where would we go? When?

Chapter 7: Mental Warfare

July began with five consecutive days of losses. Losses led to self-doubt. Self-doubt turned into an internal battle complete with name calling and abuse. Soon enough, I was engaged in full-blown mental warfare. The problem was that I was battling myself; the most difficult adversary. Fortunately, summer vacation meant trading volume remained diminished, which provided opportunity to reduce trading size and spend time analyzing, strategizing, and implementing changes which allowed me to bounce back stronger.

Traders, entrepreneurs, and those who try something new in their lives will undoubtedly face uncertain times, insecurities, and slumps. In a slump, it will be common to question our decisions, our ability to succeed and the motivation to proceed. For this reason, I want to examine each contributing factor point-by-point and discuss each in-depth. Three issues, in conjunction, led me to engage in mental warfare:

While psychology can lead us into mental warfare, it too can guide us out of the proverbial trenches. Turning ourselves around takes focus and time. We must set aside ego, confront our failures, and become friends with our weaknesses. Eventually, I recovered and rediscovered profits. In the process, I became a better trader. Here are the exercises which guided me back on the track to success:

Consider the psychological and physical expenditure to be in a losing trade for six hours. That is a long time to allow your frustrations, disappointment, impatience, and anger build. Over that duration, a significant amount of energy, negative energy, is spent. Waiting for a stock to drop down or pop up can burn you out. Regardless of profits, the practice of adding to a losing trade and watching the price move against you repeatedly is simply bad trading. If I traded bad on the day and still managed to squeak out profits at the end of the day, my trading log for the day was filled with criticism. I specifically noted that I did not deserve the profits. When trading became less about money and more about shedding bad habits and making sound decisions, then the profits and happiness followed. When I traded badly, like a rookie, then I would ban myself altogether from trading the next day. I policed my own trading. When I forced myself to take a day off, I would instead focus on watching the transaction tape, watching the fake selloffs and fake spikes, and trying to get inside the mind of the market maker to understand and predict the machine and how it operates.

Please carefully consider this chapter. Remember, one string of bad trades can easily end your trading career. A single emotional trade with too much bravado can crumble your account. To succeed in trading, several components within your psyche must be razor sharp. Success requires optimism and intelligence and discipline and ambition. None of these characteristics alone will allow you to succeed in trading. Furthermore, trading requires the tenacity to pick ourselves up when the time comes; and believe me, the time when you need to pick yourself up will arrive. Nobody pays a trader to show up each day. This is the sad fact and beauty of trading. There is no room in the winner’s circle for mediocrity and the rabbit hole of self-doubt can go on indefinitely. If you show up to the market unprepared, the market can easily chew you up, take all your money, and spit you out the other end into a garbage can somewhere in a back alley. All traders experience failure, at some point. Many traders give up after a few failures. However, the successful trader will find the lessons in their defeat, grow increasing amounts of respect for their adversary with each loss, and find the courage to dust themselves off and hobble back to the trading desk.

Chapter 8: Conviction

Whereas June yielded vacation and eastern time zone and July yielded mental warfare, August brought forth the desire to sit back and think, observe, research, and re-examine trading from a fresh perspective. While the first seven months of the year could be argued to be glorified button mashing, the goal for the next four months was to approach trading more methodically.

The first week of August was spent looking inward by reviewing every trade in my trading log. I searched for trades where I had carefully mapped out the entry and exit points start to finish and trades resulting from deep-dive analysis into SEC filings, balance sheets, and press releases. The findings were a major blow to my ego: my trades lacked research and lacked conviction. I had no reason to believe that a stock was headed up or down. I hoped these stocks would go up or down, but I did not have any credible evidence to suggest that, at the time of the trade, there was good reason for the trade to behave as I wanted it to behave. Minimal time was spent researching a company, yet I would go out and place my money in a trade. This was ignorant; practically gambling. If I knew so little about a company’s products, financial health, the board of directors and executives, then it seemed nearly impossible to develop any conviction about a trade thesis. Never had I been even remotely knowledgeable about the companies which I was shorting (or occasionally buying). Never had I been remotely insightful about whether a company was bound to miss its quarterly earnings numbers. Rarely were my trades even my own ideas. Instead, nearly all my trades came from subscription services, software, alerts services, or even worse: other traders in chat rooms or Twitter. Nothing wrong with getting ideas from other sources, per se, if I at least knew something substantial about the company, its products, the share structure or balance sheet, how existing stockholders felt about the current stock price, and so forth. Alas, I did not.

Anybody who knows me will understand how disheartening it feels for me to admit I had been acting like a lemming trader, marching behind the other 90% of failed retail traders all stuck on the same side of losing trades, marching to the beat of a failed drum right off a proverbial cliff and destined to drown in failure with one another. To say I was ashamed would be an understatement. I began to seriously wonder how many other traders during their first year were committing the same grave mistakes. Regardless, I would not allow myself to fail. My entire trading approach would need to change. No more ‘see what happens’ trades. I needed to be methodical; prove to myself that I could research a company, develop conviction and a trade plan supported by finances and technical indicators, and execute my trade plan.

The second week in August was spent ruminating on the findings of the first week while simultaneously looking outward to observe the Twitter stock and finance ecosystem; influencers and their followers, stock spambots, pumpers and dumpers, bag holders and trolls. Who was recommending what stocks? What was their trade thesis? Did a trader hold conviction in the stock and, if so, then why? If you are familiar with the trading community, then you understand the ecosystem extends well beyond Twitter and onto commentary sites, message-boards, pseudo-investment sites, and, finally, into the endless supply of stock guru sites.

In my analysis, many traders get inspired or encouraged to buy certain stocks because they listen to one of the hundreds of stock gurus. These gurus might entice the new trader with imagery of lavish lifestyle: luxury cars, exotic locations, bundles of cash, briefcases of cash, cash stacked on beds, bundles of cash stacked on luxury cars in exotic locations, and so forth. The guru often posts online about how much money they made and how easy trading can be. The guru might even predict where a stock will go the next day. For the new trader, this can seem refreshing. In August, what began as the search for conviction led me to think at length about stock gurus and the potential hordes of new traders who follow them.

At this point in my trading journey, I began to appreciate deep-dive reports on the financial health of a company, data on the board of directors, sales numbers, debt-to-income ratios, the number of outstanding shares, and other seemingly boring fundamental details. While the internet seemed littered with people yelling that some penny stock was headed ‘to the moon’ and gurus marketing their stock picks, I did my best to ignore it all and focus instead on balance sheets. Alas, gurus are not entirely worthless…

Chapter 9: Rock Bottom

September was the worst month of the year. My worst month as a trader. I failed at nearly everything in my trading. This was a trying and painful time. It was rock bottom.

To start, my daily physical routine began to unravel. I found myself waking up at 4:30am in a poor state of mind, repeatedly hitting the snooze button, getting out of bed feeling anxious, tired, and unable to focus. I felt worn out, exhausted, and defeated. Day after day of this would undoubtedly impact my trading. When my mind and body were worn down, I lacked the energy to adequately research stocks. I woke up every morning knowing that I should have spent more time researching. Then, I would scramble around in the pre-market hours in an attempt to compensate for the lack of preparation. It was a downward spiral. Tired from waking up at 4:30am and immediately feeling defeated, I took longer naps in the afternoons. This led to insomnia. Insomnia led to a lack of sleep. A lack of sleep led to waking up tired. I was stuck in a vicious cycle.

My mental state deteriorated. For the first time in my life, I experienced depression. This horrified me. I knew that depression was a real possibility for traders but had hoped I would be the exception. Unfortunately, I was not. When the depression hit, I found it nearly impossible to get out of bed, impossible to research, and impossible to focus. Some days I did not want to wake up at all. I felt my future was bleak. I felt that all my dreams were crumbling before my eyes. The mental warfare I had experienced in July was child's play compared to the deep depression I faced in September.

In my depressed state, I began to overtrade. I became reckless. I felt desperate to make up for losses. I felt an overwhelming urge to dig myself out of the hole I had dug. I ignored all my trading rules. I was a mess. I became my own worst enemy. I took trades with no plan. I traded stocks I knew nothing about. I traded without any conviction. I traded without respect for the market. The results were disastrous. My account took a significant drawdown. I felt like a complete failure.

Hitting rock bottom is a terrifying experience. However, it can also be a pivotal moment. When you reach rock bottom, there is nowhere to go but up. In my lowest moments, I realized that I needed to change. I needed to take control of my life and my trading. I needed to rebuild myself from the ground up.

I started by focusing on my physical and mental health. I began to exercise regularly. I forced myself to get out of bed and go for a run, even when I did not want to. Running became my therapy. It helped clear my mind and reduce my anxiety. I also focused on getting better sleep. I set a strict bedtime and wake-up time. I avoided caffeine in the afternoons and evenings. I created a bedtime routine to help me wind down and relax.

I also sought help for my depression. I spoke with a therapist who helped me work through my feelings and develop coping strategies. I reached out to friends and family for support. I realized that I did not have to go through this alone. There were people who cared about me and wanted to help me succeed.

Finally, I reevaluated my trading. I reviewed every trade I had made in September. I analyzed my mistakes and learned from them. I reestablished my trading rules and committed to following them. I focused on quality over quantity. I reminded myself that it was better to take one well-researched, high- conviction trade than to take multiple reckless trades. I regained my discipline and patience.

By the end of September, I began to see improvement. My trading account started to recover. My mental state improved. I felt more in control of my life and my trading. Hitting rock bottom was a painful experience, but it was also a turning point. It forced me to confront my weaknesses and make necessary changes. It made me a stronger trader and a stronger person.

Chapter 10: Community

October brought a sense of renewal. I began to realize the importance of community in trading. Up to this point, I had been trading in isolation. I was too proud to reach out for help. I felt that I needed to prove myself as a trader. However, the struggles I faced in September made me realize that trading is not a solitary endeavor. We need a community to support us, to share ideas, and to keep us accountable.

In October, I joined several trading communities online. I found groups on Twitter, StockTwits, and various trading forums. I started to participate in discussions, share my trades, and ask for feedback. I also began to follow several experienced traders who were generous with their knowledge. I learned a lot from their insights and strategies.

Being part of a community had a positive impact on my trading. I no longer felt alone in my journey. I had people to turn to for advice and support. I also had a sense of accountability. Knowing that I would share my trades with others made me more disciplined. I wanted to make sure that I was making good trades and following my rules.

One of the most valuable aspects of being part of a trading community is the opportunity to learn from others. Experienced traders have a wealth of knowledge that they are often willing to share. They have been through the same struggles and challenges that new traders face. Their insights can help shorten the learning curve and provide guidance during difficult times.

In addition to online communities, I also sought out real-life trading buddies. I found a few local traders in my area and we started to meet up regularly to discuss trades and strategies. These meetups were incredibly valuable. There is something about face-to-face interactions that cannot be replicated online. We were able to build trust and camaraderie. We shared our successes and failures, and we learned from each other.

One of the key lessons I learned in October is that trading does not have to be a lonely journey. There are many people out there who are on the same path. By building a community, we can support each other and grow together. Trading is challenging enough on its own. Having a community can make it a little bit easier.

As October came to a close, I felt a renewed sense of purpose and motivation. I was grateful for the support of my trading community. I realized that I did not have to do this alone. There were people who wanted to see me succeed and were willing to help me along the way. This sense of community gave me the strength to keep going and to continue pursuing my trading goals.

Looking back, I wish I had reached out to a trading community earlier. It would have made my journey less difficult and more enjoyable. For new traders, I highly recommend finding a community to join. Whether it is online or in-person, having a group of like-minded individuals can make a huge difference. Do not be afraid to ask for help and to share your experiences. We are all in this together.

Chapter 11: Technical & Fundamental Analysis

In November, I decided to dive deeper into both technical and fundamental analysis. Up until this point, my approach to trading had been somewhat superficial. I realized that to become a consistently profitable trader, I needed to have a thorough understanding of both technical patterns and the underlying fundamentals of the companies I traded.

Technical analysis involves analyzing price charts and using various indicators to predict future price movements. Some of the key concepts I focused on were support and resistance levels, moving averages, and volume. I also studied chart patterns such as head and shoulders, double tops and bottoms, and flags and pennants. Understanding these patterns helped me identify potential entry and exit points for my trades.

One of the most valuable tools in technical analysis is the use of moving averages. Moving averages help smooth out price data and highlight the direction of the trend. There are different types of moving averages, including the simple moving average (SMA) and the exponential moving average (EMA). I learned to use the 20-day, 50-day, and 200-day moving averages to identify trends and potential reversal points. For example, when the price crosses above the 50-day moving average, it can signal a potential uptrend, while a cross below the 50-day moving average can signal a potential downtrend.

Volume is another critical aspect of technical analysis. Volume measures the number of shares traded during a specific period and can provide insight into the strength of a price move. High volume during a price increase indicates strong buying interest, while high volume during a price decrease indicates strong selling interest. By analyzing volume, I could better understand the conviction behind price movements and make more informed trading decisions.

While technical analysis focuses on price action and patterns, fundamental analysis involves analyzing a company's financial health and business prospects. This includes reviewing financial statements, earnings reports, and other relevant data. I began to study balance sheets, income statements, and cash flow statements to get a better understanding of a company's overall financial health. Key metrics I focused on included revenue growth, profit margins, and debt levels.

One of the most valuable insights I gained from fundamental analysis was the importance of a company's earnings reports. Earnings reports provide a snapshot of a company's financial performance over a specific period and can significantly impact the stock price. I learned to analyze earnings reports to identify trends in revenue and earnings growth, as well as any potential red flags such as declining margins or increasing debt. This helped me make more informed decisions about which stocks to trade and when to enter or exit a position.

Combining technical and fundamental analysis provided me with a more comprehensive approach to trading. While technical analysis helped me identify potential entry and exit points, fundamental analysis gave me the confidence to hold a position based on the underlying financial health of the company. This combination allowed me to make more informed and rational trading decisions, reducing the impact of emotions on my trades.

One of the most memorable trades I made in November was with DryShips (DRYS). DryShips was a highly volatile stock with significant price swings, making it an attractive target for day traders. Using technical analysis, I identified a potential breakout pattern and entered a long position. I also reviewed the company's earnings report and balance sheet, which showed some positive trends despite the overall volatility. This gave me the confidence to hold the position longer than I normally would have based solely on technical analysis. The trade ended up being highly profitable, and it reinforced the importance of combining both technical and fundamental analysis in my trading strategy.

In conclusion, November was a pivotal month in my trading journey. By delving deeper into technical and fundamental analysis, I gained a more comprehensive understanding of the markets and improved my trading strategy. This combination allowed me to make more informed decisions, reduce emotional trading, and increase my overall profitability. For any trader looking to improve their performance, I highly recommend investing the time to learn both technical and fundamental analysis. These skills are essential for achieving long-term success in the markets.

Chapter 12: Reflection & Future Plans

As the year came to a close, December was a time for reflection and planning. It had been a year of ups and downs, challenges and triumphs. Trading stocks had proven to be more difficult than I had ever imagined. However, it was also incredibly rewarding. The journey had taught me valuable lessons about myself, the markets, and what it takes to succeed as a trader.

Looking back on the year, I was proud of the progress I had made. I had started with little more than a dream and a desire to trade for a living. Over the course of the year, I had learned about technical and fundamental analysis, developed a trading plan, established rules and routines, and found a supportive trading community. I had faced challenges and setbacks, but I had also experienced moments of success and growth.

One of the most important lessons I learned was the importance of perseverance. Trading is not a get-rich-quick scheme. It requires hard work, discipline, and the ability to learn from mistakes. There were times when I felt like giving up, but I reminded myself of why I started this journey in the first place. I wanted to achieve financial independence, pursue my passion for trading, and live life on my own terms. These goals kept me motivated and focused, even during the toughest times.

As I looked ahead to the future, I knew there was still much to learn. The markets are constantly evolving, and there will always be new challenges to face. However, I felt more prepared and confident than ever before. I had a solid foundation of knowledge and experience to build upon. My plan for the future was to continue improving my trading skills, stay disciplined, and remain open to learning and adaptation.

In addition to my personal trading goals, I also wanted to give back to the trading community. The support and knowledge I had received from other traders had been invaluable. I decided to start a blog to share my experiences and insights with others. My hope was to help new traders avoid some of the mistakes I had made and provide them with the tools and knowledge they needed to succeed. Trading can be a lonely journey, but it does not have to be. By building a community and sharing our experiences, we can all grow and succeed together.

As December came to an end, I took some time to relax and recharge. I spent time with family and friends, reflecting on the past year and looking forward to the future. Trading had become an integral part of my life, and I was excited to see where the journey would take me next.

In conclusion, Year One of my trading journey was a transformative experience. It was a year of learning, growth, and self-discovery. I faced challenges and setbacks, but I also achieved successes and milestones. Trading stocks is not easy, but it is incredibly rewarding. For anyone considering a similar path, my advice is to stay disciplined, keep learning, and never give up. The journey may be tough, but the rewards are well worth it. Here is to a successful Year Two and beyond.

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