Stupid

This week has been pretty peaceful so far. Except for the fact that I lost 7 days worth of salary within a few minutes on Monday night.

It was on impulse, based on nothing but the news that AIG received a larger amount of bailout funds. The stock gapped open at $2.77 from Friday's close of $2.11 and shot up to $2.84 a within few minutes after it opens. Then it come down and fluctuate around $2.60s. I bought 4000 shares at $2.68. A few minutes after I bought, the stock plummeted straight down to $2.50s region.

I cannot believe my eyes. This is way more than I was prepared to lose. I quickly sold my shares at $2.53 while recovering from my shock. A quick calculation factoring in US exchange rate and brokerage fees told me that I lost about a third of my salary. I went to sleep wondering if I should quit trading.

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I don't mind telling everyone my fiasco. You all can think I am stupid if you want.

I admit I am stupid.

You may think I am even more stupid than stupid if I am not going to quit trading. And yup, I am NOT going to give up trading.

Go on, think what you want.

I have come to terms with my loss. Now I know what my mistake is - I trade impulsively. I am really gambling! Hence this crushing defeat. Now I VOW I will follow my own trading system to the letter and never make any impulsive trades again!

Tomorrow will be better! =)

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I have been pondering long and hard on this strategy that many common investors have been using - "Buy and Hold". Everyone adopt this strategy these days - friends, my mom, and even me. "Buy and Hold" works pretty good when the market is good, but led you to Hell when the market crash, as many of you will have experienced now if you did some investing of you own.

Talking about my own experience, 6 months after I bought my China fund, I have a whooping 90% profit! But now, not only the profit was all gone, 30% of my capital has vanished! All thanks to the "Buy and Hold" strategy. I wondered, what could be done to prevent this from happening and even keep the profits. Market timing (as stated in my previous post) , perhaps?

Yesterday I have a flash of insight after reading books on stocks trading! The answer is surprisingly simple! It involves nothing about market timing, chart reading or complicated technical indicators. No rocket science.

It is a simple money management technique called Trailing Stop Loss!

Simply put, it is to constantly set a maximum amount of money you will allow yourself to lose / eat into your profits. A rough example: when I first buy my fund, I should set my stop loss at -10%. That is to say, if the fund loses 10% of its value, I sell. (Rationale behind being, if I lose 10%, that means I am WRONG to invest in it! Better correct it before it become more 'wrong'!)

Then as the fund goes up, my stop loss level go up. Eg. when my fund goes up +20%, my stop loss will be increased to +10%, when my fund goes up 30%, my stop loss will be increased to +20% and so on.

Back to my China fund example: Hence when my fund reach +90%, my stop loss level will be +80%. So when my fund price drop to +80%, I should have sold, keeping 80% of my profit! This is much better compared to the situation now, where I loses 30% of my capital!

Of course, discipline plays a large part - you MUST sell when your stop loss is reached. But the Trailing Stop Loss concept isn't too hard to understand, isn't it?

Now then I think of it, damn! I am so stupid. Some lessons in life are so goddamn expensive!

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Change topic: Gundam 00 Season 2 is out! Woohoo!

Intellectually cool. Explosive actions. Emotionally engaging. Wow graphics. Intriguing plot. What more do you want?

 

Oh ya, Madagascar 2 is damn funny! "I like to move it move it!"