Ask HN: Any of you took a loss while trading? How did you handle it? | Hacker News Reader

Ask HN: Any of you took a loss while trading? How did you handle it?

17 pointsrootsudo16 comments

For me, it was yesterday on GDAX.

What are the best ways to improve myself over it?

The amount loss wasn't much, but stings.

I suggest you don't trade and instead focus yourself on growing your assets by working and doing value investing.

Trading is a 0 sum game. It's the same as playing in the casino. The only one who makes money consistently with trading is:

. your broker

. people holding illegal priviledged info not released yet in the media

. big funds, tricking people like you

In the long term, the value of stocks follow the profits which companies have, If you manage to learn how to do value investing, slowly and calmly, never really selling the companies you commit yourself to, while focusing at your work(which usually pays way more than what you can earn in the stock market).

I think generally people are addicted to losing, to having the thrill of winning/losing something, but when actually, if you want to get rich and consistently become wealthier, there's no thrill and it's a quite boring road. It's up to you which one you could take. The internet is full of forums with crazy people which pretend to be traders and winners but they are all actually addicted to the thrill and losing. Just check how much people are crazy about failed businesses and penny stocks. I wouldn't bet my money or even less something more important: the peace of my mind into this crap.

I want you to answer me a question: how anxious are you? I think a lot. You even came to HN to talk about your loss. I think you are one of the people who will never win on this game, but can actually win in life. You just need to learn how to control it.

I've been managing to grow my assets slowly for years. Have been enough time in the market. If you want to know more, shoot me an e-mail. I won't tell you what stock to buy, but guide you so you can make your own choices. I can already live a few years without working, but I'm so satisfied with my life that I don't have to. I travel every year and so on... and don't even make that crazy software dev salary some people in the US can.

Also... practice Sports. The more you live, the more money you can make.

I used to be very sick about trading and so on. Now I'm healthier, wealthier, less anxious and everything.

> practice Sports

Why advise this rather than focusing on core exercises to build injury resistance and a healthy metabolism? Is it just that in your experience, sports are a good way to motivate yourself to keep to an exercise regimen? Or something else?

I said it in general, some people find one or two things boring, but generally there's at least a sport or something that involves physical activities that they do like. I advise them to do it.

The main issue is that people don't exercise regularly, while investing and thinking about their future, when that actually makes they live less and also reduce their potential investments returns(as yield doesn't beat time)

Would you mind sharing your opinion on index funds (VTSAX, VOO, etc) and corporate bonds?

Why would you pay somebody to administrate your own money and give you random results while you can do it yourself?

Corporate bonds. I don't know the legislation in the US, but if there's any chance of you losing your money in case of default or anything. Don't do it. Don't look at how much things yield, but also evaluate how much risk there's behind those things. Nevertheless, if you think it's a good idea, as long as you diversify your portifolio and is investing at most 10% on it. The worst that can happen is that you lose 10% of your assets.

In my opinion, just invest with good diversification in businesses you think are good. Read a book or two in value investing and only invest initially in companies which have not too much debt and have had profits in the last 5 years, for instance. As you progress and get more comfortable, do more complex analysis and invest in companies with a more free criteria.

It might be boring at the first place, but that will prevent you from losing money. If you aren't working for a fund and isn't absolutely rich, just getting a paycheck at the end of the month, the yield doesn't matter too much. Just do the math for the case below and think for yourself:

You save 1k a month for 30 years. Every year you get a liquid 3% yield(I'm making it simple by excluding inflation). Compare this to with a 6% yield(DOUBLE!). Just check how the difference is small.

Now, compare that you saved instead 1.1k a month for 30 years. Only 100 more. There you go. Do the maths, all the yield doesn't matter. 100 dolars in that case is 10% of the total income your assets will have monthly, it's a lot.

The stock market won't make you rich, saving and having intentions of growing your assets will.

#1 - Money/Risk management. You need a stop loss and a price target. Before you take a position on the market, know exactly how much loss you're wiling to take. Know exactly how much gain you're targeting. When you reach any of these 2 numbers, exit. Always stick to this strategy and you'll end up positive. Yes, you won't win the lottery, but this is how the pros do it. For a given position, on average people go for +5% gain then -3% loss. On a 50/50 scenario you're always positive over the long term.

#2 - Gain maximizer. Sell only half of your position on a winning trade when you reach your target point. You're covered in case it goes down (still need a stop loss). Then if it goes up it's all good :) Make sure to setup a second price target to exit. Always stick to rule #1. If you hang on to your stocks with no target price - like your average Joe - you'll go negative.

Welcome to the market.

I lost $30,000 in two weeks trading options and futures. It seems like a considerable amount but that account was started only a couple months prior with $5000. For me it was fantastic and extremely depressing all at the same time. Unlike most people I don't mind great risk for great reward, and I always learn something. The things I know now are worth more than the 30k lost. That's how I handle it, knowing that I now have possession of information worth more that the amount lost....which means I can duplicate the performance at any time.

I have dabbled many times over the last 20 years in trading and even done it rather professionally. There is no easy way to handle a loss. Take comfort in the story of a Ray Dario having lost everything to the point of borrowing 10k from his dad to get back on his feet and now managing 10s of billions.

Trading is a really hard way to make money.

The best way to bounce back from a loss is to make sure you will never ever place yourself in the position to make the kind of loss from which you can't recover.

You did this, now never ever do it again. There is no sense in trading unless you have a provable long term edge.

Most people would say good luck at this point. I would instead say, re-evaluate if trading makes any sense. Why do it?

Are you willing to spend 20 years "mastering it" only to accept one almost never truly masters the strangeness of financial markets, but perhaps develop a bit of character and pick up some sound principles and some unique chance insights for which there are no shortcuts.

When you learn index funds aren't any worse than actively managed funds, you realize no matter how much you learn, it's nothing.

It's better to learn how to handle losses psychologically and just find something worthy and wait on it in the long run.

It's certainly a personal risk tolerance decision as well balancing high-risk individual trades with indexing.

I only think about the percentage loss (and invest money I can afford to lose), and then buy and hold more often than not.

From my "fun" portfolio personally, which is mostly tech stocks, there are many small losers but a few massive winners that outweigh the losses. When I was trading on a daily / weekly basis I never saw this, but after holding for quarters it's become my new approach. Instead of checking daily, now I check the numbers every few weeks.

If it's any consolation, I got started with investing in the 3 months before the housing crisis in 2008 and watched 50% of what I invested in relatively stable funds disappear basically instantly. That was depressing but in time all of them came back. For longterm, you've really gotta trust dollar-cost averaging and just waiting out the bumps. After surviving that rough introduction, everything else feels minor.

I don't handle it, as it's always hard, but it's easier to take a loss if you go into a trade knowing what could invalidate your thesis. This is either from further research or the price action. Once you can admit the jig is up, and you are convinced the price can fall further, then it's easier to cut the loss. Then, it feels like you've made the right decision and you can move on. A kind of moral victory.

Risk Management. No more than 5% of your portfolio in a single company. No more than 25% of your portfolio in a single sector. A stop loss strategy. An exit strategy. The best investors in the world generate 20% returns year over year consistently. Don't be greedy.

Read The most important thing - Mark Howards.

From a trader's perspective, losses are the cost of doing business. When you're starting out, your losses are your tuition. An engineer spends at least $100K+ and 4+ years going school to learn their craft; why should it be any different for traders? (Aside from the fact that there's no school and no curriculum; there's only the library, the market, and your wits.) If you read the Market Wizards series, you'll find a lot of pros saying things that amount to "on average out of 10 trades 6 or 7 of them will be losers - but I keep my losses small and let my winners run."

Here's how it works for a casino: the outcome of any given roll of the dice (say) is random. But over a thousand rolls of the dice, the odds of the game are not random. For a casino, obviously the games are set up so the odds favor the house, and "in the end the house always wins." For a trader, your "odds" against the market are determined by your skill. Every individual trade is still essentially random, but if you're good at what you do - if your market analysis, entry timing, risk/money management, and adherence to your trading rules is solid - over a large enough sample size the outcome will be net positive. It's a strange duality for some people to grasp.

A good first read: High Probability Trading (Marcel Link)

The Bible: Reminiscences of a Stock Operator (Edwin Lefevre)

The basics: Technical Analysis of the Financial Markets (John Murphy), Japanese Candlestick Analysis (Steve Nixon - skip the first chapter), Trading and Exchanges (Larry Harris)

Good follow ups: All the Market Wizards books (Jack Schwager)

Psychology: Trading in the Zone (Mark Douglas), The Nature of Risk (Justin Mamis)

Less theory, more practical: Mastering the Trade (John Carter)

Putting it all together: How to Buy (out of print) and When to Sell (both Justin and Robert Mamis; slightly outdated but 100% worth reading.)

Some of these books are "expensive." But even if you only learn one thing from a book, it'll have paid for itself 10 times over. Take copious notes. Find the commonalities. Filter out the bullshit. Watch the markets; see what "clicks" for you. The trading exercise towards the end of Trading in the Zone is a great way to test yourself without risking a whole lot. (On that note, a theme you'll find, if loosing 2 or 3 thousand is going to be an issue for your current well being, perhaps better to wait to put money up until such a cost is somewhat closer to pocket change...)

If that all sounds like too much effort, then perhaps the more typical buy index funds and hold until you retire answer you'll often get around here is more your speed. No shame in it.

Before you start trading, do extensive back testing, especially on the risk management... also please note, you'll allways have losses, but if you control them and have a system with slightly better winning percentage, the compounding will make you rich in the long run...

Bought treasury bonds instead (Brazil).

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