Somewhere by end April this year a forex trader shows a phone screen of his recent losing trades costing him some RM500 millions.
I didn't suspect anything at first, and choose to believe what was being told as an act of hacking by some random guy, so as to bankrupt his forex business.
Then I saw a comment, 'so easy lose meh? this hacker must be a pro! all trades red color one!'
Ok, today I'm compiling some of the most undesirable behaviors committed by both investors and traders alike. Losing money is more than just seeing red mathematical figures. It is emotionally draining. And yes, it drives your confidence down. Yet, if such attitude is left unchecked, it will bring disastrous result to your portfolio.
Here are some of the ways to lose money, if you want to know.
1) over trading. 买进杀出。
Unless you're a soldier or General who is constantly engaging in a win-or-death situation, a trader must insist his urge to trade every single moment. I understand that you have some cash left, and you want to maximize your return by putting it to work.
Just remember that every time you're going in and out, your remisier is very happy, regardless whether you earn or lose.
In fact, just this week my remisier called me and ask if everything is okay. In retrospect I found out that I have not been actively trading for 2 weeks, and dia punya commission less liao...sad lo.
Focus on fewer trades. It makes you concentrate. For FA player, it's good time to study more. For TA player, always wait for signals to emerge. For pokai player, fast buy sapu~ gg liao red color, sell~ aiya green again, buy~
2) Average down.
This one mati orang. Especially when dealing with stocks lacking of fundamentals, you should always triple check your fact, your data, your TA, to see if average down is the wisest thing to do. You're already losing money. To add more monies into losing position is to risk enlarge your exposure to this single counter.
Worse, you want to average down for the third time!
Remember, there are plenty of flowers elsewhere. Those with good ROEs, fairly valued PEs, attractive dividends, etc.... you don't have to be always right.
In fact, I make it a practice to never add to my losing positions. I'll just admit my wrong, and if it hits my cutloss, fine. I'm out. Or I'm okay to be in long-term investing horizon, fine for me. I will only average up.
3) Leverage
This is the single reason why people jumped from building.
Please, for the love of your family, your friends, your colleagues, and your loved ones, be extra cautious with the money that you do not have, e.g., debt.
For those with margin financing, especially those newbies, you must make sure that you have a set of cut loss rules when things went south. We understand that you want to get bigger returns. Please also calculate your downside risk (e.g., how many % to cut, broke support line, adverse news, changed thesis), and also pay attention to the interest. To play safe, insist on cash trading account. Invest/trade only with the money you can afford to lose.
There's a famous saying. Leverage + option (warrant) is the fastest way to the widow's house.
4) All-in. I.e., sailang
Have you watched how thrilled it is for a poker player to sailang at river? Or worse, when only 3 cards are opened?
You studied a counter very carefully. You have talked about its strong balance sheets, its recent performance, its likelihood to hit such-and-such a contract. You saw the technical indicators aligning together for that big 5th wave.
Lai liao lai liao.....semua masuk 1 counter.
Then what do you do?
Of course you pray. Because you're now forced into a buy-and-hold position. See what the poker player did after he sailang? He normally stood up, walked around, finger-crossed...
With this, you must understand that investment is by nature uncertain. I know that sailang brings about much higher returns. Who doesn't want to hit 100% every day, consecutively for 52 weeks? Then I can go buy yatch, tour the world, no need to work again, everyday eat sleep play?
Now you know there's wisdom in diversifying. Even buying 5 different stocks will significantly lower your risk. Benjamin Graham insists on minimum 10. Mutual funds even gila. How about you?
If you treat Bursa as a gambling place, you will get a gambling risk-reward. Ever see how people walked out of casino? Either he pokai, or he smiles. And, once you lose money in earlier games, you want to stay long enough to at least break-even....talk about human nature of not wanting to admit lost. And, yes, the last one is
5) Pride. Not wanting to admit wrong.
That's the reason the inner reason no.5, fueled by point 2 and 4, and speed increased by point 3, that a person eventually pokai and jump.
Pride is always there, and it must be resisted in trading/investing. If you're wrong, just move on. Study the mistake, and try not to repeat it. Do not insist until you're right. Ever see why a disagreement turns to a quarrel, then throw chair, then fight, then blood? It's because of pride by both parties. Both insist to be right.
At Bursa, for TA player, Mr. Market is always right. For FA player, Mr. Market will be right. For pokai player, I am always right.
Sincerely
Alex
p/s: after reading, I forgot one more. 'didn't set a cut loss'. I think you guys understand lar~
http://klse.i3investor.com/blogs/testing.com/128348.jsp
