The Top 3 Trades I Learned the Most From
The Top 3 Trades I Learned the Most From
You will often hear the phrase "I have learned more from my losing trades than my winning trades". Wild I know, but usually true. As humans we aren't the biggest fans of "losing", especially when it's our hard earned money. I know many Real Life Traders who have learned very valuable lessons from losing big on a trade. I also know many people who claim that they can't learn a lesson unless they use real money. To those who need to trade real money in order to learn, I can appreciate that.
I truly do suggest trading with virtual funds for at least a few months so you see how the process works. TRY to place a losing trade (yes, intentionally) so you can see how it looks when the trade goes against you.
Okay, let me get to the good stuff. If you have any questions about virtual trading, I'm happy to help. Shoot me an electronic message here email@example.com
The Third Trade: AG
So, this was really one of my first big losses. At this point I really had no clue how options worked. I had just crushed AG covered calls a few weeks back and decided to try call options.
Here's what happened. I wanted to be bullish on Silver. I heard all over the news and articles how bullish the thing was. So I chose to invest in AG. Why? No real clue. I was dumb. Simple. I looked at the chart at the time and thought to myself, "Well, that candle looks bullish". At some point that day I bought the 22.50 May Call option. The AMAZING Newsome Nuggets I picked up from this trade are as follows:
Analyze how far the stock has already moved. That was a bouncing candle, but the trend had already moved 'too far'. Public participation was over and getting in up here was 'fomo'. Stop had already moved over 100%, the pull back simply wasn't big enough. What is 'big enough' usually? After a stock moves 100% in value a 10% pull back is not the best place (to buy call options). I usually wait for a 30-50% pull back and then start planning some calls.
Don't buy options with less than four weeks to expiration, unless you plan on selling them ASAP. Use stops on options even if you are losing 50%. Losing 50% of $10,000 is better than losing 100% of $10,000. That's exactly what I did on this trade. I lost my entire investment. Believe it or not, the next day it gapped up just a little, but from where I bought it my trade was up about 15%, or $1,500 in this case. I was happy, but I wanted more! The bad part... May 2nd, my birthday, was the day the stock broke through support. My option lost about $4,000 that one day. Not my favorite birthday. I do not even recall what I did. Wow, I learned so many lessons on that one. Looking back at it now it's comical, as in Jim Carey comical. Learn from your losses!
The Second Trade: AAPL
It almost pains me to write these down. We've all had losers right? Gosh...this guy has (I point to myself with two thumbs). This is one I'll never forget and it taught me a valuable lesson, to the tune of $15,000. Thankfully it's lessons like these that I can pass on to awesome Real Life Traders like you. I'm built to endure. I've got a tough spirit. This trade though, wiped out about three to four months of consistent gains! This is the type of trade that scares the heck out of traders. This is the trade that many will point to and say "See, credit spreads do not work".
Folks, the valuable lessons I've learned on this one spread have impacted the world over. Trust me. It totally revolutionized the way I trade credit spreads and the way I teach them. AAPL, this beautiful vixen, was on a tear in 2012. Do you all remember this one? Well on 2/15/2012, all the traders on TWTR and FB and LNKD were super confident and posting comments like "AAPL has to pull back" and "there is no way this stock can stay at this trajectory for this long".
At the time I thought, yummy, delicious bear call spread time. P.S. If you don't know what a bear call spread is, or even a credit spread, I'll teach you. Remember, all educational videos are free and outstanding. Feel free to watch and learn!
Between the time I sold this bear call spread and the day I'm writing this article (7/23/14), AAPL has had a 1:7 split. [Just giving you some back ground because the chart won't be exact.]
Therefore, at the time I got into a 525/530 bear call spread. Meaning, I sold to open the 525 call and bought to open the 530 call on 2/15/12. After all, I had to pay for Valentine's Day, right?
The spread had an expiration of sometime in March and I would have made roughly $1.00 (or 20% ROI) on this spread. I did 30 contracts. The spread was $5 which means my margin on hold was 3,000 x 5 = $15,000.
Now, that might sound like a lot of money. And at the time it was. I think I was trading with about 60,000? So I'm using 25% of my account at risk ON ONE TRADE. [Dumb] Had it worked, I would have made $3,000.
But it didn't. That's why I'm writing about it. (HAHA! Sorry, I have nothing to do but laugh about this one.) Well, about 8 days later, AAPL traded down a bit and pulled back. I could have closed the spread at that time for around .70 (a gain of .30 or in this case $900 in about a week).
I thought I was a genius. The next few days, not so much. You see when you do a bear call spread you want the trade to go down or sideways. AAPL was still going up, which was not good for me. You can see what eventually happened in the chart. The next few days and I began losing some serious coin as AAPL went higher. I panicked. I was scared. I didn't want to exit for a loss. I was terrified. I had a fear of losing money.
I held to expiration, I lost the entire $15,000 and life was awful ~ again.
What did I learn, you ask? The most important lesson I learned: You should always trade spreads in the direction of the trend. AKA, NEVER try and pick the top of a trend with a credit spread. Either trade in the direction of the trend or wait.
Had I done a 505/500 bull put spread I would have made only 10-13% on the trade, but it would have worked. If you ever sell an option against the trend (meaning if the trend is mega bullish and you do a bearish option play) make sure it expires in one or two weeks max! If / when a counter trend trade is 25-50% profitable, simply exit. It is, after all, counter trend. With the timing and price movement going on when I did this spread, I could have made .30 cents on the dollar the morning of 3/6/14.
So, lame! If you do a spread, unravel at the first sign the stock is no longer going the direction you want it to. When would this have been on this trade? 3/8/12 for sure.
Bouncing candle, higher high / higher low off the EMAs... exit the bear call either by unraveling [which would have been buying to close the 525 short call and holding onto the 530 long call] or simply close the whole spread for a small loss at that time.
Folks, those are some huge and expensive lessons that are very crucial to spread trading. I still to this day, love trading spreads. High probability wins and you can absolutely mitigate your losses if you know what you're doing. It's all about the timing.
The First Trade: SLV
This metal has given me more insights than any other intangible object I can think of. THIS was a mountain of a lesson for sure. To make a long story short, I bought at the top. THE VERY TOP.
Now, maybe you're thinking, "Oh well, at least he bought shares".
No, I didn't. HAHA! Calls. Calls that expired in two to three months. And I held them. Lost $16,000 when that bubble burst.
What did I learn?
#1 Market sentiment is very important. Don't be that person, meaning, if everyone is talking about the stock and it's just a rocket ship to the top... it's unsustainable. Don't buy, wait for the pull back.
#2 It helped me learn and understand what a bubble is and how to trade it.
Here are a few others I've called since then.
#3 I learned how powerful the news is. That's the main reason I bought this. Everyone on the news, websites, in my office, they were all talking about how much money they were making or had made on SLV and I felt I was missing out. And yes, I EVEN looked at the chart. I thought it could go higher! I even prayed for it would go higher...It didn't. I was dumb.
#4 It helped me learn the power of doji's, especially high wave doji's, especially at all time highs.
Doji's are powerful my friends. USE THEM, learn them!
This is a reflection, a very small reflection, of my trading, my history and my journey. Wow, what a battlefield the markets are ladies and gentleman.
But now my perspective has changed! The markets are now a playground! My mission has also changed! I'm determined to educate the masses, to build a finance centric trading culture the globe over that gives people the freedom and insights to become the people they need to become in order to trade successfully!
Thank you so much for reading! Please tell as many people as you can about the free education that Real Life Trading offers :)
This is Real Life, ladies and gentleman.
LOVE LIFE, LIVE LIFE and TRADE IT!
~ Jerremy Alexander Newsome