This is the story of my first major day trading failure. It’s the story of how one stupid mistake caused me to wipe out my entire account in a day.
It happened about six months after I started trading. By that point my account was down about 50% from where I had started, which isn’t too bad compared to most newbie day traders. What happened next was much worse though.
I was trading intraday momentum setups on the e-mini futures, and I did okay when I was patient and waited for the best setups. But then I got impatient and started looking for other ways to make money in the market. I found some other traders talking about scalping on a forum. They were scalping the same S&P futures that I was (the eminis) and it seemed to be working well for them. So, I started scalping, for small gains. I would look for an area of support or resistance, and then fade the market at the exact level I thought it would turn. Then I would take a quick profit, or a quick loss, and look for the next trade.
I did okay scalping, but soon realized to really make any money I would have to up my trade size. So, I increased my trade size to the maximum my account size allowed.
The very day I increased my trade size, everything went wrong. The market was in a very weak trend, and I kept trying to pick the low for a bounce – and I got stopped out every time. And then when the market did bounce, I didn’t get fulfilled, so I missed the trade. I was so irritated I decided to call it quits for the day and slammed my laptop shut.
I didn’t even know that the index had carried on falling all day, and overnight, until I turned on my computer the following morning. That’s when I found out the market had fallen another 20 cents. And then, I saw an urgent email from my broker saying I had to top up my margin account. I immediately realized what had happened, and a sense of complete dread came over me.
The previous day when I had slammed my laptop shut in a fit of frustration, I hadn’t canceled my bid. Without knowing it, I had a long position with maximum leverage while the market was in freefall. It turned out my broker had actually closed my positions – but not before my account had been wiped out – and more. I now owed my broker about 30% of the original account size. Fortunately I didn’t have all my savings in my trading account.
This was my biggest day trading failure, and it came about because of a series of events and decisions. Firstly, I became impatient, and rather than mastering my original trading strategy I started looking for other ways to make money. Then, I increased my trade size and took on far too much risk. In the end I completely lost perspective and made a series of mistakes that caused me to lose money and then turn off my computer without checking my positions and orders.
The biggest lesson I learnt from this episode was the need for help and mentorship when you start out. After my disaster I signed up for a mentoring course which got me back on track. I now realize that if I had a mentor in the first place the whole disaster probably wouldn’t have happened. It’s too easy to lose perspective and go off course when you are starting out. A mentor can quickly tell when you are losing control of your trading and get you back on track.
