In this episode, I want to break down a recent $30,000 loss I took. Yes… you read that right: a $30,000 loss. I am going to break down the story behind it, the blessings that have come from it, and an important message to you that you can learn from it.
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Here’s the backstory:
I almost didn’t write this blog post and record the podcast. I know my mom would be questioning why I am doing this because why would I put my business on the internet? Sorry mom, this is the world we live in and how we learn. I want to be completely open and transparent with my readers because a lot of times people in this industry often post the big trades. I do this too – I share “Oh yeah I made 85% return on this trade” or “I made 10 grand in 3 days”. But rarely does anyone talk about the losses they take.
So I decided that it is now time to share some of the losses I have taken. And I hope that this helps people realize that no matter what level you are at, mistakes can be made. But there are things that you can learn from them.
There are people who have lost even more money than I have and there are those who are just getting started and you may loose 200 bucks or 2 grand and I want to give you encouragement: It is not the end of the world. I lost 30 grand and I am okay. Life goes on.
That’s a big reason why I wanted to share this in this episode instead of always talking about the wins which leads you to think you can get to a level where you never lose. The reality is – how do you get to a level where you can manage the loss and risk and control your mindset associated with the loss?
I was initially in a trade, I am not going to share the name of the stock, and the stock did exactly what I thought it was going to do. I got in at support, and in fact even in our Power Trades University coaching session, it was one of the stocks that we talked about. And again, the stock did just what we thought it would do. The members and I even discussed where we would get out in the trade.
I was in the trade, did an advanced option strategy on it, and it was working! It wasn’t the strategy… It was a silly mistake I made.
Initially I was up $16,000. How does this turn into a $30,000 loss? Well… I didn’t follow my process. I normally fill out my Trade Ticket, which is in the Foundations course, and it talks about where the stock market is at, where you’re buying the stock at, a ton of helpful questions that help you walk through the trade and navigate when to get out.
So here’s the deal: I was going to a wedding in Canada, and the wedding was on Good Friday, which the market is closed on. The option didn’t expire until April 21st, 2017, but yet for some reason, I thought the option expired on Good Friday, which was April 14th.
The stock took a sell-off and I knew I had to close it on that Thursday, April 13th because I would be flying out and then the market would be closed the next day. I closed the trade. Took a $30,000 loss. I salvaged some of the money in that trade, I was in other trades, so I knew I could just get ’em on the next one.
I go to the wedding. And then I realized… The option actually expires the following week! The stock rebounded on Monday and Tuesday, but I had already sold it and closed it out. When it rebounded, I could have recouped about $22,500. I would have saved that much money! I would have only taken a $7,500 loss.
I was a little hurt. “How did I make this mistake?” I asked myself.
And this was a crazy weekend… I mean my wife and I missed our first flight, had to take a later one, which put us into Canada late and we needed to get to the wedding on time. So I am speeding to the wedding and on our way, I get a speeding ticket in Canada. The cop reduced the cost which I appreciate…but…
…What went wrong?
Well I had to reflect and ask myself: What is going on with my preparation? With my trades? Getting to the airport on time even?
When I got in the trade, I did not fill out my Trade Ticket. I trade often enough so you get in the zone where you feel like “Oh yeah, I’ve got this”. Like for example in the podcast “4 Stages of Stock Market Competence“, I talk about stage 4 which is Unconscious Competence, where you don’t have to think about placing a trade you just place it. Look at the chart, do the math in your head, and execute. I also talked about in this episode one of the dangers you face in that stage: you get cocky. You start to make mistakes.
I had to look at myself and ask: “Am I getting cocky?” I didn’t even fill out the Trade Ticket, a minor mistake of not knowing when the option expires, which I would have known had I filled out the Ticket and written it down. A minor mistake cost me $30,000.
This was probably the same reason why I didn’t get to the airport on time which led me to speeding which led me to getting a speeding ticket: something was wrong with my preparation.
The process is the process for a reason. Filling out a Trade Ticket is a part of my process for every single trade, and this has been built on years of trading and the mistakes made when I didn’t have that process. No matter how small it may seem, you want to get in the habit of writing your trades down. Why? So you don’t make mistakes like I just made. There is no reason why I shouldn’t have known the date my option trade expired.
I can laugh about it now, I’ve lost more than that before, but the process is the process for a reason.
Greed is a never ending thing. Initially, I was up 16 grand. There was no real reason for me to do an advanced strategy to get up in the trade. Looking back: Why didn’t I close it down right when I told my students in the Power Trades University to close it down and take that 16 grand? The biggest things you have to battle in this industry are: fear and greed.I wanted to make more than I already had, that’s greed. And that part of me took over!
We are humans, we are flawed. No matter how good you get at trading, no matter how much money you make, there will always be a push and pull with fear and greed. The happy place is to live, like Jim Rome used to say, is somewhere in the middle – ambitious yet content. If you get there, you can control the greed.
You at some point will always battle greed: you want a promotion on your job, you want to make more money on the trade, a bigger house, a better car, etc. I had to put my greed in check after this loss. It was a very humbling experience.
What to do after taking a big loss:
After taking a loss, no matter how big or small depending on your trading account, you have to be able to analyze what went wrong. Always analyze your system and where the break down is there. My biggest systems have come from taking losses.
From that, I ask questions to students to help you find and follow a system that has been put in place. What is your “I’m wrong” level? That stuff didn’t just come from thinking it will be cool – it came from me losing money from not knowing the answers to the questions.
Analyze the system, determine where the break down happened, and figure out how to fix that leak. What checks and balances system do you need to put in place to make sure that it doesn’t happen again? It could be getting a trading partner, talking to your spouse about it, or something else. Make sure that you don’t skip steps and make simple mistakes.
Another thing you need to do is not to take it personally. Something that I have seen is when new traders take their first loss, they tend to beat themselves up and say “I’m not smart, I knew I couldn’t do this” etc. It is very important that you view it for what it is: a business transaction. You are in an industry where you are trying to better yourself and inevitably, at some point, you will take a loss. It is not personal. It is not a crack against who you are as a person, as a mother or father, as a son, as a husband or wife, etc. It has nothing to do with it.
I tell you what: years ago if I had taken that loss, I would not have been able to do this episode and broadcast to the world that I took that loss. But as you grow in this industry, you realize that it is a part of the game and that is it.
A weak-minded person sees loss as an excuse to bow out of the game. A strong-minded person sees this as an opportunity to grow and become stronger.
Let’s take an example: George Soros. He is an investor than manages over 30 billion dollars. Early this year, he lost 1 billion dollars in his hedge fund because he thought the market would go a certain way when Trump got elected and it didn’t. When you look a loss of 30 grand against 1 billion – George is probably looking at my loss thinking “Kid, I loose that in like 10 minutes”. The point? There are levels to this. I would love to get to that level where I am doing a podcast about loosing a billion bucks.
If you fall off of a horse, get back on. Same thing in the market, it is important to get back on and place another trade. Maybe that means place a practice trade. Don’t get a mind thing about it where you second guess everything you do and second guess the market.
I could’ve done that: Oh man I teach people this and does the market really work and so on but no – I actually got back on a few real trades. This is what we do – we put money to work. That is the industry we are in.
The blessings in disguise:
1. It’s a blessing to even have 30 grand to even be in the stock market, or whatever amount that you may have.
2. Taxes. You can only make up to a $3,000 loss in the market. So let’s say the rest of the year I don’t make that money up from my loss, or I make an even bigger one, or it stays the same. At the end of the year, I am able to write that off using a “carry-over” loss, onto the next year. Let’s say next year I make 50 grand in the market, I will get to write-off $27,000 from the loss in 2017. I was able to offset the gain. You can write off up to 3 grand, carry over 27 grand until the following year, and if you make more you subtract the previous year.
My message to you:
Are you following a process? Do you have one? The process is a process for a reason and when you start to skip steps you open yourself up to making mistakes.
Are you playing the long game? Are you in this to make a few bucks and the moment it doesn’t work you get out? Me personally? I am in this for life. This is a way of life for me. The stock market will always be around.
How do you view money and how do you view losses? Do you get negative and down on yourself? Mindset is one of the most powerful things that you can have. It is not about being right or wrong: it is your daily mindset. When I saw I didn’t fill out the Trade Ticket on my trade, I also looked at the fact that I missed my flight to get to the wedding, and I was speeding and got a ticket. You will see your life patterns will show up in your trading. If your life isn’t right, you cannot succeed in trading because of those character flaws. Lack of discipline and things like that will show up in your trading. The stock market has a way of revealing these things to you.
Money doesn’t make you who you are, it exposes who you already are.
I learned a lot from this loss – how to reflect on my life and see what I need to adjust, the blessings that can always be in view, and how to proceed after taking big losses. I hope you learned a lot from it too, and that my message to you sinks in.
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