My painful but great trading journey

by Jim
(Green Bay, WI)

I’ve been trading and investing for about 15 years. I got my start shortly after my first paycheck after college. A lot of my learning has been through the “school of hard knocks”, and here are some of the lessons I’ve learned.

I started out as a value investor, looking for companies that I thought were way undervalued. In theory this is a great idea, but what I didn’t understand at the time were two things. The first is the phrase “value trap”. I would put my money into small cap stocks that had virtually no chance of moving up, the daily volume was way too low. Great values, but they needed a catalyst to actually move the stock in the direction I wanted (up!). The second is conviction. I would put a lot of money into a position, but didn’t have the conviction to hold on to my position until it hit what it was truly worth. These positions, in larger cap stocks, would’ve let me retire by now if I had held on, but I’d get shaken out of them after minimal gains (or more likely sizable losses). On that point, stay away from the juice (that’s margin, a dangerous game that isn’t worth it unless you’re willing to lose everything).

Now that I have some experience, I have some hard and fast rules. First, I never take a position (either day trading or slightly longer term) without a defined exit point, either a loss or a gain. I also make sure that I have a reason for entering any position. News moves stocks, value does not.

One more note, if you’re looking to trade options, I’m a big fan of Interactive Brokers. They have some of the lowest commissions out there for options trading. Be sure to stick to options that have low spreads, otherwise you’ll give up a big chunk of your profit when you exit your position. I’ve done pretty well by spreading out my bets on options, I’ll take small positions in a number of different companies, the wins can be really big (over 200%) and make up for all the times I’m wrong.

Barry's Reply:

Nice post Jim. There's some good advice in those words.

I think many of us are guilty at one time or another of chasing value stocks, or least what appears to be value at the time. And, as we both know, sometimes that value just keeps getting cheaper and cheaper and cheaper. That's known as momentum and good reason to position trade with the trend.

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