How I lost $350K daytrading stocks and what I learned from it.

Summary

In this video, Tech Lead shares his personal story of losing over $350,000 in the stock market, detailing his mistakes in day trading, leveraged investing, and reliance on biased news sources. He reflects on the emotional toll of financial loss and the realization that money isn’t everything. Through this experience, he learned the importance of having a system to manage losses, the impact of high-frequency trading, and the value of asset diversification. Ultimately, he emphasizes the need to focus on lifestyle, skill-building, and personal fulfillment over pure financial gain.

Takeaways

• 😀 Overconfidence can be dangerous: Early success in day trading led to overconfidence, making the speaker believe that profits would continue indefinitely.
• 📉 The importance of risk management: Without a clear system to limit losses (e.g., stop-losses), small, frequent losses can compound into major financial setbacks.
• 💸 Leveraged investing is risky: Borrowing money to invest can amplify both gains and losses. The speaker's losses were significantly worsened by using borrowed funds.
• 📊 Technical analysis isn’t foolproof: Despite using various analysis methods like Bollinger Bands and Fibonacci lines, they failed to predict the market downturn in commodities.
• 📰 News bias can cloud judgment: Relying on news sources with a biased, doom-and-gloom outlook, like Zero Hedge, led to a distorted view of the market and bad decision-making.
• ⏳ Timing is everything: News that seems fresh and valuable to individual investors is often already absorbed by high-frequency trading robots, which can make it outdated by the time it reaches human traders.
• 🧠 Diversification over concentration: The speaker eventually shifted towards asset allocation, diversifying investments across stocks, bonds, and commodities to reduce risk.
• ⚙️ Algorithmic trading offers some advantages: After experimenting with algorithmic trading platforms, the speaker achieved small gains, though fees and brokerages ate into the profits.
• 🔄 Emotional resilience is key: Despite the large financial loss, the speaker learned to focus on lifestyle and personal fulfillment rather than obsessing over money.
• 🏢 The importance of a good work environment: The speaker values working in environments that foster comfort and satisfaction, rather than just chasing high-paying jobs with poor conditions.
• 🌱 Financial loss can be a learning experience: The speaker emphasizes that money can be gained and lost, but it’s important to focus on the bigger picture, including skills and experiences gained from setbacks.

Q & A

What is the central theme of Tech Lead's story?

The central theme of Tech Lead's story is about his personal experience with losing a significant amount of money—over $350,000—through day trading and commodities investing. He reflects on the emotional and financial impact of the loss and the lessons learned from the experience.

Why did Tech Lead choose to invest in commodities in the first place?

Tech Lead decided to invest in commodities because he believed they represented a good diversification strategy. He thought commodities were stable since they were based on physical materials and that the weakening US dollar would benefit them.

What happened to Tech Lead's investments in commodities?

Tech Lead's investments in commodities, particularly in the second half of 2014, suffered a significant loss when commodity prices dropped by 40%. This drop, referred to as the 'commodity price shock of 2014,' was triggered by various macroeconomic and financial factors.

What factors contributed to Tech Lead's large financial loss?

Several factors contributed to Tech Lead's loss: overconfidence from early successes, reliance on leveraged investing, following biased news sources like Zero Hedge, and failure to adapt to the market's complexities, such as the dominance of high-frequency trading and institutional investors.

How did Tech Lead's use of leverage impact his financial situation?

Tech Lead's use of leverage amplified his losses. He borrowed money from his brokerage to invest in the market, hoping to earn more than the interest on the loan. However, when his investments started declining, the leverage made his losses much worse.

What did Tech Lead realize about the role of news in stock trading?

Tech Lead realized that relying solely on news, especially niche or biased sources, was ineffective. He learned that by the time news hits mainstream outlets, high-frequency traders and algorithms have already acted on it, making the news old and less useful for timing investments.

What was Tech Lead's conclusion after his financial loss?

Tech Lead concluded that even if one can predict market trends correctly, success in trading heavily depends on having a system to limit losses. He realized that small losses could accumulate quickly and wipe out gains, especially when using leverage.

What new approach did Tech Lead explore after his losses?

After his losses, Tech Lead explored algorithmic trading. He used platforms like Quanto Pian to create Python scripts for trading based on earnings reports, and while the algorithms showed some promise, they generated too many fees and didn't yield significant profits.

How did Tech Lead shift his investment strategy over time?

Tech Lead shifted his investment strategy from active trading to asset allocation. He started diversifying his investments across different asset classes like bonds, commodities, and tech stocks, with a focus on long-term stability rather than short-term gains.

What life lesson did Tech Lead take away from his trading experience?

The key life lesson Tech Lead took away is that money can be gained and lost, and it's important not to focus solely on it. He emphasizes enjoying the process of earning, finding a job with a good work environment, and not sacrificing one's lifestyle for the sake of money.