This is not a story of success, but rather a story of a failure of an amateur trader. Sometimes lessons are learned by failures. Many experts and authors of trading like to state one fact that majority of amateur traders end up losing and keep repeating the same mistakes. Often times you will read or hear the expert traders saying one cannot become a real trader until they pay the tuition fee to the market. Tuition fee is that harsh price one pays with losses while being stubborn on insisting they are right even when the market keeps saying they are wrong.
I will never forget this stock ticker $CIE. It probably was my first tuition fee I paid to the market and learned some lessons that will last a lifetime, I hope. A few years ago as a new trader when I entered the stock market I did quite well. Some experts and authors call it beginners luck. Some even go further saying it is the worst thing that can happen to a trader - to win and keep winning in traders when they start. Rightfully so, it builds a false confidence that a trader is doing something right and must be good at it.
Within first three months I was able to double my portfolio of a significant sum using a basic methodology. Identify a range, buy low and sell high within the range. When we examine the price history for stocks, we can see some follow some range where prices go up and below, but most of the time lows and highs are close the the previous ones. For example there was one stock called $ANY, Sphere 3D company. When I started to trade it, its price would range between $0.30 to %0.36 in short time period. So all the trade the had to do would be place limit order close to low and sell it at a limit order high. Keep repeating the same process. In fact, this strategy worked and even one time exceeded all expectations and went hyperbolic and doubled in price. $ANY was a success story.
Like $ANY other range stock trades worked as predicted. I wasn't losing any trades. Deep down that made me worried. I was due for a loss. I knew wins and losses are part of the game. I wasn't delusional about that fact. What I didn't know is where that attack was going to come from.
A trusted friend of mine gave me a tip and suggested to look at $CIE, Cobalt International Energy. That friend was very competent when it came to finance and banking industry and worked at higher ups in on of the large New York banks. I had no reason not to trust. I did my usual evaluation for the range of the stock prices of $CIE. It looked good. The stock price was ranging between $1.10 & $1.20. Seemed like an easy trade opportunity. Buy low, sell high.
It didn't take long for market to prove me wrong. I bought the stocks at $1.10 but it kept going down and was trading at $1. That didn't make sense. I kept insisting something is wrong it is suppose to go back up. As an amateur trader I bought more at $1. This process of buying more and averaging down continued all the way up to $0.55. By then I was all in on $CIE. Luckily half of the portfolio was tied up on other stocks, so I only managed to spend half of the portfolio on $CIE. Finally, stress grew too strong and I couldn't take it anymore and sold it at half of the price I bought the stocks for. That was the tuition fee paid to the market for the simple mistakes that could easily been avoided if I knew better.
Luckily as a new trader I enjoyed the beginners luck and what I lost on $CIE was only the half of the profits I made before trading that stock. Nevertheless, it is one of the trades I would never forget and taught me several lessons. Today, CIE is not even listed in any of the major exchanges. It is probably either available on OTC or went bankrupt. I don't care much about it to look it up.
Lessons Learned:
Never blindly follow someone else's tips, even if they are most trusted and most knowledgable. It is important for a trader to do their own research and feel confident about their trades. Nothing wrong with taking tips. However, doing research on them is important as only the trader can determine the faith of their money. Blaming others after a loss won't do any good for a trader. A trader, amateur or not should take full responsibility for their actions in trading. Moreover, a trader cannot fully understand what variables and timeframes the tip giver is considering. Every trader considers different factors in play. Some look at fundamentals, some look at ta, some look at news, etc. There are so many variable. Every trader should make their own judgment independent of outside influence.
The most important lesson I have learned from this is that a trader should accept defeat when market says they are wrong. Remember we were trading the range? As soon as trade went against us and below the range that was the first signal to get out and move on. However amateur traders like myself become arrogant after some winning trades and think they know better than the market. Whenever the trade idea doesn't work out, it is the market sending a signal to a trader that the idea was wrong. Get out, and move on the next trade. Not only I continued to stay in the position, I started adding more to the loser. It went to $1, I bought more. It went to $0.90, I bought more. And kept doing so all the way down to $0.60 when I ran out of money. So, market says you are wrong, accept the feedback, cut the losses, and move on the next trade.
Unknowns. There are many thing we don't know about the market, the assets, the conditions, etc. With $CIE it became very obvious what the root problem was. Most of the public didn't know what the problem was. But there were those who knew. It became public after the fact many like myself already lost a lot. CIE was an oil exploration company that had business in Angola. They had assets off the shores of Angola worth at least 2 billions dollars. There was a corruption investigation on the company, which was cleared at the time I was trading it. It was public knowledge and good news. However that was the first flag, a trader should have noticed. The daughter of the Angolan president, Isabelle dos Santos was in charge of Energy Department and controlled anything oil related. This was a second red flag of corruption and nepotism. CIE was rejected a license at the time I was trading and their assets worth of two billions dollars were basically nationalized. That was the unknown most traders didn't know. Obviously some did, and kept shorting the stock.
In conclusion, $CIE is was the worst trade I have made and paid the tuition fee to the market. At the same time it has taught me valuable lessons that can be useful in future trades as I outlined above. I was lucky to pay the tuition from the profits of the previous trades. Next time I or any other amateur trader may not be so lucky. Avoid the tuition fee, do the research, get out as soon as market says so, and never trade blindly on trading advice and tips.
Read the previous posts:
1. Amateur Trader's Diary - Reentry to the Stock Market
2. Amateur Trader's Diary - Getting Ready for the Trading Week
3. Amateur Trader's Diary - Monday Closing Stock Prices Updated