I suppose all of this counts for experience, so in some sense, I could almost say that I now have about 10 years of stock market experience, but as sporadic as it was for several years, that would be a little misleading.
Lemme preface by saying that I have probably broken every good trading rule in the book, if I have missed any, I will probably get around to it tomorrow.
My stock market trading began in the late summer/fall of 2000. I took $2500 out of savings and opened up a Datek account. My knowledge of the stock market at the time was virtually null: maybe 2 or 3 articles regarding the insane amounts of money some people were making in the stock market. Oh yeah, that and the fact that my brother-in-law had seen the value of one of the mutual funds he was invested in grow something like 100% a year for the last 3 years. I figured I could afford to lose the $2500, so I just dove in to see what would happen.
Somehow I managed to select a few stocks to trade in and ended making several trips in and out - the majority of transactions in Webvan. Within 2 weeks I had tripled my initial investment. And (I have to remind myself) this was real money, not just account value - at the end of the week I actually had the money out of all the stocks and sitting in the money market account. Whoot! I remember thinking either this was incredibly easy or that I must be incredibly brilliant. The problem was, I really didn't know what to do with the money except more of the same. Since I had made most of my money in Webvan, I stuck everything back in. Within the next week Webvan had announced bankruptcy and I lost something like 50% of my account value. I decided to take a bit of a breather and try to learn more about market dynamics.
Over the course of the next couple of years I sporadically read several different books (my favorites being from the 'The Idiot's Guide ...' and '... for Dummies' series) and tried several different strategies But nothing seemed to work very well for the amount of time and effort that I was willing and able to invest. I became convinced that my best investment strategy invovled mutual funds - capitalizing on the experience and opinions of professional, full time people with a lot more knowledge of the market. I bought some GOOG and stuck the rest in mutual funds. That was pretty much it for 5 or 6 years. Every once in awhile I picked up another book and read it, but after each one I would come to the conclusion that I just did not have the time it took to profitably invest.
In the spring of 2009 I happened to take a class in engineering entrepreneurship as part of my doctorate curriculum. Our professor stressed the importance of a familiarity with the stock market for wannabe entrepreneur's - 'The stock market is the real world of money, and you need to know what people are choosing to value in order to be a good entrepreneur.' He started each class with a 30-minute talk/presentation of the day's market activity. My first reaction was: 'Been there and done that, can't beat the professionals'. But seeing some of the day's activity up on the class projector week after week got me thinking and dreaming again: 'A lot of stocks see a 5% movement in a day, if I could just capture half of that...'
By the middle of the semester I had picked up another couple of books, one on candlestick charting and a second on technical analysis. Seeing as I still had the Ameritrade account (somewhere along the line Datek had been purchased by TD Ameritrade if I remember correctly) I gained some familiarity with their StrategyDesk application and became enraptured with the back-testing routine. Really cool tool - but what a learning curve. I re-call my first successful and virtually profitable back-test run. All I could think about the rest of the day - how much money this was going to roll in, and how in the world I was going to protect this strategy after the folks at Ameritrade realized that one of their StrategyDesk users was amazingly successful. That lasted until I realized that telling the backtesting app to sell the stock on the condition that the price is within 1% of the high for the day works differently for a closed day versus a live yet-to-unfold day. Fun stuff.
By the time I had settled on a strategy I was chomping at the bit to see if it really worked. I decided to transfer one of our IRA's out of a mutual fund into the Ameritrade IRA. As the account was an IRA, I could not set the account up for margin, which limited the funds to one in and out trade within a three day period (e.g., unless the buy-sell exceeded 3 days, the funds would not be available for immediate re-investment). For the next three months I kept track of all the potential trades (using the alert window) and at the end of the day I was able to look at the 'What if I had been able to trade this stock?' scenarios. I had a few good days, but overall this ended up being an exercise in frustration - my buys and sells netted a ~30% loss and the 'what-ifs' netted substantial profits.
By then end of the 3 months I came to the conclusion that my strategy was good, but I was just not able to trade often enough to net a profit (I was going all in with each purchase to keep the transaction fees relatively small, and was only able to trade 2 times a week at most). So I opened up a standard margin trading account with $30,000.
I made $1000 the first day of trading, and $800 the next. But by the end of the week I had lost $7000: $5000 of the initial investment, and the $2000 I had gained. The following week saw another $2000 loss. In order to meet margin requirements and continue intraday trading, I had to invest another $2500 in the account ($25000 minimum equity). Then another $1600 after additional losses. Ouch.
I slowed down my trading frequency and examined, re-examined, and re-re-examined my strategy. I found out a lot about myself and the market over the next 3 months. I came to realize that I can get very emotional about a trade, that I have a hard time following my own rules, and that I was berift of any trading intuition. A couple of valuable lessons: no matter how amazing, useful and successful the back-testing and real time alert data was, for a strategy to actually work there had to be someone at the other end of the trade: someone to actually sell the full amount of shares that I wanted to buy at the price I wanted to buy them at, and someone willing to buy all of the shares that I had for sale at the price I wanted to sell them at - all within the hypothetical trade interval. I also realized that my personal purchase and sale of a stock - or even my personal offering to buy or sell - can have real impact on the immediate price action.
All of this contributes to my current market philosophy and applied trading strategy, which has met with some success over the last 2 months. As applied over the last two months of the year, I have realized a net positive increase in the account, over probably about 20 trades - not as exciting or flashy as >$800 in under a minute, and definitely not something to move to Costa Rica on, but moving in the right direction. New Year's Eve saw the account close at $26025.74, with approximately 44% of the portfolio still invested in 3 stocks. Based on the account value at the beginning of November, this amounts to about a $1800 increase for the last two months, or about 9%.
Current figures are posted on the blog sidebar (as of January 4, 2010).
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