Buying and selling with volatility
Back in college, I had a finance stock class that used marketwatch’s stock simulator. We each started out with $50,000 fake money and it was part of your grade in a class of 100 students to see how well you could make money throughout the semester. Obviously, this invited a more day trading approach than a simple buy and hold strategy since you only had a semester long class. At this time, to date myself a little bit, Facebook IPO had just launched and the price was swinging crazily on the market. You could literally see the price ping ponging up and down some times within minutes. Up 10% down 10%. So I started day trading Facebook like crazy and it was almost addictive. First thing in the morning I would buy or sell the stock and I would refresh the site constantly to attempt to make a trade on the opposite end. Within a very short period of time I had turned my $50,000 into $831,000 making me #1 in the class with my stock portfolio. It didn’t seem that complex to me, simply buy low and sell high. Even if you needed to take a smaller gain some time, you could easily make 3-5% each trade and by doing that several times a day then you should be good right? Well that worked out great until it didn’t. I don’t remember if it was one morning or if it was one week but somehow I couldn’t get a single trade in right. I would buy in, and then the stock would plummet. I would then sell and take my losses so I could trade on the volatility at that level to try to make my money back. So what if I lost 20% if I could make that back from trading on the margins that it was swinging at. Then after selling at what I perceive was the new high, the stock surged to new all-time highs again. I panicked and same thing, I needed to get back into the game and make my money back. My mind went crazy and long story short I managed to turn my 831K into 20k. I remember going to class ashamed and defeated. Luckily my teacher didn’t make too much of a comment other than, “Wow what happened, we have a new second to last place in the class.” I ended up eventually turning that 20k back into about $550k and the wild thing to note is that this all happened within a semester of college. Let’s say 3 months. In a 3-month period, I managed to turn 50k into 831k and then back to 20k and then 550k.
What did I learn?
Day trading, or even better yet minute trading, is scary. It is emotional. It is physically draining on you. It was all fake money that was just worth a % of my grade (I think 10%) but this was still a very intense process for me. If it had been real cash, I think it would have been even more stressful.
Did I learn my lesson?
Well kind of. After many years, I decided to day trade with real money when I was bored last year 2020 after the markets crashed. I said to myself, the markets were at a new all time low (back in march), and I was quarantined from work, so why not try day trading? If markets dropped even lower, I would just hold for the long haul if it was necessary. My first speculative trade was right after the oil prices tanked from the oversupply/oil wars that Russia and Saudi Arabia were having. I figured, this couldn’t go on forever and so I took the chance that it would work out and shortly after Russia agreed to control their supply and the markets stabilized instantly. My next speculative trade was just day trading a handful of volatility stocks. I made a decent buck trading in the ranges just like I did in college. Sometimes I took a loss to chase a different project with more volatility but overall I was doing pretty well. In a short timeframe, I had doubled my money that I was risking day trading. It was something to do. I spent a lot of time listening to podcasts that would talk about the economy. It was an interesting time. Then finally I discovered this project that was talked about in a few big new articles. It was like clockwork, I was buying and selling with a crazy spread up to 50%. It was like every single week I was making tons of money. Some big news would come out, and then the company would issue more stocks and that would drive the price down and then they would have some other big news and then sell more stocks and this process would go on and on. Well unfortunately, one time they just kept selling. I went all in with everything including money from the bank that I wasn’t touching and they sold more stocks. And then sold more stocks. And then sold more stocks. No news. I lost so much money. Unfortunately, the greed had gotten the best of me. I had lost everything that I had made with an additional 2K. Fortunately it worked out for me to make that money back and I stopped day trading cashing out with $700 of profit but that’s nothing in comparison to what I could have lost. The big thing about day trading is, there is a lot of risk. It is a lot of emotion. Spreading out your risk among a lot of different assets definitely lowers your risk and if you are buying into projects you believe then it is much easier to hold through the dips. Investing is good but greed can be a hindrance if you aren’t careful.
Why do I tell this long story on a blog predominately about Crypto? Well a couple reasons. I do plan on sharing some business related experiences here on the blog but I am mainly just focusing on crypto right now. I’ll share some stories here and there because to me these are valuable stories/lessons that I have learned. If nothing else, I think they are interesting stories. But secondly, I could have easily swapped out stocks for crypto in this story. Sure yeah maybe my finance class in college wouldn’t have me day trading crypto but overall the story applies here. Speculative, day trading, and minute trading are a risky business. It is not uncommon for crypto projects to dump large sums of tokens on its holders. It’s not uncommon for some media sites to blow up some crypto project which then turns into a large pump and dump. Some people say stocks are safer than crypto, which I guess it depends on the timeframe that you are investing in. Personally, I like to think crypto is safer than stocks in this current market but who knows. In short, don’t invest more than you are willing to lose. Try to do your due diligence in order to avoid getting REKTed. Try to avoid the emotional feelings while trading. And personally, I find it easier to place long-term bets on projects I believe in. When markets dip, I am hardly phased in my crypto portfolio because I am not worried about tomorrow. I am investing for the long haul. I believe crypto will do very well this year and that it has great opportunities in the future. Just my opinion though, DYOR, I am not a financial advisor.