On Thursday, April 23, 2020, at around 4:15 pm ET, my phone rang and I saw a California number on it.
I picked up the phone, thinking that maybe one of my family members who lives in the state was calling me. No, it was the friend of a friend. My friend, who lives in LA, had introduced us a few night ago, because this person wanted to get some trade ideas from me. He has an account of around $400,000 USD and he’s been entering and exiting positions without much of a plan. He was doing some day trading, he was doing some swing trading, he was doing a little of this and a little of that. And all without a plan. Yikes!
I was terrified by what he was telling me. He has a pure gambler’s mentality with absolutely no trade plan or risk management in place. The platform of his broker, Ally Invest, is not a direct access one, and his orders have been getting filled with a time delay and at random prices. I was concerned.
As we talked, he anxiously asked me what I thought about Intel. I looked at my DAS platform, and saw that INTC had reported earnings and was down, trading at $57, -7% after hours. He was desperate, he was long, and with the use of margin he was holding a position of $1.2M. I didn’t know what to tell him. Everything’s bearish. The market’s weak. We are in a pandemic bear market. I told him that I really did not know what was best for him to do. I didn’t tell him that I did not want to help him.
If I had told him to accept the $80,000 loss and come out post market, what if tomorrow it bounces? What if I had told him “no”, wait on it, and then INTC trades even lower the next day? I honestly didn’t have any advice for him.
As I am sending this email to you today, INTC is trading at $56 around -5% in premarket.
These stories are very common. I hear them all of the time, and every month at least 3 or 4 emails that I receive are about these types of situations. A good example is from March 27. A person in Singapore emailed me that day. She was short the market and had got stuck in a rally that had occurred around March 26. She was down $20,000 on a $57,000 account. She was planning to add another $50,000 to double her position. She had no idea what she was doing, and she was trading from a mobile app which she sent me a screenshot of (see below).
The same day, she signed up to our community to learn how to trade from us and she paid $99. I was impressed. She was keen to learn from her mistakes. But surprisingly, the next day she cancelled her membership, and the reason for her cancellation was “Complicated to use”.
I love it! Our website is complicated to use, but losing $20,000 on a gamble is OK.
Trading attracts people who are the most prone to gambling. That is why it has such a high failure rate. It is not that the game is rigged against you (which to be fair, perhaps there is some truth to that, just a bit though). Trading has such a high failure rate quite simply because people who should not trade, trade.
Recently, I did a search on Google Trends of the terms “stock market” and “covid-19”. You can’t miss the very obvious correlation in the image below. As you can see, people jumped into trading as stories about the stock market dropping and crashing hit the news, and let me tell you, those people should not be trading. It’s not COVID-19 that made people all of a sudden become interested in the stock market, and it’s not because people are spending more time in their homes right now and have nothing to do. It’s because almost every day the stock market is in the news.
Gamblers are doomed to lose in the stock market; nothing will save them in this game. Aside from war, I sincerely believe that trading is the most dangerous human endeavor possible. It truly is the most self-destructive activity you will ever see.
To end on a much more positive note, being part of a community is a great way to keep yourself accountable and in line. Even if you are not part of an online community, make sure to have a mastermind of people supporting you. Talk with your mentors and be open to their ideas, especially when you find yourself doing things in the market that you know you shouldn’t be.
Self-confidence is great, but self-awareness is more important.
To your success,