Stop Lozz

By Maximilian Schima

From time to time, I tend to look for new ways to increase my capital. Until now, I have always resisted day trading. There were several reasons for this.

1. I felt the risk of a loss was too high.
2. It takes a lot of time and training until you see the first successes. To be honest, I don’t have that amount of time.
3. What is my added value to society by short selling on a daily basis? Actually none.

Nevertheless, I eventually decided to try it out and since it’s been more than a month now, I would like to share my first experiences and explain why I stopped again, at least almost.

I was inspired by various traders from the crypto sector and a friend.

Here I was probably subject to the survival fallacy. Behind this is the fact that successes enjoy greater visibility. Failures, however, tend to be kept quiet. We know this from ourselves. Experiences of success are more likely to be shared with others than failures. No one really knows how many unsuccessful traders are hidden behind one successful trader. However, there will be very many. The result is that I overestimate the probability of success. In principle, it is also a pity that we hear less about the failures, because there is usually much more to learn from them than from the success stories. So now I would like to share my failure story in the hope that you readers can take something away from it.

Despite the counterarguments above, I was still curious, precisely because I think I have a good understanding of the financial market and macroeconomics. In principle, however, this is only of secondary importance. For trading, you must master technical analysis. So, I acquired the first basics in this regard and first practiced using a trading account with test money. However, I quickly realized that trading with test money is not the same as trading with real money. I still knew that I was worlds away from switching from playing the stock market game to buying real shares and that one acts completely differently when it is one’s own money that one invests. Hence, I transferred 400 euros to the trading account and started trading with margins of 10 euros. The profits were only a few cents at first, but it was good to get a first feeling. From trade to trade I got better, so I increased the margin to 50, then to 100 and 200 euros. Now the first profits were already a few euros, and my success-to-failure rate was 80 %. So, I increased my margin to 400 euros and then it happened. I made a mistake, didn’t do the technical analysis properly and I destroyed the profits of the last 2 weeks. One trade that wiped out the last 20 trades.

1. The risk of loss is high and by the time you have reached a level where you regularly make good profits, you may have already lost all your capital. Financial freedom does not come overnight in trading either. As is so often the case in trading, you always hear about the many success stories, but not about the failures and losses. In the end, you must be patient and concentrate on the proven investments that will also bring you to your goal. Maybe with more delay, but safer.
2. The bad thing for me was not only the lost money, but much more the time that was invested. In other words, I lost money and time. This means that the risk-to-reward ratio and the time-investment-to-reward ratio are not in proportion to each other. I also noticed that other projects and hobbies that were important to me were no longer possible in terms of time. So, if it means I will suffer losses and neglect my other hobbies, then trading and the potential gain is not worth it to me.
3. I have also learned about myself that I cannot handle the stress and tension when a trade goes in the wrong direction. This is to the extent that I can’t concentrate and focus on the other things in my life anymore. This is even the case when it comes to very small losses. Trading with larger sums that could really have a life-changing effect is something I cannot handle, because losses will always be made sooner or later, even if the majority of trades are positive.
4. I haven’t found any added value for society after a month of trading either.

Nevertheless, it was good that I tried it out, because otherwise I would have always wondered what it would be like to trade. Now I know and will leave it alone for the time being. But not completely, because the possibility to short a market is in principle not a bad thing and if you profit from upward phases, you can also profit from downward phases. But that doesn’t mean that I will do day trading, but rather use trading for big events or movements. An event that would have been good to short, for example, would have been the FTX bankruptcy. Even bigger events would be bank failures or major economic crises. This requires less technical understanding than macroeconomic knowledge. This means that trading can make sense, but I would rather focus on long-term trades that remain open for several weeks.

For those of you who want to continue to try trading, be it swing trading, scalping, etc. I have a few basic rules that I now apply to my trades that protect me from major losses.

1. you should always question yourself if you are trading emotionally.

2. you should never lose more than 2 %.

3. you should always use a stop loss.

4. thou shalt always be patient.

5. thou shalt not use high leverage.

To point 5, I would like to make a small remark. High leverage is often not necessary. Consistency is often much more effective. Earning 1% returns every day can also lead to high profits due to the compound interest effect. You just need more patience, which brings us back to point 4, but you take less risk.

In this sense, I wish you that if you should trade, that you do not repeat my mistakes.