The autopsy of a day-trader

November 2024. Chilly outside.

You know, the exact kind of weather when people move to cozy coffeeshops and order drinks that don’t really have anything to do with coffee. All around the world, on the streets, in memes on X and Facebook, everyone was still processing the fact that yes, Donald J. Trump really DID win a second presidential election.

But this guySidenote: Simon says: Hi! End of sidenote. couldn’t care less.

Even though geopolitics was one of his passions, even though his news intake used to border on the obsessive. At that moment, Trump 2.0 was just a random blip on the radar. You blink and it’s gone.

Why? Because he recently discovered his very own digital smack.

Leveraged trading.

Hey, my name is Simon, and I’m an add…

…whoops, sorry, wrong room!

So you think you can be a trader?

You could say I was a semi-competent investorSidenote: Investing, as in long-term asset holding, and trading, as in short-term price speculation, are completely different animals requiring different skillsets, discipline and budgets. I learned that the hard way. End of sidenote..

My portfolio outperformed the S&P 500 in 2023 (index total return: 26.3%) and 2024 (25.0%). I definitely felt more standard than poor. Stock picking was a game and, brother, did I enjoy playing. Wouldn’t you, if you were winning?

Warning: boasting incoming.

After Russia’s invasion of Ukraine I hopped on Europe’s re-armament bandwagon still kinda early and cashed in nicely (looking lovingly at you, Rheinmetall). Had money riding on JPMorgan Chase, ‘cause I thought to myself that if Jamie Dimon was the only CEO of a major US bank still in the chair from before the GFCSidenote: Global Financial Crisis in 2008-2009. Mandatory examination for all traders. Learn all about the dangers of leverage, toxic assets and FOMO. With an institutional twist. End of sidenote. (and who didn’t lose all his hair in the meantime), there must be something to his business savvy.

Last but not least, in early 2023, after having a short, profanity-laden chat with the nascent ChatGPT, I decided to buy approximately 4k EUR worth of this chip company stock (you know the one), that, I’d thought until then, only made GPUs for gaming computers.

I also put money and faith into Boeing, but we don’t talk about that.

Point is, I never considered myself a blind hype chaser or a random why-is-it-down-today-sad-emoji retailer, who’s eventually left holding the bag after all the institutional money migrates to greener pastures.

I loved reading earnings transcripts, had newsfeeds from Bloomberg and Financial Times wired right to my brain, and I literally spent my lunch breaks watching short YouTube docs on the Wells Fargo fake account scandalSidenote: A more recent one is here, recommended. End of sidenote..

Yeah, I’m fun at parties, why?

My portfolio performance was good, and, more importantly, I felt good and that was to be my demise. But, with the benefit of hindsight, it’s hard not to be a winner in a winner’s market. Days were a blessing and it all went splendidly.

Until it didn’t.

Because even doing stupid things is a matter of supply and demand.

Asian food and melting gold

Fast forward to late January of the next year.

Lemme ask you, is a 0.74% price move a big one or a small one?

You’d be inclined to say the latter. Yeah, me too. Hold that thought, we’re gonna illustrate something educational on it a bit later.

I’ll be the first to admit that around that time I felt overly confident. An almost triple-digit appreciation of my portfolio gave me just enough false security to think I have an actual edge.

Spoiler alert: I did most certainly not have an actual edge. At least not the one I thought I did or the one I needed for what I tried to do next.

Long story short, long-term investing was no longer exciting enough. I needed something sexier.

So, riding the highs of late 2024, I blissfully skipped over unleveraged day trading (booooring) and went straight to CFDs.

Contracts for difference, as their remarkably vague full name suggests, are a derivativeSidenote: A derivative is a financial instrument derived from another financial instrument. They can be notoriously difficult to comprehend and are, in my opinion, the ruin of many a young man. End of sidenote., where you basically bet your money on the direction you think the price of an underlying asset takes.

And the best (worst) part?

Leverage.

On individual shares, for example, the broker allows up to a 5:1 leverage, which means that for every 1 euro/dollar you put in, you borrow the buying power of 4 more. So with 2,000 EUR of your own capital (also called margin) you could get a 10,000 EUR exposure.

On some commodities, like wheat, silver or oil, you’ll get a 10:1 leverage, gold is the standout, you’ll get 20:1 there. Major currency pairs, such as EUR/USD? 30:1.

So, let’s circle back to that 0.74% tick. You can probably see where this is going, dear Watson.

That’s how much the price of gold fell in the span of about seven minutes. I had a long position open.

Definitely survivable, right? Right. Unless it’s leveraged. Twenty times over.

A price movement that, with liquid US megacaps, basically amounts to random noise on a slow Tuesday afternoon, wiped out almost 15% of my whole capital.

In seven minutes I lost more than 2x of my monthly paycheck. And my appetite.

Fun fact time!

This was during the Lunar New Year holidays. Chinese buyers of gold are the biggest of allSidenote: They represent approximately 20% of the global demand, per World Gold Council. End of sidenote. and them bastards they were busy enjoying the arrival of the Year of the Snake. In other words, the market lost its dampener, which often absorbed selling pressure.

Thinner trading and lack of liquidity have this nasty tendency to bring about violent intraday moves in mere seconds and this is exactly what went down.

The irony being that it all happened while I was in an Asian restaurant, checking my phone, waiting for my Thai curry to arrive.

I guess you could say that the karmic circle was complete.

Want another trivia tidbit?

You can be right and still lose money.

In that fateful week, gold was actually in an UPTREND and rallied hard in the weeks after. Basically, I was right on the direction, but the risk structure and timing killed me anyway.

You can be right and still lose money. That’s a lesson that sticks with you for the rest of your life.

The examination of an idiot trade

Full disclosure: this was just one in a series of fatal mistakes I made in a span of about 6 months.

The most glaring one was feeding my long-term portfolio into the CFD account. I boldly dismantled the firewall between risk capital and… well, life capital.

During that period I generously donated around 70% of my savings to my brokerSidenote: With the majority of CFDs, the broker is your counterparty. If you win, they lose and vice-versa. Unless you keep winning A LOT and they just route you to the market to hedge. Alas, per the European regulatory watchdog ESMA, 74 to 89% of retail CFD accounts lose money (data admittedly a bit stale, 2018). Have you considered being a broker? End of sidenote.. I won’t go into specific numbers (my banker might be reading this), but you could have bought a brand new sedan with that dough.

Yeah, yeah, people have blown up bigger accounts, yadda yadda yadda. Remember, I was just a regular Joe, with a regular paycheck and regular means of life, not a coke-addled hedge fund manager.

But I digress. Let’s turn back to that gold trade and make it even more hilarious.

Judging by the 15% hit I took, you could, condescendingly, deduce one of two things:

1. I had no stop-loss in place,
2. I had a stupid stop-loss in place.

B is correct.

But, truth be said, it’s a distinction without a difference in this case.

Why?

Exhibit A: sizing

Because the original sin took place at sizing, not with setting failsafes.

If you lose 15% of your capital on a single trade, you have catastrophically failed before you even opened that position.

I bet a fortune on the champion mustang and the damn horse died 10 meters out of the gate. Translation: I put too much money in the trade.

How much? All of it, Johnny.

I bet my whole account on that trade. I gazed at the technical indicatorsSidenote: If your chart doesn’t look like an acid-infused 90s rave party, are you even a trader? Seriously, though: the vast majority of technical indicators are just noise. And even the ones that are genuinely useful, such as volume and moving averages, can be misleading. Read on. End of sidenote. and they were all screaming (or, more like, insidiously whispering) that the setup is clean. Alpha. Easy money.

By the way, here’s a lesson I learned about indicators and trends: all of your MACDs, EMAs, crosses, VWAPs and other shenanigans… they don’t represent certainties. Not even probabilities. They indicate possibilities.

Such as the possibility that you are wrong.

Anyhow, here lies the first takeaway: never ever, under no circumstances, unless a pretty lady says so, risk more than 2% of your account on a single goddamn trade.

That’s a commonly cited retail “rule” and ever since my past transgressions I am more than humble enough to abide.

But it’s not only about sizing.

Exhibit B: stop placement

So, where in the name of all that’s holy was my stop placed?!

At my comfort level. Arbitrarily, I placed it where the scary red number was a potential loss I thought I could swallow.

See, there are multiple problems with that.

First of all, placing a stop at a “tolerable” loss is, as a rule of thumb, plain stupid. It’s like going to the train station at a time that suits YOU, completely ignoring the schedule. It might work once or twice. But it won’t in the long run.

There’s an indicator called ADR (average daily range), which tells you how much the price of an asset moves on a regular trading day. Place the stop within it, you’re just providing liquidity to the big guys, inviting regular, non-catalyst daily action to trigger it randomly.

Which is exactly what I did, placing it 0.5% from entry, which was less than half of gold’s average daily range that week. It was a promise to lose “only” 10% of my account were it to be triggered, which is also catastrophically irresponsible.

That promise was unkept, it cost me 15% instead. My stop didn’t trigger where I put it, it did so where the price finally found someone willing to take it, courtesy of the biggest buyers being on holiday. Dear reader, meet slippage.

So, you’re asking, if I had placed my stop OUTSIDE the ADR, I would have been, technically, safe, right? Nope.

A wider stop, combined with a large position, equals potentially catastrophic losses.

Sure, it might take longer to trigger it, but when it does, you lose way more than if the price traveled a shorter distance. Not to mention that when it moves violently, above the daily average, you’ll get there significantly sooner.

Up by the stairs, down by the elevator, as they say.

Secondly, sometimes stops are just desires.

When a price swiftly moves past liquidity levels (think those big red candles implying seller pressure), stops are as effective as those “Please use hand sanitizer” signs in shops during COVID-19.

They get triggered, sure, but not at the level where you WANT them to, but at the level the PRICE settles at. Usually to your disadvantage.

So what should I have done? I mean… besides not taking the trade at all?

Placed my stop at a sensible levelSidenote: …or, better yet, chosen a less-risky way to make money than trading, such as smuggling AK-47s into Cambodia. End of sidenote., so that when things eventually went wrong, I wouldn’t get hit for more than those 2%. Sure, gaps and aforementioned violent moves shoot past, but there are ways to mitigate that.

Position sizing and stop-placement are the two most important risk-mitigating tools in your arsenal. Use ‘em.

Although, in reality, they are ONE decision, not two.

Position size is derived from stop distance, and I use this formula to get it exactly right:

size = (account × risk%) ÷ stop distanceSidenote: Applied to the gold trade, it would show that it was 5x oversized. Yikes. End of sidenote.

But even this “only” minimizes losses, if you simply ignore…

Exhibit C: everything else

If trading were as easy as beaming up a bunch of colorful indicators, placing your stop safely and sizing accordingly…

Listen, the markets are like a golden retriever pup.

Their attention span is paper-thin and they will act perfectly irrationally for sustained periods of time. Don’t try to time them or predict them, you’ll just end up cleaning poo from your shoe.

Doesn’t matter what those puffy gurus and “analysts” from X say, no one knows for sure what’s gonna happenSidenote: Unless you have access to AND trade on unauthorized insider information, which is illegal in the US, EU, Japan and basically in all of the developed world. End of sidenote.. It’s all just a bunch of less-or-slightly-more qualified forecasts and, more often than not, just plain old bullshit.

But that doesn’t mean you should ignore market context and tidbits of potentially useful info.

Trade during holidays? Violent moves might eat you alive.

Short an over-shorted stock? Gonna get squeezed out of your money.

Always buy dips without knowing the reason? You possibly just provided exit liquidity.

The least you can do is have at least a basic idea where the market mood is at, what the macro context is.

What’s going on in the world? In that specific market? In the company you’re eyeing?

And even then you might be (WILL be) wrong in many cases. BUT proper risk management will help you survive long enough to see if you’ve got what it takes to become profitable. Most don’t.

As you’ve probably guessed, I’ve ignored all the aforementioned advice in my gold trade.

I never learned that the biggest buyers were offline. Also, was there an incoming Fed rate decisionSidenote: Precious metals generally don’t like higher real rates and react negatively to hike expectations and vice versa. BUT keep in mind what I said about market irrationality. BTW: there indeed WAS a Fed meeting around that time, the FOMC rate decision was released on January 29. Lucky me. End of sidenote. or drift from a past one? Who knew, not me at the time. Not saying that if I did I wouldn’t have lost, but I might have taken precautions.

And this was just one trade. I made stupid mistakes like this one a lot more. Isolated, they might be survivable.

Together they compound.

Cause of death: risk management in name only and a bull market masquerading as skill. Poisoning by curry: ruled out.

So… what happened next?

Those who were hoping this is not a redemption arc and I’m writing this out of a prison cell… well, sorry to disappoint you, this is gonna read like one.

Contrary to everything sane and sound, all the losses just made me fall in love with trading.

Despite all the sleepless nights, involuntary eyebrow twitches and anxiety spikes, I simply… persisted.

I recouped my losses. Not in a week, not in a month or two, but I did. Started consistently earning, surviving long enough by minimizing losses through rigorous risk management. Later on I quit my full time job and took out a second mortgage on my flat to boost my capital.

Just to be perfectly clear, I did this after I turned profitable and others should do it never.

You are reading this because it worked. Nobody writes about how it didn’t, which is exactly why you absolutely shouldn’t take this as an inspiration.

Now trading is my full-time job. It’s stressful, borderline abusive on my psyche, and I still love it. But I am well aware that the negative skewSidenote: Lots of small wins, rare enormous losses. The running theme for a majority of retail traders. End of sidenote. is real and there was (still is) a non-zero probability of failure.

Nah, I don’t have a magic, bulletproof system. And even if I did, I sure as hell would not share it. Sorry, not sorry.

No, I’m not gonna sell you anything, I don’t do courses, lectures or private groups with guaranteed 10x alpha. Screw that, everything on this website is free and always will be.

Let me be very explicit: you won’t earn any money by reading and following what I write. But I sure as hell might save you some by warning you about all the stupid stuff I did, or I saw others do.

This is the point where I could say something like: “Us retail traders, we gotta stick together, it’s the only way to beat the system.” But that would be bullshit and I hate bullshit.

So why am I doing this? Not out of the goodness of my heart, no.

I’ve been down and out and I wish someone had told me about a lot of the pitfalls before I went and stumbled into each one of them. I mean, I wouldn’t have listened and screwed up gloriously again, anyway, but still.

The internet is full of sure-fire advice on how to make money trading. Not much on how not to lose it, though.

So I’m going to fill that gap.

Cause in the end, it’s all a matter of supply and demand, no?

Enjoy.

Next up: Dear diary, today the market moved against me… again