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Three Traders Share With Us First-Time Mistakes They Made, And What They Learned From It

Gems of wisdom for the rookie trader that you cannot afford not to know.

 

This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, 2016). All views expressed in the article are the independent opinion of DollarsAndSense.sg

Trading and investing are two completely different ways of making money from financial markets. Investors aim to make profits by investing into assets that will either 1) increase in value over time or 2) pay out dividends or coupon payments, traders aim to make a profit from the constant price fluctuations in the assets that they trade.

A trader, who is able to consistently capture the price difference in asset, can make substantial short-term profits, especially with the ability to use leverage to increase his or her exposure.

Of course, the opposite also holds true. Using leverage can also lead to significant losses if the prices of assets move against the position they have taken. It’s not uncommon to hear stories of how new traders bust their trading accounts due to poor risk management.

To give us a better idea on the kind of “rookie” mistakes that people make when they start trading, we spoke to three well-known traders in Singapore to get them to share some of the mistakes they were making when they first started trading and some learning outcomes.

Read Also: What Is Leveraged Trading And How Does It Work In Singapore?

# 1 Rayner Teo, Founder Of TradingwithRayner

Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. He is also the most followed trader in Singapore, with more than 41,000 traders reading his blog each month.

Qn: Hi Rayner, you are an independent trader and trainer. Your website, TradingwithRayner, teaches people how they can become profitable in trading. Can you share with us when and how you first got started in trading?

Rayner Teo (RT): I first learned about trading in university after a Forex broker came to my school and organized a trading competition. That’s how I got started.

Qn: What do you frequently trade these days?

RT: I trade across the different futures sectors. These include currencies, indices, bonds, hard commodities and soft commodities.

Qn: What’s the biggest or silliest mistake(s) that you have ever made?

RT: There may be more but I will list down three particularly pertinent ones.

Firstly, I spent many years looking for the “holy grail”, which I later realised clearly doesn’t exist. Second – I also frequently hopped from one trading strategy to the next, and this made my trading results very inconsistent. Lastly, I tried to trade full-time with a $10,000 trading account. Obviously, things didn’t turn out well.

Qn: How did these mistakes help you become a better trader today?

RT: I learned how to be independent and to do my own research, and this gives me confidence in my own trading strategy. This is something no one would be able to do for you, and only you can do it for yourself.

I also learned that a consistent set of actions would lead to consistent results. You can be consistent in your actions and still have consistent losses. But because your actions are consistent, you can analyse your strategy and find ways to improve it. If you have inconsistent results, it’s almost impossible to analyse how you can do better.

Also, setting aside $10,000 in your trading account doesn’t make you a trader and it definitely doesn’t mean you can start living off returns from it. You need to have multiple sources of income to improve your trading psychology because it removes the i-have-to-make-money syndrome from the get-go. So, don’t quit your full-time job just yet!

Qn: Most common mistakes you see newbie traders making, and how they can avoid them?

RT: Some new traders just want to be spoon-fed and refuse to do the hard work of learning on their own. Remember, no one will do the learning, the researching or the analysis for you. Whether you succeed or not depends largely on how badly you want it, and how much effort you are willing to put in.

You should also avoid trading an amount that is too large relative to your account size. If you have a $10,000 account, you should be risking no more than 1% on each trade. This means you should lose no more than $100 for each trade you are wrong, unless there are slippages.

# 2 Alex Yeo, Chief Operating Officer (COO) at Dr Wealth

Alex is the COO at Dr Wealth. He is also a self-directed trader who trades primarily future options. He holds a Certified Financial Technician (CFTe) designation, accredited by the International Federation of Technical Analysts (IFTA).

Qn: Alex, as a key partner at Dr Wealth, you would certainly have had your fair share of good and bad trading experiences. Can you share with us when and how you got started in trading?

Alex Yeo (AY): I was self-employed previously, running my own online business in 2011. I did pretty well, accumulated some savings and planned to use some of it to invest in the stock market.

Back then, I didn’t even understand how to read the bid/ask price. So, I started attending a few stock investing courses. Initially, my plan was to buy and hold a few good stocks and hopefully profit from them in years to come.

I was taught to value companies using Fundamental Analysis in the first course I attended. Subsequently, I was exposed to Technical Analysis for shorter-term trading, and I immediately became extremely interested to learn more.

Qn: What do you frequently trade these days?

AY: I trade options. Most of the time I sell options, i.e. collect premiums. Recently, I started to buy options too.

Qn: What’s the biggest or silliest mistake(s) that you have ever made?

AY: The silliest mistake I made was in 2014. That was the year I first started trading options. Before that, I was trading mainly stocks and currencies.

In 2014, the price of crude oil dropped from about USD$100 to $50. I sold put options, thinking that oil price would not keep heading south. I kept selling put options and rolled my positions even though I was wrong. Rolling means that I kept closing my losing positions and opening new ones, hoping that the newly rolled positions would cover my initial losses. Rolling will not work if prices kept going against you.

And that was exactly what happened to me. My losses snowballed. I had to grit my teeth, cut my positions entirely and accept the full loss. I didn’t blow up my account, but the drawdown was a damaging 40%. Thankfully, the capital I put into my trading account wasn’t that large.

Qn: How did the mistake help you become a better trader today?

AY: Firstly, the mistake taught me to follow the trend. Be a trend follower and avoid going against it. In other words, if something is going up (uptrend), I will go long. If it’s going down (downtrend), I will go short. In option’s context, I only sell put options if it’s in an uptrend and sell call options if it’s a downtrend.

Secondly, it taught me to cut my losses fast. If I was holding a position, and price didn’t go the way I wanted, I should exit my position. I would rather take a small loss than to hold on to a losing position or to roll it and sustain a bigger loss in the future.

Qn: Most common mistakes that you see most newbie traders making, and how they can avoid them?

AY: Many new traders like to catch the absolute top and bottom. They might feel that the price has gone up too high and too quickly and that it will start declining. Thinking that it has reached the top, they choose to short sell it, only to realise that prices continue to trend upwards leading to losses.

Catching a price reversal can be enticing and exciting. But more often than not, it is a sure-fire way to lose money consistently in the market.

# 3 Collin Seow, Founder of The Systematic Trader

Collin is the founder of The Systematic Trader, a trend trading course that equips people with trading and investment strategies that will help them navigate the complex financial markets. He is also a qualified Chartered Portfolio Manager (CPM) holding a Certified Financial Technician (CFTe) qualification, and is a member of MENSA Singapore.

Qn: Collin, you used to be a remisier and also a full-time trader/trainer on your own. The Systematic Trader teaches people how to become a profitable trader. Can you share with us when and how you got started into trading?

Collin Seow (CS): Since young, I was always interested in trading. My first exposure to technical analysis was when there were still bucket shops trading commodities around Tanjong Pagar. In those days, people get their stock quotes through the teletext. These bucket shops will teach you technical analysis, with the hopes that you will trade through them. That’s how I started trading Singapore shares, before moving on to commodities and futures.

Editor’s note: Bucket shops are used to describe informal brokerage firms. For those of you who have watched Wolf of Wall Street, the protagonist, Jordan Belfort, worked in a bucket shop.

Read Also: 5 Movies To Learn About Finance Without Falling Asleep

Qn: What’s the biggest or silliest mistake(s) that you have ever made?

CS: Listening to others. I still make that mistake today. I used to be a remisier and because of the nature of our job, we do hear a lot of rumors. In one instance, I held a large position when I was overseas. By the time I came back, I already lost about $200,000. Thankfully, I traded actively and managed to make back about 80% within a short time.

Qn: How did the mistake help you become a better trader today?

CS: I’ve learned to ignore rumors, regardless of whom is it from. I only trust facts, the charts and the research that I do.

I also learn not to hold a position when I am overseas as I won’t be as attentive. Also, I don’t want to have additional stress while with my family as well!

Qn: Most common mistakes that you see most newbie traders making, and how they can easily avoid them?

CS: Not getting a coach or mentor. For me, I get a coach for everything I want to learn well, from trading to tennis and even singing. If you learn from a “friend”, you run the risk of picking up bad habits from them if they are not qualified. If you want to seriously do well in something, get a coach or mentor.

What We Learned From Our Interviews

It appears that protecting your downside should be your first priority. Rayner shared that you should not risk more than 1% of your capital on any one single trade. Alex also shared the importance of knowing when to cut your losses decisively when you are wrong.

This is where risk management is important. On its trading platform, IG allows traders to put in different types of stops including trailing stops, to lock in your profits, and guaranteed stops, to limit your losses.

Read Also: Find Out How These Risk Management Tools From IG Can Help You With Your Trades

Having a strategy in place is also essential. As what Rayner shared, when you have a consistent strategy that gives you consistent results, it allows you to make adjustments so that you can slowly work towards a winning strategy.

Aside from reading articles to educate yourself, you can also join seminars and events to learn more. The IG Community is another good way to share ideas, discover new products and discuss market opportunities with other like-minded traders.

If you are new to trading and want to get started today, we strongly recommend that you start off with a demo account first. This will allow you to refine your strategy, allow yourself to leave emotions out of your trades and make the mistakes that you inevitably would made before you actually trade with real money.

You can read up more about the Rayner, Alex and Collin in a separate interview we did with them last year – 3 Traders In Singapore Share With Us The Winning Attitude Behind Their Success

This article was sponsored by IG, the world’s No.1 CFD provider (by revenue excluding FX, 2016). All views, opinions and recommendations expressed in the article are the independent opinion of DollarsAndSense.sg and do not in any way reflect the views, opinions, endorsements or recommendations, of IG Asia Pte Ltd (Co. Reg. No. 20051002K) (“IG”). Information is for educational purposes only and does not constitute any form of investment advice nor an offer or solicitation to invest in any financial instrument. No responsibility is accepted by IG for any loss or damage arising in any way (including due to negligence) from anyone acting or refraining from acting as a result of this information or material.

 


 
 

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