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For new traders, suffering a big loss may be paralysing and force you out of trading entirely. This could be because you go in underestimating how much work is needed to be successful. Looking at successful traders, you may also wonder how they get it right all the time and what the secret formula is.
What you may not realise is that even the most experienced traders probably suffered the same rocky start as you. Even today, experienced traders continue to suffer losses as part and parcel of their daily trades. They are also making mistakes regularly, but more importantly, are learning from them all the time.
In this edition of #MyFirstLoss, we speak to Rayner Teo, one of Singapore’s most followed traders on his YouTube channel (with over 700K subscribers) and his blog TradingwithRayner, to find out more about how he overcame his first loss.
Dinesh Dayani (Dinesh): We always start this column with the same question. Do you remember the first time you made a loss in your trades?
Rayner Teo (Rayner): The earliest one that I remember is trading Sembcorp Marine shares. That was back during my army days. To me, Sembcorp Marine was at a really low price so I bought it at around $2.80-plus.
Of course, I didn’t have a plan. So when the stock went against me, I quickly bailed out after it dropped 8% against my entry price. That was my first loss.
The feeling wasn’t great, but what I learned was that every time you put on a trade or an investment, you need to have a plan – on when to enter, how much to buy, and most importantly, when to sell.
If you don’t decide ahead of time, then you’ll likely sell at the worst possible time – when the market goes against you and you finally sell near the bottom.
Dinesh: You’re one of the most followed traders in Singapore today. Does this put higher pressure on you to perform in your trades?
Rayner: If too many people are fixated on your trading results and performance, the pressure is there because your results will be scrutinised. And not only that, but you will also put a lot of pressure on yourself.
That’s the reason why I never shared my own results publicly in the past. At the same time, there are lots of “traders” who don’t walk the talk, and they don’t have any money on the line. What I have done recently, after years of thinking through, is finally publishing my results on the website.
This gives a snapshot of my results over the last 12 months on two of my trading accounts. This isn’t to show how much money I have made or anything, but rather let those following me know that I am actually trading the markets and walking the same path as them.
Dinesh: Where do you get your trading ideas from today?
Rayner: As I mainly trade FX and US stocks, I find that having a broader perspective helps.
I won’t call it trading ideas, but where do I gain new trading insights are from books, websites and people that I follow on Twitter. Learning never stops and that’s how I get the bulk of new trading insights that I can develop using the ideas and techniques that people share.
Dinesh: You have a large following on Facebook – TradingwithRayner Facebook Group and have been running your trading course for a while – what are some of the most common mistakes you see your students making?
Rayner: Generally, there are three big mistakes I see.
The first mistake is that they don’t come in with the right expectations. Trading is a profession. It’s like becoming a doctor, you have to go to medical school for 6 years, and you probably have to go for some kind of internship or residency (I don’t know what term they use) after that. That journey takes you 8 years or more. It is the same for trading; you are not going to be proficient just from attending a few weekend courses or after a few days of learning and studying the market.
You have to look at your trading endeavour as a journey in terms of years. You will need at least a few years to understand what this business is all about. If you are looking at it as a quick way to solve your money problems, you are probably in the wrong business.
The second mistake that I see is that people are trading without an edge in the market. What this means is that your trading strategy has to yield a positive result.
For example, let’s say we toss a coin. There is a 50% chance of getting a head or a tail. If every time it comes out as a head, you win a dollar and when it’s a tail you lose a dollar, you are not going to make any money in the long run because you don’t have an edge.
But, let’s say you toss a coin and every time it comes out as head you win $2 and every time it comes out as tails you lose a dollar. In this case, the more times you toss that coin, the more money you will make, and that’s because you have an edge in the coin toss. This is the same for trading, the strategy you use must give you an edge in the market.
The third mistake I see is a lack of risk management. Traders place too much of a bet that they will be right in their trades such that it wipes out their trading account after a loss or a series of losses.
Dinesh: The US presidential election was recently decided – with a strong upturn in the markets. What’s your view when it comes to trading on such big international events?
Rayner: For me, there are always themes in the market. This year it could be COVID or the US presidential election. Next year might be some debt crisis, and the following year could be some country going into default or something.
Every year there is a theme in the markets that creates news. I don’t let such news interfere with my trading strategy. My trading strategy is defined ahead of time and has been planned for regarding the entries, exits and risk management, and I just trade it accordingly.
Dinesh: Do you see your students and community asking more questions during such a global event? Do people tend to make more mistakes during such an event?
Rayner: I would say more questions are about what is going to happen, who’s going to win and where are the opportunities right now. Many of these are questions I don’t have input to.
The biggest mistakes people make during such an event are that they think they have a once-in-a-lifetime or once-in-four-year opportunity to make money. While it’s true that there is an opportunity to make money, this also means there is also an opportunity to lose money. It is important to be careful of events such as presidential elections as volatility tends to be higher than usual. You have to manage your risk properly or you may lose more than what you have planned for.
Dinesh: We’re still in the midst of managing the COVID-19 situation. Has it been different in trading during the past few months compared to the past?
Rayner: Trading this year has been quite a roller coaster ride because the stock market dropped about 30% earlier in the year, and for anyone who didn’t have an exit plan, they probably sold their stocks at the lowest point before the stock market pullback. Right now, you can see that they are trying to reverse the losses.
Dinesh: You’ve also built an Academy on your website. How important are such material or courses when it comes to becoming a successful trader?
Rayner: I would say that the materials are for people who want to get started in trading. They don’t want to spend money on courses yet, and they want to see if trading is for them, without making a huge commitment or loss.
If it doesn’t work out, they can always move on to something else without committing time or money to trading. But if they feel that trading interests them and wants to learn more, they can dive deeper into the topic. So the academy is a good starting point.
Dinesh: You’ve also written about “How to grow a small trading account”. Do you think it’s important that new traders start small?
Rayner: I think it is important that new traders start small because you will be making a lot more mistakes at the start of your trading career. Even now, I still make mistakes. The beauty of starting small is that your mistakes will be less severe.
For example, if you start with a $500 account, you can probably still survive even after losing that amount. If you go in big with a lump sum, especially if you are in your 40s or 50s, you may have a few hundred thousand dollars, and your mistakes may be in the realm of six figures.
I would also say new traders should look to learn as much as possible, get a feel of how trading is like and what would be required of you.
Always Have A Plan In Your Trading Journey
As the saying goes “if you fail to plan, you plan to fail”. Rayner brings up an important point – he is still learning his trade today. He reads books, does his research and keeps up-to-date on Twitter. New traders need to work infinitely harder to learn as they have no prior knowledge.
Websites such as TradingwithRayner, IG and right here at DollarsAndSense are places that can equip you with the right knowledge to get started. At the same time, you need to be aware of the time commitment it takes to become successful.
Being able to start small is also something Rayner encourages. Those who are younger would naturally have less money to start off with, which isn’t a bad thing. However, even those starting later – in their 40s or older – need to be disciplined. With IG, you can (and should) start trading first with a demo account, which lets you test your strategies with S$200,000 before putting real money into the markets. Of course, you need to understand that your emotions may also be affected when it’s real money that is on the line.
One of the most common mistakes that Rayner notices is that new traders tend to neglect having a risk management plan. Even more experienced traders can lose more than they planned for without a proper risk management strategy, especially during times of greater volatility such as the recent US presidential elections. To complement your risk management strategy, you can make use of IG’s free e-book – Make the most of Volatility – written in collaboration with Bloomberg to prepare yourself to either stay out or tap on opportunities that may arise.
Rayner also has an academy for his followers. Those who are new have a good place to start, while those who want more information about specific topics can zoom in on those. Similarly, IG Academy provides another alternative avenue to build knowledge from online courses and live sessions from experienced professionals on its team.
In your trading journey, you may also become unsure or have questions from time to time. Having a community of like-minded traders to turn to can be beneficial if it keeps you in the right direction. Rayner has a close-knit Facebook and Telegram community that you can join. IG also connects you with like-minded traders and experienced traders in its community.