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How do you guys handle massive losses? Especially mentally? What was your biggest trading blunder?
My story -
About 4 years ago I lost nearly my entire life savings trying to day trade. This was about 4 years ago. For reference, I’m 26, male.
I want to give some context quick on how I got to this point. Heads up, I know how dumb and foolish I was. I have no doubt most of you will roast me for this. I deserve it haha.
2022, at 22 years old I decided it would be a great idea to quit my well paying full time job and liquidate my 401k to day trade full time. I made a quick $12k on a penny stock earlier that year and I thought I was the next Warren buffet. So I decided I’d quit my job, pay the fees and taxes to pull out my 401k which netted me about $24k all said and done. Right after that, I also decided to sell my home which I bought in 2019 and made about $40k.
I had no real plan and no understanding of fundamentals or chart reading. I simply thought if I bought enough books, watched enough YouTube videos and held options long enough, then they would certainly amount to a profit. Well, in about 3 months I nearly cut my account in half. Every time I’d enter a trade, I’d enter in massive amounts of my portfolio. Nearly 50% on calls or puts and as soon as the trade would slightly go against me I’d get scared and sell. Then watch the price move in favor if I had just held. I’d get FOMO, regret, and enter again hoping to make back my losses. I’d trade all the major Wall Street bets hype, blue chip stocks, and spy yolo’s.
Eventually, I took a big loss and broke below 25k and got hit with a PDT violation and my account got restricted. By that point my account was sitting at about 17k and I decided that I was done.
To make matters worse, I never factored in for wash sales or planned for taxes. Just went in head first hoping it would all magically work out. Come tax time, I owed nearly 6k.
I spent the rest of my account just for living expenses while finding a new job. Nearly everyday I wanted the throw up with how utterly disgusted I was with myself.
Fast forward to present day, I’ve taken the time to learn market fundamentals and also paper trade and back test strategies before trading my actual cash. Last year I started with a cash balance of $10k and as of today, I’m sitting at about $43k.
The money I trade is money I could afford to lose. I ensure I have enough for living expenses and emergencies plus a few months of expenses in savings which are in a high yield account.
My strategy now is where I strictly trade low delta credit spreads and condors that are skewed based on market regime and trend. I only trade indexes. Primarily SPX for the tax advantages. My strategy is 30-35 DTE credit spreads that aim to sell into IV spike to capitalize off IV crush to help theta. I close the spreads at 21DTE and never risk more than 15% of my account (total cash collateral) and have my stop loss set at 50% of the credit collected. In low Vix regimes, I just increase my delta risk (not always if the risk to reward is decent) or lower my DTE for faster theta decay.
I also hedge my positions if I think one side could get pressed by using debit spreads. This has made a HUGE difference with risk management and my PnL curve. I’ve only had a few loses and they were pretty manageable due to my hedges and risk management rules.
To this day, I can’t help but be absolutely disgusted with myself for losing such a massive amount of money when I was younger. Not a day goes by where I don’t think, “wow, I wonder where I could have been if I had just used proper risk management and took the time to learn trading first”. Unfortunately, it was an expensive lesson for me.