Sunday, 23 September 2018


If you've ever bought a stock and lost money - particularly a lot of money - you would know the feeling. What was wrong with my analysis? How can the market be so wrong? Why are people making money off of idiotic ideas and I lost thousands in spite of my super-smart analysis?

Can't argue with this. Source.

We are certain that you can vividly remember your first BIG loss from trading stocks. Perhaps the losses alone are worth as much as a C-Class sedan. Perhaps as much as a down payment for a million ringgit house. Perhaps as much as the house itself. We don't differentiate in terms of your income, wealth or, your trading ability - you will invariably have serious regrets about losing money from trading at some point.

In our own collective trading activity, we have experienced all this and more. Many may not realise that trading isn't simply a numbers game; it's a mental game too. In fact, we dare say that the mental component is far more important than being able to execute a good trade, making crucial decisions in seconds, or being able to utilise both fundamental and technical analysis to make money. Because of this, our analysis, empirical research, and record-keeping go way beyond trading itself. We also extensively look into the mental components.

Without the right mind, and the right mindset, you cannot trade. If you do, prepare to lose money, and to keep losing money.

We have delved into the experience of losing a major sum of money before - well into five figures -  here we will elaborate on the different types of regrets caused by trading that you will encounter, as well as how to overcome them.

The only way to make profits in the tens of thousands is to be able to handle losing money in the tens of thousands; and we speak from experience, as always.


This may not come as a complete surprise to you : some regrets are more long lasting than others. In other words, they hurt more. Everyone knows that bouncing back from a bad trade and persevering are key traits for a successful investor. But not many focus on the hows of bouncing back.

Bouncing back always involves feeling miserable outdoors when the sun sets.

Through our observations and painstaking research we attempt to 'rank' the types of trading setback via three main parameters - how it impacts our subsequent trading activity, the time it took to mentally get over the setback, and the time it took to make a subsequent profitable trade.

Our small sample is composed of several individual traders who are part of the team and outside acquaintances; rest assured that we are no pros and are idiots in our own charming ways. The trades in question are fairly sizeable, with profit-and-loss potentials ranging from a few hundred ringgit to a maximum of RM30,000 on a per trade basis.

Percentage means the value of the stake at hand. For a position worth RM10,000 in stocks, a 10% hit means RM1,000. These are high-risk, high reward situations, mostly.


These are the hardest losses to get over. It makes you feel incredibly stupid and will make you question your abilities. If you want to make thousands in profits from short term trades, like we have repeatedly - successfully - demonstrated, you have to deal with these different types of regrets.

Paper profits. Read all about paper profits. Source.

1) Recording a 10% Loss After Experiencing a 10%+ Paper Profit in a Trade

This can be debilitating; it's not something you that you can shrug off easily. When this situation happens it probably means you've got your analysis spot on. Your execution, up to the point of those paper profits, was terrific as well.

But at this point you're likely in one of two situations; either you decided to 'play with the house money' and try to reach for 20%, 25%, 30% profits (meaning you're not satisfied with those 10% returns).

The second one is no better; you simply were too late to exit the position, even if you wanted to. Your sell order was not fulfilled in time. Maybe your paper profits lasted all but 10 minutes before the momentum reversed course.

Whatever situation you find yourself in, here's the worst part: when your position goes from 10% profits to nothing, most of us would be in a state of shock/denial. We let our losses run further.  In many cases, getting out at breakeven is not an option; our minds cling to the notion of heroically recouping those lost profits.

The end result of this? A huge loss in the end that finally forces us to sell the positions. In other words, shame is a powerful motivator to terrible decision making.

Lesson : Set plans and follow them religiously. Otherwise emotion takes over and you'll lose your money, and your head.

2) Recording a Steep Loss of Above 10% After the Position Initially Bounced From a 10% Loss to Breakeven (In Trading, the Opposite of Shame Is Greed)

This is slightly different but the themes are similar to (1). Instead of the 10% gains we envisioned, we ended up with a 10% paper loss instead. But we felt this is temporary; indeed, in subsequent days the stock suddenly recovered to near breakeven.  However, we failed to take this as an exit trigger. Again, our 'heroic' mindset compels us to hold on and hope the stock finally rises to that 10% we initially planned for.

 A visual representation.

Here's where the flaws in this plan emerge:

- The stock could be exhibiting a temporary rebound on its way to the bottom. Hence, the move from a 10% loss to breakeven is as good as it can get.

- When a stock moves like this, other investors will be highly inclined to take advantage of this temporary situation. Perhaps they will sell their holdings at this point heavily, thus creating a strong resistance point.

- Even if the stock moves from negative 10% losses to positive 10% gains, there is a high likelihood the stock is exhibiting greater (and thus far riskier) level of volatility than expected. This means that any trading strategy is not constrained by short term fluctuations, there may also be no credible strategy at all (when volatility is too high, there is no room for an actual trading plan; any profit and loss could simply be down to chance).

Lesson : Work on minimizing losses, not on turning a 10% loss into a 10% gain. This is mostly wishful thinking and has little to do with the trading plan. Without a concrete plan, it means there is only money to be lost, not made.

3) Losing 10%, or Thousands of Ringgit, in Mere Hours

This is also an ego killer; we thought we were so clever, only to be proven so spectacularly and so quickly wrong. In trading, there is no way around this; you will make stupid mistakes. When something goes really badly, don't focus on the uncontrollable factors in the market. Focus on the flaws in your own thinking, and your rationale with trading this stock in the first place.

Lesson: When encountering huge trading losses, focus on self reflection. Take note of the mistakes, and take actual notes. There's a lot of trial and error involved; we literally take note of all our mistakes in the hope of not repeating them again.

4) Selling Your Positions at Breakeven, or a Small Loss, JUST BEFORE the Stock Rallies by 10-20% - Right Stock, Right Analysis, Wrong Execution

Have you ever bought a stock, only to exit early and miss out on the profits? We have, and we have missed out on tens of thousands in profits, many times. This mistake is in having the right analysis but poor execution, for whatever reason. Worse still, we end up thinking about the money (profits) that we were never able to claim, thinking that we're rightly entitled to those profits. And of course, we end up feeling horrible as the stock keeps rising over the next few days/weeks/months. We were so chastened by the experience that we dare not enter a trade at a higher price, thinking that the stock would finally fall; to be honest, we're desperate to see other investors in the market lose money too.

Lesson : You can't lose what you never had. Don't take things too personally. This also happens from time to time. Wallowing over mistakes like this could hinder you from finding that next big trading opportunity, so don't overdo it.


5) Repeated Instances of (4) - You Can't Catch a Break

6) Repeated Instances of (1), (2), or (3) - You're Clearly Losing Your Mind Now

7) Repeated Instances of Being Late to a Trade - These Are the Stocks You've Been Watching Forever

These are all related to streak. The human mind is hardwired to think about winning streaks and losing streaks. But these thoughts are not helpful if you're trying to form a rational judgment. In so-called bad streaks, your thought is framed around your previous successive failures; how effective are you going to be as a trader if you do that?

Lesson : Thinking in terms of streaks will always lead to poor decisions. Especially so when you're on a winning streak; trust us on this.

(Editor's Note : If you're accustomed to thinking of streaks and also thinking of trading as similar to gambling, then by all means go ahead and blame the universe for your own irresponsible failures. We're sure you'd be far happier losing money at casinos than in the market)

8) You're Unable to Find Good Investment/Trading Opportunities, and it's Been Six Weeks!

9) Pressure to Perform - It's Been Six Weeks; Go Make Some Money

This is when your short term mindset takes over everything else. In other words, you're losing a sense of context. As time goes by, you'll become more inclined to make rash decisions for the sake of making a quick buck. Even worse, you're inclined to do something, anything, for the sake of doing. Humans are predisposed to act, thinking that by taking action they're making a positive contribution to the world.

Lesson : Learn to be patient. Sometimes, the best thing to do is nothing, especially in the context of trading. It's not about how it's been or how long it takes. It's about only acting when the right opportunity presents itself.


10) Exiting a Position at Breakeven After Recording a 10% Paper Gain - You Lost Your Chance at Profits

Again, we have to emphasise; it's difficult to exit trades at breakeven point, when we have our capital intact (except minus some broker fees). Maybe it's just us, or maybe it's the human psyche. It's hard to go from 100 to 0 and leave it at that (Editor's Note : If you're a race car driver, you will relate). We have a desire to always be at the thick of things. Sometimes we (misguidedly) look for excitement when trading; we can't help but feel this sometimes, of course.

Lesson: You shouldn't redeem your lost paper profits with huge doses of regret. What's the point? Again, you can't lose what you never had.

11) Losing Money From a Stock Despite Its Peers Gaining Money - You bought SUPERMAX But It Fell; Instead, HARTA and TOPGLOV Rallied Like Crazy

This is one of the best 'mistakes' you can make. It immediately tells you something about the market, or the sector, or the stock, or your pick relative to its peers. Perhaps one company is better diversified than the other. Perhaps one company is simply more efficient and generates better margins and cash flow (if we worship anything in the markets, it's these two things). The point is, when the stock performs worse relative to its peers, it will immediately shed some light on how the stock is being perceived by the market. The clue is there; you just have to figure it out.

 A relative comparison of the performances of the big glove stocks. What do you see?

Lesson: Don't be lazy. Do some further homework. And sell that stock if it doesn't fit your time frame. It is certainly possible that the stock may also be an undervalued laggard...

12) Being Overly Conservative due to a Bad Market - You Repeatedly Miss Out on Good Trades that You Have Identified

This is a no-brainer; we used to feel bad about this, but nowadays we believe this is just good old fashioned conservatism. We prefer to maintain our capital instead of slowly losing them from a series of bad trades. A bad market exacerbates bad trades, and bad decisions leading to them.

Lesson: When it comes to capital preservation, there is no such thing as 'overly conservative'. When you're managing your own money, you're only answerable to yourself. A bad market may be signaling a simple fact to you: there is nothing good to trade right now, so just don't.


A bit of input from our team members who have survived for at least five years of trading.

You will make a lot of money and you will lose a lot of money too sometimes. But at the end of the day it's just money. Do whatever works for you, but you can't risk your life or livelihood with your money from trading. Make enough money for it to be meaningful to your lives; otherwise don't waste time. We trade to make 15-20% gains per annum, and these are without question higher risk trades. If you aim for 3-5% gain, just don't trade; throw it into ASB, unit trust, or fixed deposit instead.

One day you will get to a point where you will never lose any sleep from trading, even after losing RM10,000 on that day. Sanity, stability, and happiness are the most important things. If you let your trading losses interfere with your mental state or lifestyle, you have failed as a trader. Be grateful for good health, family, and whatever it is you have to be grateful for.

And when you do nail that trade and make RM20,000, or five times that, don't think of yourself as a genius. Take five minutes, be grateful, or happy, but move on. Same goes for losses of the same amount. Take some time, but do move on. Losing money won't kill you, but losing your mind just might. 

If you get to a point where you feel exhausted and clueless about trading, just stop. Take a month off. Go on a holiday. Or read a book or two about trading, or finance, or something non-finance related. Only come back when you're ready to trade and when you have some good ideas. Overdoing things and unnecessarily doing things will lose you a lot of money. Learn about restraint; it's among the hardest things to acquire.

 A visual representation of what happens when you overcome your post-trading regrets.