Oct

26

This is real life stuff from someone I met a few years ago. It's a sad story of the downward spiral of a trader — but there are lessons here:

Dear Mr Williams,

Of course I don't know if you remember me. In 2003 we wrote some emails to each other. I'm the now nearly 28 year old man who wanted to raise a fund at that time. I was very passionate at that time and had a date with a special lawyer to take this initiative. He told me that this would take €120,000 to get it ready for real sales. Because I've not had this money I forgot the project and also forgot replying this to you.

Another result of our contact three years ago was that I bought your book "Right Stock at the Right Time" and was so convinced of the "Darlings of the Dow" system, that I bought the book another three times and presented it to people I like and recommended it much more often. Unfortunately I didn't follow the system, because I wanted to make "fast and more money" than 25% per year!

So I've lost and my portfolio has had a drawdown from €50,000 (much money for a 25 year old, I think now) at that time to now €30,000! I became a victim of banks and lost €10,000 with options. I wanted to make fast money and this try had to fail, I think now. The drawdown of the Turkish ISE Index two years ago cost me another €3,000. I invested €2,000 in two-day-individual-coaching by a top German trader who specialized in Fibonacci. If I had bought myself a good cigar and lit it with a bill I would have had a better return!

My last try to make fast, good money and maybe to live from my profits was, that I opened an account with a Swiss forex broker. In theory it worked, which means I ended the first two month with profits of 140% and 80% respectively. Unfortunately, this was a demo account! With maybe too much confidence in myself and the broker I opened a live account, and need I say that this Swiss broker plays customer tricks. So there is no comparison from demo to live! Although I thought I was prepared, well, this try failed too and I lost a further €5,000!

Now, I'm the disappointed owner of a €30,000 account and don't know what to do now. My goal is to live from my profits. In accordance to that I established contact with ###### (you probably know this Hong Kong system developer). He was so kind as to provide me with a performance report on one of his fully automated trading systems! Immediately I was convinced by a system which made 400% last year with a drawdown of only 10%.

In my opinion ###### is nice, but when I wanted to open a trading account with the only German broker who uses his strategy-runner, they warned me urgently. In their opinion he also plays tricks on customers. I phoned another German investor who bought one of ######'s systems and is trading a "big account" on it, and he also subscribed to the bad opinion of him.

Honestly I don't know whom to believe. I don't know what ######'s advantage would be, besides the leasing fee of $120 per contract per month, providing customers with non-working trading systems. All think that his systems are "optimized" on past data and will not be profitable with real money!

Sincerely, ###### ######

Mr. Albert replies:

This type of story is so prevalent in the day trading shops I've been in. Not having to listen to these anguished tales is the primary reason never to go back. I still blame myself for not shaking my friend as he froze and let a $5,000 loss turn into a $100,000 loss in the space of an afternoon in the fall of 1998. He lost his account — all funded on credit cards in his wife's name — and I never saw him again.

One lesson I've taken from my own recovery, and from watching too many guys lose much much more than they could afford to, is to have a back up non-trading plan and pick a loss number after which to stop trading for a while.

Of course, it seems like most successful traders have had at least one period of total ruin and several of massive loss. In fact there are very few great traders that I can think of who have had long term success without at least one total blowup. Often this story is the first chapter of a guy's figuring out a new method. If he can come back and find something that will work for him, then this first experience will be invaluable to him later on.

Ken Smith adds:

Thousands perhaps are in the backwaters of life because of the debacles in 1997 and 1998. These stories should be a lesson to those trading today, with the same systems enlivened with better kinds of flashing lights.

It was some kind of miracle that I took $25,000 and turned it into $115,000 back in the heydays. The market just went up and up and I could not pick a bad stock. I would make $10,000 in a few days.

Then the market turned and I did not recognize it, played the same game, did not change my style, kept reading web pages from the bulls. But the bears had taken over.

Then by the time I recognized my error the bulls had taken charge again and by that time I was listening to the bears. I lost both ways.


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