CAN and the importance of consistency and discipline
CAN is a stock I've been trading frequently lately. See the chart above for its entire trading history.
It opened its first day of trading at 12.60 and closed yesterday at 1.21 - a 90% loss since day 1. This has clearly been a wealth destroyer and a stock most people would say to run from as fast as you can - and they wouldn't be wrong. Trading up trending stocks is the easy way to make money. But the fact that stocks do not move in straight lines is my biggest argument for what I do - short term trades that take advantage of those fluctuations.
Now when I first sat down on this slow Saturday night to go back and look at every trade I would have taken with this stock and my system, what I expected to see was a net loss, but not nearly as big as the 90% buy and hold loss. I was going to use this as an example about how being disciplined and consistent can minimize losses even in down markets. What I ended up seeing was something entirely different.
First of all, some stats. The best trade in this stock would have made 59%. The biggest loss is an ugly -95% and counting. In addition to that loss, there are 10 more open trades that have returned so far anywhere from -94% to -75% with 5 of those that have lost 90% or more. The 95% loss was opened near that giant peak @22.97/share.
Now everyone's first thought is "this is why stop losses are so important". And I won't argue with them too much. But with what I do, I've historically found them to lock in rather than prevent losses. But they are preached for a reason - they're generally a good idea. I just don't use them. You will have losing trades - it's inevitable. We all do. What I do is combat inevitable losses with consistency and very high percentage trades. Hear me out.
My approach - take VERY high percentage trades and hold them until they are profitable. Some will never be. Some will lose 95% if I don't use stop losses. But if I make trades that work out frequently enough, those 95% losses are dampened by the cumulative effect of the wins. So here is the rest of the story on CAN.
I chose CAN because it is a nearly worst case scenario stock. The cumulative record of the system I use is 155-11 on CAN. That means 93% of my trades and exits would be wins on a stock that is down over 90% in that time. What makes this work is the cornerstone of what I do and I can't say this loudly enough.
1) ALWAYS USE EQUAL DOLLAR LOTS
2) KEEP LOT SIZES SMALL ENOUGH
3) FOLLOW THE RULES ON ENTRY AND EXIT
Good trading takes discipline, and believe me when I tell you I learned this the hard way. I've lost a LOT of money over the years trading because I got greedy or because I got scared. Now I also didn't have systems that suited my personality well and that didn't help. But I learned how to lose money long before I learned how to make it.
I tried to get rich quick using position sizes that were much too large. I tried making up for early losses with bigger trades stacked on them figuring the stock HAD to turn in my favor soon. I exited winning trades too early when the sting of a big loss was fresh in my mind. What I learned from all that wasn't just how to lose money. I learned what I needed to do to make money. It took me years to figure out a method of trading that used my hatred of losing advantageously. I knew I'd be stubborn and hold losing trades too long, so I had to find a method won so often that the losers became irrelevant. It wasn't easy, and don't think I'm arrogant enough to think the market can't teach me another lesson. I'm sure it will, and it's why I warn everyone that what I'm doing here is edutainment. But new traders can learn from me and others who have taken their lumps.
There isn't just one way to make money trading. You can lose 75% of your trades and still make money consistently IF YOU ARE DISCIPLINED. But trading that way requires a very different personality than what I do and VERY different money management techniques.
And I will tell you it isn't easy to stay disciplined. When you have a system that wins 90% of its trades, it's tempting EVERY DAY to break the rules and go for a "big score". But all it takes is for that trade to be one of the 5% that not only goes to zero, but ties up all your trading capital while it does so you can't make 20 other winning trades to offset it, and you're done.
Even TERRIBLE stocks can be traded effectively with the right system executed in a consistent, disciplined way. My trades in CAN would have (including those huge losers), averaged +7.2% per lot traded. The median was +7.5% and the total return since 2020 would be 12x lot size. Now that isn't that great, especially since at peak I would have been holding 24 lots. That's a VERY important statistic when it comes to position sizing. Even at $100 per lot, that's $2400 for just that one position. If other positions are tying up capital, as is often the case in strong bear markets, it would be VERY easy to run out of money before winning trades have a chance to cumulatively offset the big losers. That's why each lot is capped at around .1% of trading capital for me.
I also always keep in reserve enough that all open positions I have could have up to 25 lots each and still be liquid. It also means I can't trade every signal I get and I have to be selective. That takes discipline and means that a lot of the time I'm 50% or more in cash. It's very tempting not to be when the market is on a tear like it has been recently. But my mistakes have taught me to follow the rules and be happy with being able to consistently grow my trading account (which allows for larger lot sizes each year btw - same % though).
With CAN for example, the -95% trade would have been the 42nd of 166 trades and the other 5 -88% or worse trades were the next 5 after that. Not being able to make the last 100 trades because I'm out of money is the difference between losing money and making almost 50% total return on those 24 lots worth of capital I'd have needed to make the rest of those trades. 50% over almost 5 years isn't a super impressive return. But this was also a stock down 90% in that time. That discipline translates to the trades in stocks that are up 500% too.
Stock picking is great if you can do it well. I started out doing that and learned I'm OK at it, but not good enough. What I've learned is that a good strategy, paired with consistency and discipline makes stock picking a lot less important. CAN is proof of that.
It opened its first day of trading at 12.60 and closed yesterday at 1.21 - a 90% loss since day 1. This has clearly been a wealth destroyer and a stock most people would say to run from as fast as you can - and they wouldn't be wrong. Trading up trending stocks is the easy way to make money. But the fact that stocks do not move in straight lines is my biggest argument for what I do - short term trades that take advantage of those fluctuations.
Now when I first sat down on this slow Saturday night to go back and look at every trade I would have taken with this stock and my system, what I expected to see was a net loss, but not nearly as big as the 90% buy and hold loss. I was going to use this as an example about how being disciplined and consistent can minimize losses even in down markets. What I ended up seeing was something entirely different.
First of all, some stats. The best trade in this stock would have made 59%. The biggest loss is an ugly -95% and counting. In addition to that loss, there are 10 more open trades that have returned so far anywhere from -94% to -75% with 5 of those that have lost 90% or more. The 95% loss was opened near that giant peak @22.97/share.
Now everyone's first thought is "this is why stop losses are so important". And I won't argue with them too much. But with what I do, I've historically found them to lock in rather than prevent losses. But they are preached for a reason - they're generally a good idea. I just don't use them. You will have losing trades - it's inevitable. We all do. What I do is combat inevitable losses with consistency and very high percentage trades. Hear me out.
My approach - take VERY high percentage trades and hold them until they are profitable. Some will never be. Some will lose 95% if I don't use stop losses. But if I make trades that work out frequently enough, those 95% losses are dampened by the cumulative effect of the wins. So here is the rest of the story on CAN.
I chose CAN because it is a nearly worst case scenario stock. The cumulative record of the system I use is 155-11 on CAN. That means 93% of my trades and exits would be wins on a stock that is down over 90% in that time. What makes this work is the cornerstone of what I do and I can't say this loudly enough.
1) ALWAYS USE EQUAL DOLLAR LOTS
2) KEEP LOT SIZES SMALL ENOUGH
3) FOLLOW THE RULES ON ENTRY AND EXIT
Good trading takes discipline, and believe me when I tell you I learned this the hard way. I've lost a LOT of money over the years trading because I got greedy or because I got scared. Now I also didn't have systems that suited my personality well and that didn't help. But I learned how to lose money long before I learned how to make it.
I tried to get rich quick using position sizes that were much too large. I tried making up for early losses with bigger trades stacked on them figuring the stock HAD to turn in my favor soon. I exited winning trades too early when the sting of a big loss was fresh in my mind. What I learned from all that wasn't just how to lose money. I learned what I needed to do to make money. It took me years to figure out a method of trading that used my hatred of losing advantageously. I knew I'd be stubborn and hold losing trades too long, so I had to find a method won so often that the losers became irrelevant. It wasn't easy, and don't think I'm arrogant enough to think the market can't teach me another lesson. I'm sure it will, and it's why I warn everyone that what I'm doing here is edutainment. But new traders can learn from me and others who have taken their lumps.
There isn't just one way to make money trading. You can lose 75% of your trades and still make money consistently IF YOU ARE DISCIPLINED. But trading that way requires a very different personality than what I do and VERY different money management techniques.
And I will tell you it isn't easy to stay disciplined. When you have a system that wins 90% of its trades, it's tempting EVERY DAY to break the rules and go for a "big score". But all it takes is for that trade to be one of the 5% that not only goes to zero, but ties up all your trading capital while it does so you can't make 20 other winning trades to offset it, and you're done.
Even TERRIBLE stocks can be traded effectively with the right system executed in a consistent, disciplined way. My trades in CAN would have (including those huge losers), averaged +7.2% per lot traded. The median was +7.5% and the total return since 2020 would be 12x lot size. Now that isn't that great, especially since at peak I would have been holding 24 lots. That's a VERY important statistic when it comes to position sizing. Even at $100 per lot, that's $2400 for just that one position. If other positions are tying up capital, as is often the case in strong bear markets, it would be VERY easy to run out of money before winning trades have a chance to cumulatively offset the big losers. That's why each lot is capped at around .1% of trading capital for me.
I also always keep in reserve enough that all open positions I have could have up to 25 lots each and still be liquid. It also means I can't trade every signal I get and I have to be selective. That takes discipline and means that a lot of the time I'm 50% or more in cash. It's very tempting not to be when the market is on a tear like it has been recently. But my mistakes have taught me to follow the rules and be happy with being able to consistently grow my trading account (which allows for larger lot sizes each year btw - same % though).
With CAN for example, the -95% trade would have been the 42nd of 166 trades and the other 5 -88% or worse trades were the next 5 after that. Not being able to make the last 100 trades because I'm out of money is the difference between losing money and making almost 50% total return on those 24 lots worth of capital I'd have needed to make the rest of those trades. 50% over almost 5 years isn't a super impressive return. But this was also a stock down 90% in that time. That discipline translates to the trades in stocks that are up 500% too.
Stock picking is great if you can do it well. I started out doing that and learned I'm OK at it, but not good enough. What I've learned is that a good strategy, paired with consistency and discipline makes stock picking a lot less important. CAN is proof of that.
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