My biggest mistake in tradingHey all,
Nobody is perfect in trading, and lessons can often be costly. I started trading in the summer of 2020, and I have learned absolute boatloads from both being right and wrong since. I'm here to share with you the biggest mistake I have ever made in trading, and what I took from it. When Chinese stocks first started crashing on news of government restrictions & such, I looked to the opinions of others for advice; I recall watching YouTube videos from people, such as Charlie Munger, discussing why they were buying the dip or sizing up on the dip. I ended up trusting these people more than myself for all the reasons they described, and simply threw my money at Chinese stocks that seemed significantly off their highs while U.S. stocks lingered at ATH's.
This didn't work, and here's what I learned from it:
U.S. stocks are much more predictable than Chinese stocks- Chinese stocks seem to trade very little on fundamentals, and seem to be driven more by pure emotions than any other singular factor. These names will always trade at a discount as long as the U.S. remains the powerhouse economy of the world as Chinese markets are not the markets investors will flock to in times of uncertainty and fear.
Markets move together- as I said, Chinese stocks were the first to fall. Instead of seeing Chinese stocks' rapid descent as a future warning sign for U.S. markets, I simply assumed that Chinese stocks were the ones being irrational and were due to follow the U.S. markets back to all-time-highs. This clearly didn't happen. Instead, Chinese markets fell further, and now U.S. stocks are following suit.
Foreign markets follow the U.S. market- There have been many points on the charts where Chinese stocks seemed to be accumulating. None of these worked, largely because the U.S. markets have yet to accumulate. I don't believe foreign markets will begin uptrends until U.S. equities begin trending up.
Develop a macro thesis, and position accordingly- Since I started trading, I believed that we were in a bubble and were due to crash; I developed this thesis through a bunch of YouTube and looking back at history & charts. This presents a question- why was I buying the dip in Chinese equities if I thought markets were going to CRASH? It doesn't really make sense now, does it?
Trend is your friend 'til the end- the most profitable skill in the stock market is understanding when trend has reversed, or identifying if the trend is still intact. While you can bet against trend(I was doing it back in June prepping for a bounce), you should be extraordinarily careful as all the factors are working against you. Chinese stocks reversed in February of 2021, and have been in a downtrend since. Why buy the dip when you can short the rally?
Cut losses when you are wrong- Buying the dip on Chinese tech was my most expensive lesson; it could have been double the trouble if I didn't cut losses. When you are wrong, be prepared to admit it, and be prepared to cut losses when it is the case. A cut can become an infected wound if left untreated. I'm not encouraging panic- I am simply advocating that you formulate a plan for if trades go awry.
Don't follow the word of others- This is somewhat ironic as I post my ideas for others to see on TradingView and am working to create a hedge fund, but it is important to understand what I am saying here. Many people lack transparency when it comes to losses, and are too prideful to admit when they were wrong(reference GameofTrades on YouTube- the YouTuber that largely crafted my bearish thesis, but who is still desperately bullish). I am not against using the ideas of others, but you shouldn't blindly trust the word of others. The goal of trading should be to be consistently profitable and to be able to accomplish this feat on your own. If you trust other people more than your money more than yourself, I am of the opinion that you should entrust those people with your money whether it be a hedge fund, an ETF like Berkshire Hathaway, or even a mutual fund. Why put all the effort necessary into trading if you are going to follow their trades anyway?
