Thursday, August 20, 2020

My First $500 in Stocks

 

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Image by skeeze from Pixabay

I know what you are thinking, its petty! You can hardly do much with this. Be it rent, insurance or the household needs. What important though is the success of my perseverance. There was a time when I got drowned in the neck- deep losses. But it was my perseverance that helped me in discovering the winning strategies. Will the returns be consistent? I don’t know. Only time has the answers to this question.

I failed fast. The steep downfall of stock market in pandemic is the most significant event of my short journey in it. At first it was brutal but then it helped me in overcoming my mistakes. A better investor I guess. I am feeling more confident than I was nine months back, when my journey started.

The journey started

I started in the stocks only a few months prior to the pandemic. I was looking for investment opportunities and landed upon the idea of stocks. I had heard mix stories on the market and I was not sure about its prospects. I did not mind taking a risk though. But I wanted to prepare myself first.

I started exploring the trading strategies and landed up on the concept of “Swing Trading”. In this trading style, investment tenure is typically few weeks or months. I was more interested in short term investment so it suited my needs. Also it requires only couple of hours daily commitment. This meant I don’t need to compromise with my existing routine, much. But it didn’t come so easy. This field demanded good awareness on concepts of Technical Analysis, Tools, etc. It was too much. The literature on this subject was all over the place — blogs, videos, books. Finally I found an audio book on Amazon audible. This provided a good platform for me to take my first step in the stock market.

The bitter truth

No magic happened in the first month. I followed the guidelines like a sincere student. I selected some “mid-cap stocks” with good fundamentals. Picked up the ones which created the right curves and buying positions. Fundamentals of these stocks were impressive. So much that I got glued to them, emotionally. Even though the prices fell down for them, I kept my faith up. Some of them did come back and some didn’t. At the end of the month, my balance sheet was just balanced. Neither it moved up nor down. In fact it was a bit down I must accept ~ 2%. Clearly the formula did not work. But the daily movements in stock prices convinced me to experiment with another trading style — “Day Trading”

I was ready to take the benefit of momentarily swings in the prices. And I got lucky. The first day I generated $50 dollars. The next day $60. And the next day, I fell straight on my face. I lost $150 dollars. This time my balance sheet was not balanced. It was negative. I had lost almost $500 in the month. Along with the money, I lost my interest too. For me neither the Swing Trading nor the Day Trading worked. I cannot be a trader, I decided. The only way I could be connected to the stock market is through long term investments. I convinced myself with the only remaining trading style, in the books.

I had researched on few stocks already, with good fundamentals. Though they did not give me any returns in the short term, but I was confident long term investments in them will be fruitful. Returns will be much better that ETFs. I decided to look into the stocks less frequently. Got busy with my work and stocks were the least priority. And the pandemic began. I was not worried. I had invested in the stocks with strong fundamentals. Even if the market comes down, it will impact their value temporarily only. And then it started falling.

It was mid of Feb 2020 when the market crashed. And it crashed almost daily for few weeks. By the time I realized I need to take some action, I was down 50% of my portfolio. And experts were still not sure, if its a bottom.

The Art of Trading

Continued failures in the stock market tried to shoo me away but I knew I could make it.

The first lesson I learnt in the market is never to buy or sell stocks in panic. Do not enter the market with the mindset that you are missing out on the opportunities. You must follow the market but not in fear. You need to turn off your panic button, it has no place here. Right time to buy or sell should be defined based on your trading style, investment period and the chart indicators. Whether you are a short term investor or a long term, you must learn to understand the charts and patterns. Technical analysis helps us in identifying better buying and selling opportunities.

The second lesson I learnt is to put a stop-loss. I always understood this concept but never applied practically. And this caused me to bear heavy losses. If a stock goes below your stop-limit, you must sell (or buy if its a short position). Even if you booked profit with 4 (out of 5) stocks in the portfolio, pulldown in one stock could be enough to erase your earnings. “Never ever loose your money” is the key mantra.

If you stick to the above two, this is good enough to start your journey in the stock market. The only part remaining is to improve your winning chances. And this will come gradually. Even if you do not score in your early investments its not going to harm your financials (assuming you execute your stop-loss actions). In fact this is going to improve your filtering criteria. Your screening efficiency will go up eventually which will convert into your profitability.

The final nail is to decide the trading style. For me, I am back to square one — Swing Trading. You can choose to be a Day-Trader or the Long term investor. There is nothing wrong in either of these styles. But it should suit your routine, pockets and emotional stability.

Looking forward

I could have easily run away and never enter the market again, when I went in losses. I could have closed this chapter of my life but I chose not to. I somehow felt connected to the stocks, prices, charts and money. And this kept my will to continue. I am sure there will be many other challenges too in the future but I am ready to face them. I am ready to fail, retrospect and learn.

Every journey is different. You might experience different challenges than mine. You might learn different things than me. What important is to stick to your journey and improve your chances!

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