Trading Lessons I Learned the Hard Way, Part 1

08/01/2012 9:00 am EST

Focus: STRATEGIES

Ron Wagner

Principal Partner, RevolutionaryTrading.com

Ron Wagner of Revolutionary Trading discusses the lessons he learned from his early days of trading, and how his trading has evolved to become profitable. Part One of an ongoing series.

This article series will provide insights and thought-provoking concepts related to trading and investing. Over the next many articles, I will recount my personal journey toward becoming a proficient trader and investor. I believe my journey is no different than many of yours, and you will all find relevant ideas you can put to use from each part.

Back in the mid 1990s, my wife Angel and I managed to finally save some money, and we were concerned with how we might provide a quality college education for our two boys. Retirement planning was not yet a thought for us, as we were doing OK financially. We started our investing plan by going to some seminars conducted by local financial planners, and we actually began investing in mutual funds.

Then comes along the beginning of the dot.com years. We thought, “How hard can this be?” Also, I was at this time working full time, so my time was limited in what I could do.

I took what I thought would be the easy route. I started subscribing to everything. I joined multiple trading rooms at one time, and thought the answer was to just “hit the buy button!” I was tested under fire, and found that my past success in other endeavors did not matter to the market.

During this 18-month period, my wake-up call came one day when my wife found me on the floor of my office curled up in a fetal position. She thought I had a heart attack!

I looked up at her and recounted how I managed to lose about $10,000 on one trade in less than two hours. I was following suggestions randomly without knowing anything about trading properly. The stock symbol, by the way, was CMGI, which was trading at a high price during those years.

It was at this point that I knew I had to either give up trading or start learning about the market, strategies, and myself. Angel and I did not have the type of capital account that could sustain hits like that. At that time, $10,000 was a lot of money for us to lose. I would dare say that $10,000 is a lot of money for anyone to lose at any time on just one trade.

I had absolutely no idea what a trading strategy or stop loss was. I remember those days very clearly. My thought process during those times before I woke up and realized what I needed to really do was: “OK, I lost $10,000! So, I make $1,000 per day for ten trading days."

Then when that didn’t work, I backed off to, OK, how about $500 per day for 20 trading days. You can guess that this thinking did not work either. I finally decided that I had to learn how to trade properly or stop trading.

It was about 1998 that I really started to take trading seriously, and embarked on my true journey after losing over $30,000. I have told this story to thousands of others during speaking engagements over the past 11 years, and people would come up to me and say, “Ron, that’s nothing...I lost..." and the amounts were often staggering. But $30,000 to Angel and me at that time was a lot of money!

Lessons learned:

  • Don’t think you can do this with a shotgun approach, as I did.

  • Anything worthwhile takes study and dedication.

  • Don’t think you can outsmart or outwork the market, because it won’t happen.

  • Construct a plan to concentrate your efforts.

After losing a substantial amount of money, I realized that trading our own account was not going to be as easy as I had thought it would be. I wasn’t going to give up easily, because I had not attempted to learn properly. I embarked on a full immersion program in search of the “Holy Grail of Trading.” Surely everyone else must already have learned what this magnificent tool was, and I only had to find it to be incredibly successful.

Next: At this time in my development...

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At this time in my development (I didn’t yet know I was developing), I was subscribing to countless investment magazines, newspapers, online newsletters—and yes, even multiple chat rooms—all open at the same time. I was determined to conquer the markets.

I had purchased no less than $10,000 in books, programs, software, and even printed some books myself from online sources after paying for that opportunity. I immersed myself into a study of indicators, strategies, and specific understanding of the stock market.

You know what I’m going to say next: “Nothing worked for me!”

I was still determined, as failure was not an option. It was just a nagging possibility that helped me stay focused. This is when I discovered technical analysis. This style of trading matched my personality and way of thinking. It was much easier to recognize the probabilities of a successful trade by using price charts that formed patterns.

All I needed was a “plan.” I only needed to know which patterns had the highest probability of success, and I could match a picture (pattern) to one on my computer screen.

I realized one day (and it was really on one specific day) that I was just trying to do too much. I was all over the place and completely disorganized. It took me one entire day to cancel every single delivery subscription, online newsletter, and publication coming to me.

And this worked! This was the turning point for me.

I learned how to place an appropriate technical stop, how to set targets, and of course, how to enter a trade correctly. Once we got the hang of this style of trading, Angel and I began to have good results.

Having lost so much of our accounts up to this point, we actually started trading options for many months to build back up our accounts, while saving as much as we could by strict budgeting. Cash flow was not an issue, as I was making a good income in my career during this time.

We were, at first, only swing trading and managing our own accounts when trading became profitable and fun. We were excited to discuss our strategies together and make decisions that we knew would most likely produce a profit. I remember those days, both the dark ones and the ones we managed to crawl out of the financial hole we dug for ourselves into some success.

Lessons learned:

  • Do your due diligence by researching the many types of trading available to you, but then choose to specialize in just one.

  • Find the style of trading that matches your personality as quickly as possible.

  • Then stop looking around and focus with determination to become a master of your plan!

In the next article, you will see how I approached making my trading plan and the elements that helped take our profitability to a higher level!

Ron Wagner can be found at Revolutionary Trading.

Part 2

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