You want to protect your capital until you figure out what works. And only look to scale up once you’ve proven that you’ve got an edge.
Tim Sykes
He goes on to suggest:
Here’s how trading like a coward elevates your trading:
- You’re thinking about risk management all the time and ready to cut losses quickly
- You’re focused on keeping losses small and not letting them get away
- It allows you to recognize failure and losing as an option…which leads to trading safely
- You’re not constantly stressed and on the verge of having a heart attack.
Yes. Yes. Yes. I don’t trade penny stocks, but I learn from his PF management ideas. 2024 is going to see an evolution of my style, as I learn from the mistakes in 2023. Here are three 2023 mistakes:
DBX: I had conviction that this was a buyout/merger stock. Still hasn’t happened. I had 400 shares in January but with the post January melt down the price fell to under $20. I finally sold 300 of them in frustration at $20.51. I let emotions get in the way of my better judgement. Perhaps I was feeling sick that time. In other words, I gave away nearly $3000 in upside. To be fair, I was rebalancing my PF at the time and bringing in some much needed trading limits. In fact since late 2022, I’ve been adding some kind of risk management to my positions. I have been able to increase the CALL to close to the original purchase price.
NOK: Well, I decided to play in the positive P/E penny stock area with several purchases. Neither has been particularly successful, suggesting that sub-$5 is a reasonable threshold to stop trading. NOK is profitable, but is undergoing some considerable pressures, missing several quarters estimates, laying off workers and divesting non-core businesses. I thought it would be interesting to play the CC angle so I purchased stock at $4.09 and sold CCs. I also bought PUTS at $4.50. That worked out really well. At one point I had 400 shares and 2 PUTS ITM. Sigh! If you’d seen where it is trading now $3.35. I’m now exiting that trade at a small profit. Not worth it.
I also invested in several consumer related options which, going into a downturn/recession, hasn’t been a good idea. They were in turn: Macy’s, Under Armour, American Airlines, and GoPro. I took a bath in UAA and GPRO for sure. M was under water most of the year, until the announcement of a takeover/buyout. I hope that comes to pass. AAL was similar. I got assigned in one position each of AAL and M about five~ten days before expiration. I probably should’ve rolled them out and down.
But in early 2023, I evolved a 5% rule that limited my position taking. I’m still evaluating whether this is beneficial or not. At least, I won’t let my account be swamped with 400 shares of stock trading down 30% like DBX was.
The other lesson I’ve learned is that many stocks are cyclical as long as you don’t buy near the top of the price range. Stocks slowly come back, if you’re buying profitable businesses with good management in decent niches. It’s the mania that can be the double-edged sword here. Interest peaks around the time the price is the highest, suggesting an opposite tack is required. But you have to have a strong stomach for buying things when ‘blood is running in the streets’ as it were.