Trading Tales: Triumphs, Turmoil, and Lessons Learned

My Rollercoaster Ride in the Stock Market

Chapter 1: The Beginning of a Journey

When I heard the word “trading” for the first time in my life, I was 17 years old. It was in a YouTube advertisement featuring Timothy Sykes on his couch, boasting about making 12k trading from his hotel room. The naivety and curiosity of youth often led me a step further in my journey. The first thing that crossed my mind after seeing that video was a burning need to know more about this trading.

I dove into internet research and discovered an online trading course in Montreal, offered in French (I am a French Canadian, for those who don’t know; English is not my native language). After some contemplation, I decided to take the plunge and bought the course for 500$. Excited to learn this new craft, I eagerly began my studies.

Chapter 2: The First Steps

The course was thorough, covering stock market terminology, technical analysis, and fundamental analysis, among other topics. When I received the course’s textbook, I was enthralled by the complexity of this new world. Obsession took hold of me, and I found myself studying up to 12 hours a day — an unusual behavior for an ADHD guy like me.

This was back in April 2016. By June, I had finished the 30-hour course and opened a free paper trading account at CMC Market, a CFD broker. I put my newfound knowledge to the test by trading on the commodities market.

Over the course of three weeks, I had been steadily improving my ability to read charts. I still remember the overwhelming confusion I felt the first time I saw a candlestick chart — it was so daunting that I immediately closed my computer! As I got further into trading, I noticed how lonely it could be. So, in an attempt to bring some social interaction into my learning process, I had started participating in various trading forums online.

Chapter 3: Into the World of Penny Stocks

One day, I believe it was in the final week of June 2016, just a week after I had turned 18, a random individual, who I’ll refer to as John for anonymity, reached out to me on a forum. He invited me to join a chatroom where experienced traders gathered, promising it would be an invaluable learning resource. Intrigued, I decided to take the plunge. The chatroom was abuzz with traders dealing in penny stocks. I was amused by the idea that stocks could even exist at a price of one cent! These traders primarily dealt in Over-The-Counter (OTC) stocks.

The chatroom was a hub of active trading discussions. People were constantly suggesting stocks to trade, while John issued alerts on stocks that seemed poised for a significant jump. He also taught me how to read ‘Level 2’ and introduced me to his basic moving strategy for identifying promising stocks. His method involved observing a 13 EMA crossover with the 50ma, alongside a volume spike. Learning to read Level 2 was crucial because, without this knowledge, a market order could easily result in losses. This was due to some traders employing market making strategies to deceive inexperienced traders.

The chatroom was full of people who were successfully making money, which inspired me to set up a real cash account with TD. Back then, TD was renowned as the best broker for dealing with penny stocks and sub-pennies.

Chapter 4: The First Big Win

On Monday, I funded my account with 4k CAD, eagerly anticipating my first trade. However, due to frozen funds, I couldn’t engage in any trading until Wednesday. It was frustrating because I had received an alert from John on Monday about potential top gainers. Back in the summer of 2016, penny stocks were performing exceptionally well, with numerous stocks exhibiting substantial volume and delivering returns exceeding 100% daily.

Finally, at 9:35 on Wednesday, I seized the opportunity and placed a limit order on the recommended stock, $GBSN, a Greek shipping company. I invested my entire account balance into this trade and headed to work. John predicted that this stock would skyrocket within three weeks.

The following morning, I logged into my account and was astonished to see that my balance had soared to 32k. I hurriedly checked the status of $GBSN and discovered that it had surged by a staggering 800% since the previous trading day. I was in disbelief, wondering what on earth was happening. I tried to sell immediately, but to no avail. In the chatroom, everyone was going crazy, celebrating their gains. Some had even made 50k. John explained that the stock had been halted for the day, preventing me from selling.

Thankfully, Friday arrived, and the trading halt was lifted. I swiftly sold my shares, profiting 42k because the stock opened even higher. Excited and ecstatic, I messaged everyone I knew, proudly proclaiming that I had just made 42k in the stock market. In that moment, I felt like a genius, although in reality, I had simply followed the advice of a guru — an approach that everyone typically advises against, amusingly enough.

Chapter 5: Money growing in a tree

That day I quit my job, remember I was only 18 years old, I wanted to enjoy the rest of the summer learning this new craft.

In no time, the chatroom I frequented grew exponentially, attracting 500 individuals. Some of the traders in this group have since become notorious for peddling subpar trading courses. But at that moment, they were just fellow enthusiasts, hungry for success.

One fateful week, John, our esteemed guru, issued another alert. This time, it involved a Bitcoin penny stock called BTCS. Without hesitation, I invested my entire capital into this stock, convinced that making money in the stock market was as easy as pie. Little did I know what awaited me.

For three weeks, BTCS remained stagnant, leaving me glued to the Level 2 data, yearning for action. But then, a sudden surge of orders flooded in, propelling the stock to new heights. In just 30 minutes, it soared from 0.0013 to 0.0024. Sensing an opportunity, I swiftly cashed out, pocketing around 30k. The market was so liquid that my trade barely affected the bid. However, had I held on until September, I would have become a millionaire, as the stock skyrocketed to 5 cents — an astronomical increase.

And so, the month of July came to a close, and my once modest 4k account had ballooned to a staggering 70–80k. The rapid accumulation of wealth filled me with an intoxicating surge of confidence. Little did I know that this newfound self-assurance would soon prove perilous.

The following week, John deviated from his usual alerts and instead began teaching me how to day trade certain stocks. His preferred strategy involved 30-minute charts and buying just before a stock broke the 200 SMA (Simple Moving Average). If the Level 2 data failed to exhibit a substantial influx of orders, it was a sign to exit, as the stock would likely fail to breach the 200 SMA. Eager to replicate his success, I diligently followed his approach. However, this time, I limited my trading to the 20–30k range, recognizing that the low-priced penny stocks between 1–5 dollars lacked the necessary liquidity.

By the end of August, my trading account had swelled to an impressive 90–95k. The astronomical profits prompted me to make a life-altering decision once again — I chose to drop out of school. The allure of trading and the irresistible lure of abundant wealth had convinced me that traditional education paled in comparison.

Thus, began my exhilarating journey as a teenage trader, riding the rollercoaster of the stock market with unwavering determination and a dangerous amount of confidence.

Chapter 6: The Nightmare Begins

As September arrived, John, the once-reliable guru, issued an alert regarding a solar company with the ticker ASTI. Trusting his track record, I placed a substantial 60k order on the stock. However, against my better judgment, John convinced me to go all-in, persuading me to invest my entire account. Despite my reservations, I couldn’t ignore the fact that all of John’s previous alerts had turned out to be accurate. So, I added an additional 30k to the trade, feeling a sense of unease.

On the same day, the stock experienced a 20% gain. Though tempted to sell, my concerns grew as I examined the Level 2 data. The lack of liquidity raised doubts about my ability to close the position smoothly. Hesitation crept in, leaving me uncertain about the best course of action.

The following day, disaster struck. The stock plummeted by a staggering 50% without any significant trading volume. I was utterly perplexed, and panic spread like wildfire throughout the chatroom. To my dismay, John had vanished, abandoning the group. In the midst of chaos, some voiced suspicions of being scammed and urged cutting losses, while others clung to hope, insisting that the stock would rebound. I found myself down approximately 40k, trapped in a state of confusion.

Amid the turmoil, a silver lining emerged — I still had 60k remaining in my account. While it was a significant sum, the losses weighed heavily on my mind. In a bid to salvage the situation, I decided to hold onto the stock for a few days, hoping for a reversal. However, my hopes were shattered as the stock continued its downward spiral, and I found myself unable to stomach the enormity of the losses. Eventually, in November, with the stock down a devastating 90%, I made the painful decision to cut my losses, recognizing that it was unlikely to recover. It was a stark reminder of how swiftly life could change, swinging from immense success to crushing defeat.

As time passed, I slowly came to realize that John had been orchestrating a pump and dump scheme. The alerts he shared with the group had served as a means to manipulate individuals into buying, thus inflating the stock price and trading volume. It dawned on me that he likely operated multiple groups to perpetuate this scheme. The revelation was both disheartening and infuriating.

The aftermath of this ordeal left me emotionally shattered. The impact on my mental well-being was profound, and I found myself unable to engage in any trading activities for the remainder of the year and the following year. The experience had left an indelible mark, and I grappled with feelings of stupidity and the bitter realization that I had fallen victim to the “luck of a beginner.”

In the end, this painful chapter served as a harsh lesson, teaching me the importance of skepticism, due diligence, and recognizing the signs of manipulation in the volatile world of trading.

Chapter 7: The quest started

Following that challenging episode, I returned to school, where I encountered significant difficulties. However, amidst the struggles, I unexpectedly found a silver lining: a newfound passion for finance. This experience ignited a curiosity within me, redirecting the course of my life.

Driven by the desire to understand and learn from my past mistakes, I delved into an extensive exploration of finance. Books became my companions as I devoured literature on trading and finance — an endeavor I had never imagined myself pursuing. I absorbed the wisdom contained within those pages and sought to apply the strategies outlined in each book to the market, eager to test their effectiveness. However, something felt amiss. None of these strategies seemed capable of outperforming the market, and in some instances, they failed to even surpass inflation. The returns they promised fell far short of the results I had achieved under John’s guidance. Moreover, applying these strategies proved to be time-consuming and arduous.

However, amid my search for more effective approaches, I stumbled upon a game-changer: backtesting.

Chapter 8: Risk management

In my quest for effective trading strategies, I encountered a fellow trader who had been backtesting his approaches using the programming language R. Intrigued by this concept, I attempted to delve into programming in R myself. However, I soon realized that it was far more challenging than anticipated, and I struggled to grasp its complexities. Undeterred, I sought alternative solutions and stumbled upon no-code platforms that promised to fulfill my backtesting needs. Unfortunately, their exorbitant costs proved prohibitive, as my earnings fell short of meeting such expenses. This compelled me to revisit the idea of coding, despite the absence of resources like ChatGPT that would have made self-learning easier.

Learning programming on my own was a daunting task, but I refused to be deterred. The scarcity of learning materials made it even more challenging, until I stumbled upon online platforms like Codecademy and DataCamp, which provided invaluable guidance. Over the course of a year, I dedicated myself to understanding the intricacies of R, gradually gaining proficiency and finally being able to conduct backtests. To my surprise, I discovered an unexpected joy in coding and the process of backtesting itself.

Buoyed by my newfound skills, I embarked on a coding spree, undertaking over 100 different projects. From screeners to dashboards, strategies to indicators, I created a diverse range of tools — all while using a humble and inexpensive computer. The strategies I backtested showed promise, prompting me to test them with real money. To my delight, they performed well, yielding positive results. However, I soon realized that an essential component was missing: risk management.

As I delved deeper into the realm of trading, I recognized that effective risk management was crucial for long-term success. Determined to bridge this gap, I dedicated myself to further study and experimentation. I explored various risk management techniques, delving into position sizing and portfolio allocation strategies. By combining my newfound coding skills with this focus on risk management, I sought to develop a comprehensive and robust trading system.

This stage of my journey marked a critical turning point. It illuminated the significance of not only generating profitable trading strategies but also safeguarding capital through effective risk management. Armed with a growing toolkit of coding skills, knowledge of R, and an understanding of risk management principles, I set forth on the next phase of my trading adventure, eager to apply these newfound insights and refine my strategies further.

Chapter 9: Road to quantitative trading

In my quest for knowledge, a serendipitous encounter led me to stumble upon a podcast featuring a remarkable individual named Ernie Chan. As I listened intently, Ernie spoke passionately about the paramount importance of risk management in trading, while introducing me to the intriguing world of quantitative trading. This was an entirely new term for me, igniting a spark of curiosity within.

Determined to delve deeper into this realm, I embarked on extensive research, which led me to discover that Ernie had authored two books on quantitative trading. Eager to absorb his expertise, I promptly purchased and immersed myself in these invaluable resources. Ernie’s books were a revelation, written with clarity and accessibility, making them ideal for newcomers to the world of quantitative trading.

Through these texts, I delved into a multitude of concepts. I learned about cointegration, which helped identify relationships between securities and guide mean-reverting strategies. I discovered the power of employing random forest models for effective risk management. I understood the significance of selecting appropriate metrics to optimize trading strategies, and the perils of overfitting data.

Armed with this newfound knowledge, I set out to implement Ernie’s teachings into my own trading approach. I began to develop strategies based on cointegration, utilizing mean-reversion principles to identify potential trading opportunities. With the aid of random forest models, I refined my risk management techniques, aiming to strike a delicate balance between capital preservation and profit generation. I learned to choose optimization metrics wisely, ensuring that my strategies remained robust and adaptable to market conditions. Furthermore, I became acutely aware of the dangers of overfitting, taking caution to validate and stress-test my models rigorously.

The impact of embracing quantitative trading and prioritizing risk management was transformative. Ernie Chan’s guidance opened new avenues of possibility, allowing me to view the market through a more systematic lens. With each passing day, my confidence grew as I witnessed the efficacy of these methodologies in real-time trading.

This period of exploration and implementation marked a significant milestone in my trading journey. It instilled within me a deep appreciation for the power of quantitative analysis, as well as the critical role risk management plays in safeguarding capital and sustaining long-term success. I recognized that by integrating these principles into my trading strategies, I was equipped with a potent toolkit for navigating the complex world of finance.

Chapter 10: The most important thing

Quantitative trading proved to be a pivotal turning point in my journey, as it illuminated the fundamental importance of risk management. It became clear that risk management was the bedrock of successful trading, surpassing any specific strategy. I realized that even a strategy as simple as flipping a coin could yield profits if coupled with effective risk management techniques. This invaluable lesson forever changed the way I approached trading.

Driven by this newfound understanding, I became consumed by the world of risk management. Over the years, I dedicated myself to developing numerous tools and models aimed at maximizing my Sharpe ratio and stabilizing drawdowns. Remarkably, my annual standard deviation became consistently stable — a testament to the efficacy of my risk management strategies.

As I delved deeper into my risk management quest, I made a groundbreaking discovery — I found the VIX (Volatility Index) to be an invaluable tool in managing risk. Recognizing the correlation between my strategy’s performance and volatility levels, I sought to exploit this insight to my advantage. Drawing from academic papers I had diligently studied, I created an indicator capable of predicting short-term stock volatility. When this leading indicator breached a certain threshold, such as one standard deviation, I swiftly exited the stock. This approach proved incredibly effective, allowing me to avoid significant losses during turbulent periods, including the challenging times of the pandemic.

Chapter 11: Today

Even now, I continue to place my orders manually, as I still have reservations about fully relying on my coding skills. While the possibility of automating my portfolio management exists, I find comfort and control in executing trades manually. Every day, I run my code to assess potential buy or sell opportunities, allowing me to maintain a manageable and hands-on approach. Reflecting on the past eight years of my quest, I am amazed at the transformation and achievements it has brought.

One of the most profound outcomes of my journey is the acquisition of knowledge and skills that I once deemed impossible. Not only have I earned a degree in Finance, but I have also honed my coding abilities across various programming languages, including R, Python, JavaScript, C, and more. While Python may be widely popular, I have discovered my own preferences, allowing me to follow my instincts rather than succumbing to industry trends.

Through this transformative process, I hope to inspire others to persevere in their own pursuits and embrace their curiosity. My advice remains unchanged: do not chase money as the sole motivator. Instead, focus on the intrinsic value of what you do and the positive impact it can have. Embrace your unique quest, listen to the whispers of your heart, and let them guide you towards fulfilling endeavors.

Conclusion

As I reflect on this ongoing journey, I am filled with gratitude for the lessons learned and the person I have become. It is through embracing curiosity, facing challenges head-on, and seeking personal growth that we unlock our true potential. I encourage everyone to embark on their own extraordinary quest of self-discovery, nurturing their curiosity and forging a path that leads to both personal and professional fulfillment.

Thank you for joining me on this ongoing journey. May it serve as a reminder to persist, even in the face of uncertainty, and to embrace the power of curiosity in shaping a meaningful and fulfilling life.

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