The Trade that Hurts the Most
February 2, 2009
Way back in the day I was a newbie trader. I know, it’s hard to believe, but it’s true. 
One of the first trades I ever made that was actually based on my own market analysis (as opposed to getting trading ideas from other people) was taking a short position on the NIKKEI 225. This was back somewhere in 1990 when the NIKKEI was trading north of 30,000. I was very bearish, quite sure the Japanese market was in for a major tumble.
This chart shows roughly where I got short. I can’t honestly remember the exact level, but it was somewhere in there.
Now back then futures wasn’t part of the equation for trading the NIKKEI, at least not for me. I was a stock market player only in those days. That meant working through an instrument available on an exchange. In this case, it was a put warrant. The basic idea of the put warrant is similar to an ultra-short ETF these days. It rose in value if the associated market, the NIKKEI in this case, fell. The difference, however, is that the warrants had a defined life – generally three years from issuance.
I bought that NIKKEI put warrant somewhere in the $5 range. The market pretty much went in my direction straight away. Some point later on – I can’t recall how many months – I saw the price in the $9s and decided to take my profits. It was my first meaningful gain on a trade, so I was quite please with myself,….
…at least until I looked back at the price chart later. 
After I closed out the put warrant trade I pretty much forgot about it. I was in college and not really doing a great deal of market watching. Eventually, though, just out of curiousity, I checked the prices. I knew the NIKKEI had kept tumpling in the interim, so naturally I expected to see those warrants have gone higher. When I saw $25, though, I’m pretty sure I moaned aloud.
I’ve made more trades over the years than I can even estimate. I don’t remember too many of them any more, but that’s one which will stick with me until I die. It’s the first “got the analysis right, but didn’t trade it right” experience I had. I hate those!
Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.
Comments