HELLO, I’M TIM, I
SWING TRADE AND INVEST
HERE’S MY STORY.
I stared in disbelief at my monitor. Over $30,000 loss for the day. I couldn’t comprehend the figure, it was too big. Remembering it now, well over 10 years later still brings back painful memories. Why didn’t I quit for the day earlier when my losses were smaller? Why didn’t I take time out to cool off? What happened to my stop loss rules?
It was a terrible day for me and it took a long time to admit what had happened to my new wife. I had been gripped by the markets and greed, fear, frustration, the whole spectrum of emotions had hijacked me.
The day was one page in a whole book on my trading journey.
Hi, I’m Tim Thomas, the founder of this site.
I’ve been trading and investing for over 20 years and have made every investing mistake possible. This blog is a catalog of my many errors and the lessons the markets have taught me along the way.
As well as swing trading and investing, I love communicating and teaching others what I’ve learned and I’ve found this blog is the best way of doing that. I also write for MSN, The Ladders, Wealth of Geeks, and more, and you may also have seen me on The Street or forex trading sites The 5ers, the Forex Training Group among others.
Typically, bloggers who write ‘About Me’ or ‘My Story’ pages focus on their awesomeness and how many achievements they’ve got.
I like a good news story as much as the next person.
However, writing about all my achievements won’t help you, the reader. I’m guessing you’re here because you want to improve your investing game and reach your financial goals.
If that’s the case, you’ll learn far more from me from my mistakes than you’ll ever do from learning about my success.
Learn from my mistakes
As a reader of this blog, you don’t have to go through what I did. I don’t believe anyone should have to endure the losing periods I have, as well as some of the extreme highs and lows, for the sake of gaining an education.
You’ll read about the times that I thought I had investing conquered, only to be humbled by the costly mistakes I then made.
You’ll see how emotionally draining it was and how the overconfidence I developed from winning periods led to mistakes later.
Here are the key lessons which triggered that change.
As I write this and I reflect on that time, I can identify four factors that have made the difference to my results.
There were plenty of times that I felt like quitting but without persistence, I wouldn’t have been able to find the success I now have.
I realized that the results from trading and investing are a mirror reflection of the behaviors I was demonstrating,
Connected to point two above was the realization of the importance of building an internal connection to my feelings and emotions.
I began to use time and leverage in my favor. There is a wrong way and a right way to use this leverage. If the idea is valid and leverage is used correctly, you will see profits.
Here’s What Happened…..
My first investment was in a banking stock called, HSBC which was around the time of the Asian crisis.
Up until that point, the stock price had been rising strongly and I had bought the stock based on a recommendation in a newspaper.
Since the company had a lot of business in Asia, the stock price was hit hard by the panic at the time. It was a baptism of fire!
Of course, after the crisis ended, the newspaper that recommended HSBC, made no mention of how poorly the stock had been performed.
In truth, I had no idea what I was doing and it was an early reminder that the ultimate responsibility for our profits or loses rests with us. We can’t blame the tipsters, we can’t blame the infotainment news channels with the ticker tape on the bottom of the screen. It’s down to us and no one us.
Shortly afterwards, the Dotcom bubble arrived which saw any company with dot com in its name triple or more in value in the space of a few weeks.
It was a crazy period and it was the first time I had heard of the term “ten-bagger”. Any stock that would increase ten times in value was a ten-bagger and they were very common. Infotech and Arm Holding were two London stocks that are no longer listed but they were extremely popular with amateur investors like myself.
I remember working in London at the time and before arriving at the office where I worked I would meet two colleagues outside of a nearby bank.
The bank happened to have a real-time stock price terminal in the reception which I guess was meant to be for customers of the bank which none of us were.
Remember, this was before smartphones and still at the time that internet access was limited. It was an informal investment club where we shared tips and stock prices throughout the day.
We would take turns to go into the bank and get the prices of the stocks we were following.
When the bubble burst, all the money I made was gone, I took another hit years later, the markets gave me another hit with the credit crisis of ‘08 and ’09. The cycle of make-money, lose-money, comes up a lot in this post but we’ll come back to that soon.
Years ago I took courses on trading and followed certain well-known traders who just turned out to be great at marketing. I read countless books on the subject but the best, most effective tuition I ever had was trading with my own money and living with the results.
During the time I have been involved in the markets I’ve invested or traded in virtually everything from stocks, bonds, real estate, options and commodities. In the last few years, I can add cryptocurrencies to that list.
Between 2007 and 2008 I turned $10,000 into $400,000 and I thought I had my trading strategy nailed down. During that time I thought I was invincible and that anything I touched would turn to gold.
I still made huge errors in my trading but they were glossed over by the strong commodities market we had at the time. It suited my trading style and temperament so it didn’t matter if I had bad days because I was confident that I would make it all back and then a lot more.
2008 Financial Crisis
This all stopped with the credit crisis.
I badly managed the risks I was taking and that came back in a big way when I was severely punished for my overconfidence in my ability.
Between 2009 and 2011, I slowly lost most of what I had made. I still made money on some trades but the general trend was down.
During this period our family finances were hit hard and like many families at the time, we struggled.
This period was a mentally and emotionally very difficult time but then something changed.
I had been keeping journals over the previous years, which had become useful as an outlet to the stress I was feeling at the time.
When I reflected on my previous journal entries I realized how emotionally driven my behaviors were.
Greed, despair, hope and fear; were all there as themes in my journal entries.
I remember reaching out to a well-known trader and although I can’t remember what I asked, I know his answer triggered a series of email exchanges which helped me reflect on how my behaviors had negatively impacted my trading.
That period of time marked a turning point.
My approach to trading and investing changed and I began to see consistent profits from what I was doing.
The more I did the right things, the more I realized what the wrong things were.
In the 4 stages of competence, this period moved me from stage 1 to stage 2 of 4. I became aware of my own ignorance.
Technical Charting: Make money from price charts
When I started, like many beginners, I thought the key to making profitable investments was in the price chart.
I thought that was all it would take and so I would spend hours looking for patterns and experimenting with technical indicators.
Technical indicators such as momentum, Donchian Channel, sit on top of the price. Some, such as Heikin Ashi candles are used instead of price lines. Chart analysts believe they can be used to predict where the price will go next. They wait for the signal to invest and then they buy.
I thought that if I could become an expert in these technical indicators, I would become a profitable investor. It felt like panning for gold.
Finding the perfect technical indicator meant all I then needed to do would be to wait for it to give me a signal to invest.
One of the best-known and highly regarded books on technical analysis is Technical Analysis of the Financial Markets, by John Murphy.
Profit from tried and tested indicators
The book details many of the technical indicators available to investors. I remember reading about one called the unusual name of MACD (pronounced, ‘Mac D’). MACD stands for Moving Average Convergence Divergence. It is a technical indicator that allows the investor to identify markets that are in a strong price trend.
If the price of Apple stock has been increasing over the previous weeks, it’s likely that momentum will continue the price trend up (or down).
Thus, the MACD can both confirm the existence of the trend and its strength. The stronger the trend is, the more likely it will continue.
Some investors believe that the indicator has an added advantage; If the investor correctly interprets the MACD, he or she can anticipate turning points in the price.
In other words, the MACD indicator can predict when the trend is about to end. So if the price has been falling for a few days, the MACD can indicate when the right time to buy is.
Discovering the path to abundant wealth
When I discovered the MACD indicator, I was euphoric. I thought financial security was guaranteed and that the MACD was a tool to create an endless supply of profits.
I was sure that I had discovered a “map” to a gold mine that would give me cash whenever I wanted. I was walking on air and in my euphoric state I created a shopping list of all the things I would buy with my profits; a big house overlooking the sea, a red Ferrari, perhaps even a helicopter, and of course I would have a beautiful girlfriend to complete my new life!
I was looking forward to a great future and with the little savings I had, I carefully started to follow the buy and sell signals that the MACD indicator gave me.
I was careful to note all the investments I made in my journal. I didn’t expect every investment to make money, but I was sure I had found my path to thousands if not hundreds of thousands of dollars in profits.
Perhaps it was because I had built my expectations so high, but what happened next left me stunned.
I had been diligent for about a month. I had carefully followed the process; investing when the MACD indicator told me to invest and seeling when the indicator gave me a signal to do so.
The profits I made were reasonable, but I still had losses and it took just one huge loss to decimate my account.
So where did it go wrong?
I had a large investment in Microsoft that I had bought when the MACD indicator signalled that I should and the investment was performing well. However, in an instant that changed.
One day, Microsoft’s share price was 5% down from the previous day’s stock market close. The company had warned that profits weren’t going to be as strong as investors had been expecting.
What Microsoft was saying was that it was still a very profitable business; however, profits weren’t going to be as high as investors thought they were going to be.
The company was well regarded and seen as a darling of the stock market. Investor expectations were high, and this expectation showed in the stock price.
My first big lesson
When the price had risen so high to accommodate this expectation, there was only one direction the price could then go. Down.
The announcement rattled investors and broke the share price. My investment was showing a significant loss. I was frozen and confused; the MACD was showing the investment was still valid.
I didn’t understand why Microsoft’s share price could be so weak and yet the MACD indicator was telling me to stay invested.
This was a lesson in why all indicators, not just the MACD, should be treated with caution.
Indicators ‘lag’ price. Whatever the investment is, whether it’s Microsoft, Bitcoin or the price of oil, if an indicator is added to the price chart, the first thing to react to positive or negative news about the investment is the price itself.
The indicator takes longer to change. This delay can result in frequent conflict between how the price is acting and what the indicator is telling the investor to do.
As an investor, when it is your money at risk, this conflict can play havoc with your head.
Expectation and disappointment
I laugh about it now, but the realization that the MACD indicator was not going to provide me with the endless profits I originally hoped for came as a huge shock.
I had built my expectations to a level that would only leave me disappointed. With hindsight, it shows how naive and ignorant I was to my lack of knowledge and experience. In reality, I was still a beginner.
Up until I discovered the MACD, I had approached trading and investing in the same way that DIY enthusiasts might approach doing some plumbing.
It was simply of learning how to do it and then I would see consistent profits. How wrong I was! I was yet to discover the significant influence our psychological makeup has on us.
This period was also an introduction to something I had little awareness of; investing psychology, or more specifically our emotional intelligence. Investors and traders operate in a grey area between our rational and logical mind and the more nuanced, ‘soft’ skills.
The unexamined life is not worth livingSocrates
Shortly after my experience of the MACD, I came across one of the first books I have read on trading and investing. It was a book that addresses investors’ psychology.
‘Trading in the Zone’ by Mark Douglas was to become one of the most influential books I’ve ever read. I devoured it in one sitting. The book blew me away, it seemed to speak directly to me and the trouble I was having in finding consistent profits.
Know thyself, is a quote wrongly attributed to the philosopher, Socrates. Nevertheless, it is a quote that strikes at the heart of all traders and investors.
Trading in the Zone resonates with the quote by teaching the importance of facing what we could comfortably spend a lifetime ignoring. Ourselves.
The book features stories of struggling traders and investors, who seemed to have gone through the same challenges I was experiencing. As a result, I felt the book spoke to me personally. Through this, I felt that some of the fog I had been experiencing had been lifted.
Since all these traders and investors had managed to overcome the obstacles, I thought that all I needed to do was to follow the advice that Douglas gave in his book. In theory, it was that easy. However, I didn’t stop there.
I was so impressed by the book that I went on to attend a seminar where Mark Douglas was one of the speakers. The workshop was a real eye-opener for me. The book had told me that the difficulties I was having were not unique.
Most of the other attendees had also read the book and had similar stories to myself.
Like me, these investors were trapped in the same make money, lose money cycle I was in. They experienced the same euphoria, followed by frustration and sometimes the despair that I did.
Meeting like-minded investors and learning more about the psychology of investing and trading motivated me to keep going.
On my return to the UK, I set out to implement everything that I had learned. I was convinced that if I could overcome the psychological part of investing and refine my techniques and skills, the profits I was seeking would fall into my lap.
I was highly motivated and committed to my new approach. I felt that the door to profits had been opened. I was diligent in my plan. I journaled each investment in an Excel file. I noted on my spreadsheet the date I bought and the date I sold. I included in the journal the purchase and sale prices. I also added what I was investing in and why.
Most importantly, I started to journal the lessons I learned from the investment. I would be diligent in my research. I would spend the weekends looking at price charts and filtering the best ones for the week ahead.
I was confident I was doing everything right. Convinced that I couldn’t do anything more.
I did this for about three months. But, can you guess what? I wasn’t any more profitable than I was before I had spent the money on the seminar!
My results just didn’t improve. Ok, I was making money on one or two investments, but I was then losing the same amount on others.
When I became frustrated, I invested more frequently, and the more frequently I invested, the more money I lost on the losing investments.
I wondered why I spent all the money on attending the workshop. Regret and frustration overwhelmed me. My investments became more and more erratic, not for the first time or the last, I became spontaneous in my investments.
Here is an excerpt from my journal I wrote at the time:
I notice repetitions of the same statements – “I will not do that again, I will do this again, I need to ensure I do this again.” However, I don’t do them. Nor do I engage in the mental rehearsal techniques that I am aware of and have used in the past. The reasons why don’t matter, the knowledge that these behaviors will help me should be enough to engage in the rehearsal.17 April
I knew what I should be doing, but I couldn’t follow through. I invested too often in an attempt to win back the losing investments. I became stuck in a vicious cycle of losses.
Eventually, I was forced to stop. I had ground down my account to zero.
I had no money left. I become disillusioned, with nothing to show for the work and effort and money I had put in. I had lost all the $3500, plus $7500 I had transferred into my account when I started.
I was confused. I felt I had learned something from the book and the seminar, but I couldn’t understand why I wasn’t any more profitable.
I had done everything that I thought I should be doing. Why wasn’t I making the money I deserved? My sense of fairness and deserving to be rewarded for my work kept showing up.
I took time out. I reflected on what I had done wrong and what I had done right. At the same time, the business I ran was doing well, so I was kept busy.
$10,000 to $400,000
I was still occasionally trading and investing, but I didn’t have the time I felt I needed to commit to it fully. Then, in mid-2007, I had made enough money from my business to use some of it to return more seriously to the market.
This was a period when I enjoyed big profits from what I was doing, and I was able to turn $10,000 into $400,000.
Those months stand out as being very profitable for me. I was implementing everything I had learned at this stage. Through Mark Douglas, I was a great deal more aware of the importance of managing my psychology.
He had taught me the importance of realizing that each moment in the market was unique. In other words, there is no connection between one loss and the next. Or even between four wins in a row.
I kept a journal which I wrote in almost every day. Sometimes I wrote in it more than once.
Keeping a journal has been fundamental to the progress I have made over the years. Any investor who is serious about profiting from the markets should seriously consider keeping one.
I recorded all the trades I did. Each one was cataloged on an Excel spreadsheet. One row for each trade. In the first column was the date of entry. The second column was the entry price. I also included the rationale for investing.
If I lost money, I tried to analyze why. If I made money, I attempted to look beyond just saying ‘the market went up.’ On the whole, my process was the right one. This process reflected all the knowledge and skill I had accumulated to this point.
However, I was still making errors, and it was only because the market was good that I was being let off from these mistakes. I could have lost $2000 by midday but by the end of the day, I would have made it back twice over. It was an incredible time.
Steamrolled by the financial crisis
All that was soon to change. The 2008 – 2009 financial crisis sent markets into freefall. The only things that went up were gold and the US Dollar.
I was completely unprepared for what happened and was stunned by the speed that prices would move. Markets become erratic and I was caught like a rabbit in the headlights.
In hindsight, I should have quit while I was ahead and taken some time off to enjoy the money I had made.
The modest profits I had made were suddenly swamped by the losses that followed.
It was a tumultuous time and despite everything, I lost it was a turning point for me. I realized that if I were to survive and become the successful trader and investor I wanted to be, I would need to be comfortable with questioning everything I thought and did.
I had made some huge profits but then I had quickly lost them. For me to be successful, I knew that I had to be profitable whatever the market conditions were.
Previously, I thought the solutions to my problems would come from seminars, reading another book or mastering a technical indicator.
Despite the influence Trading in the Zone had on me, it was Lesson One in an endless semester of lessons on self-awareness.
I realized the problems I had were internal and that there was no external solution to them. The solution had to come from inside me.
A discovery that changed everything
I won’t pretend that my breakthrough into profitable investing happened overnight. No consistently profitable investor will claim that you wake up one morning and find that everything has magically fallen into place.
However, I had a realization that would go on to change everything for me.
I had been going over my journal for the previous few months and it suddenly struck me. From this one realization, I had a clear understanding of what I needed to do.
It was a lightbulb moment from which everything seemed to fit into place. Although profits didn’t suddenly appear in my bank account that didn’t matter since from that moment on I understood that profits without this realization were temporary and could disappear as quickly as they appeared.
I realized that good or bad, the results I got from the markets were a mirror reflection of my personality.
For many years I struggled with both a lack of patience and discipline. I found that keeping to a diet or exercise regime was sometimes difficult and being patient with someone or something was always difficult.I realized that these behaviors often showed up when I was investing. Despite everything I knew I should be doing I would often lose money because I didn’t follow them precisely to their ultimate conclusion.
It may be obvious reading this now, but until this ah-ha moment, I had been totally blind to it.
I started to look at my investing skills, my temperament and personality, and how I interacted with the markets as one picture. It was a holistic approach.
Over time and with continued practice, my results became more and more consistent. It took a lot of work, but I eventually became better at what I did.
The profitable days turned into profitable weeks which turned into profitable months. I became a consistently profitable investor.
On the Right Path
As I mentioned at the start, persistence has played a significant role in getting me to the point I am in my investing career, however, what’s made the biggest difference has been the amount of time working on myself.
However, had I not had the Eureka moment when I saw how my feelings were impacting my behaviors, I would have been blind to what was holding me back.
If I struggled with being patient with an investment that took longer than I had anticipated to show me a profit, the investment itself wasn’t the problem. It was my lack of patience in my non-investing life.
If become angry or frustrated with the market for losing money and those feelings caused me to lose more money, then it wasn’t the unprofitable investment that was the problem.
It was because I easily got frustrated when I wasn’t trading or investing. Road rage? I had my fair share, anger at my boss, yep, that was me. Every normal human emotion was showing up in my investing.
Through my journals, I questioned why I was feeling these emotions, was it something to do with my parents and how I was brought up, was it because I was bullied at school?
I was bullied a lot and while it’s still not a nice thing to recall or write about, I’m not about to get all Freudian and start saying I had to understand why I am who I am and explain how traumatic my childhood may have been.
It wasn’t long before I realized how pointless that was. These feelings and emotions were normal, I was normal and I had to embrace it. It was more like, “Ok this is who I am: Strong feelings come up when I have to be disciplined and follow my investing plan.”
Depending on what I was trying to do, these strong feelings would sometimes derail me or sometimes they would support me.
However, it wasn’t until I got connected with myself and listened to my inner voice, there was always going to be an internal conflict between knowing intellectually what I had to do, such as follow my strategy and actually following my strategy. The two are very, very different. If you’ve ever tried and failed to follow a diet, you’ll know what I mean.
Embracing who I am has taken a lot of time, it’s meant letting go of everything I thought I was and getting really comfortable with who I am.
The more I worked on myself, the more I was able to develop myself in ways I didn’t imagine I would.
By working on letting go on the need to know what was going to happen next, I began to use time and leverage in my favor.
Let me explain; Trading involves using a portion of your available money in your brokerage account to gain access to a large amount of capital – this is leverage and the nature of futures contracts (which I mainly trade) means they are leveraged investment vehicles.
There is a wrong way and a right way to use this leverage. The wrong way involves buying as much as you possibly can with your account and hope the instrument moves in your favor.
The right way involves allocating a small portion of your account to the idea and allowing the leverage of the instrument to do the heavy lifting. If the idea is valid you will see profits.
These profits won’t be as great but were you to use leverage in the wrong way the losses would be significantly less. Also, by allowing the market to work through its random nature and for a trend to form in the direction I believed it would, I began to allow time to work with me.
I had previously tried to get the timing just right, so I was in the right place at the right time. Sometimes this might work but once I took the time element out of this, I was able to let my ideas play out in the market.
Putting it all together: The process turned into a system
After I had been practising the same processes for a period of time I was able to put them all together into a system that I still follow today. It has a few moving parts to it but it includes activities such as meditation and yoga as well as the journaling that I have continued to do.
These activities support the more obvious trading and investing activities such as research and placing orders.
The result is that my life is a lot simpler and I’m able to follow the rules I have for entering and exiting positions without the same emotional turmoil I used to have.
I no longer feel the urge to need to know what’s going to happen next in the price and I no longer feel like I’ve ‘married’ a particular stock or trading idea.
I’m able to do this consistently, day after day. As a consequence, I’m consistently profitable – my results are a direct reflection of my intention and behaviors.
As I’ve always done, I’ve shared my progress with friends and some family members and a couple of started following the same system as mine. I’ve encouraged them to tweak it in a way that suits them and their personalities and their results are good, still some way to go but they’re also on the right track.
Reader, thank you for reading My Story. I have had a few ups and downs, maybe similar to what you may have experienced in your own life. If you’re currently going through some struggles in your life right now, I’m thinking of you. Things do get better.
Remember this: Life wants you to succeed. If you give up though, Life can’t make you do it, the drive to overcome has to come from within. If you show Life how much you want it, Life will open doors for you.