Learning Curve: The Trend is Your Friend

As a new series on this blog, I have began day trading and stock investing in an effort to show you how to make $10,000 while only using your computer. While the idea sounds amazing, it is a lot harder to implement in reality than in theory.

However, that is no reason to give up.


As you may recall, I began this challenge with a $20,000 deposit.

I don’t think I did a great job of clarifying that even though the account is worth $20,000, I will only be using $2,000 to $2,500 per trade to trade with.

This is to minimize risk and maximize my ability to avoid being discouraged once a loss does happen in the early stages.

A losses do happen.

Let’s take today for example, my first day implementing this series, excited, and ready to use all of the knowledge that I learned about how to trade and use indicators efficiently, blah blah blah… and what do you know, a loss.

$(77.79)…

and that’s a pretty big one to me if I’m being honest with myself.

But, as I said to myself before, I believe that I can be a profitable trader and in the name of full transparency, I plan to to show you my good and bad days.

Now let’s go into a recap on why this happened and what you can do to avoid making the same mistakes:


Here is an image of my trade for today, the green arrow is where I purchased and the red arrow is where I eventually sold for a loss.

For a little backstory, today was the day that the Natural Gas Report was released. The Natural Gas report comes out on a weekly basis that accounts for the current inventory that is in stock. The market reacts to the report almost immediately by typically gapping up or down 2-3%.

You can see the aftermath of the report with the large drop in the price of /NG shortly before my purchase price.

My plan going into this was to trade the recovery of /NG.

I saw potential because after the large drop, it may have recovered for a 2-3% profit.

However..

Even though patterns tend to repeat themselves, they don’t have to.

and knowing that, I should have managed my risk a little better in order to avoid losing as much money as I did to the market.

Here are the mistakes that I made:

Mistake #1: Trading against the Trend

I may have said this once, but I will say it a thousand more times, the trend is your friend when trading.

Although prices may fluctuate and go up and down within a trend, if a stock is actively down trending, you do not want to participate in the action of when it starts to rebound upward because the long game will not be in your favor.

I bought when /NG was trading between the middle and bottom VWAP, meaning that it was a down trending pattern and because of that I should of taken a position when it rebounded upward, to trade the up trending counter ETF DGAZ.

(For more information about ETFs and indicators that I use for trading, subscribe!)

Mistake #2: Averaging UP with the HYPE

My first initial position actually was pretty good.

I bought about $1,250 worth of UGAZ and was up for most of the day.

However, my mistake came when I average up at the middle VWAP with another $1,250 because I expected it to keep uptrending.

Big Mistake.

This is the primary reason for my large loss, because of the final buy.

What I should have down was stay with the first position size that I had, although the profit would have been less, I would have at least walked away green for the day instead of at a loss.

It is important not to get too greedy.

Mistake #3: Not Paying Attention to Resistance Levels

I bought my last position at the middle VWAP which is notorious for being a support and resistance level when encountered.

In my situation, I almost ignored it entirely and that’s where I got bit where it hurts.

You have to pay attention to many things when trading, and the action happens fast. The more you trade, the better you will get at examining these patterns, but it is always important to be as careful as you can.

Moving Forward?

Moving forward I will try to be a little more careful when taking my positions.

I am in the position where I am trying to learn as much as I can about trading before trying to make it a full time income.

As of right now, I will be reducing the amount of money that I am trading with from $2,500 to $1,000.

This will reduce the emotional attachment that I have and allow me to trade more objectively.


I hope that I have provided value to you as a trader in order to help make your next trade profitable!

Thanks for reading!

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Have a great day!

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