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Online trader begs for help after his short goes south

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baby_swallow

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9 April 2010
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Help! My short position got crushed, and now I owe E-Trade $106,445.56

His name is Joe Campbell, and he claims he went to bed Wednesday evening with some $37,000 in his trading account at E-Trade. One notable development on the pharma front later, and Campbell woke up to a debt of $106,445.56. Now, he may end up liquidating his 401(k). And his wife’s.

That’s where you come in. At least where Campbell desperately hopes you come in. Of course, sympathy in the trading community over such gaffes is typically in short supply.

His is a cautionary tale of getting caught on the wrong side of one of the riskier bets on Wall Street. When you’re long, the worst you can do is lose is everything. But when you’re short, everything and a lot more is at stake. He should have known better, no doubt, but you have to feel for this poor guy.

http://www.marketwatch.com/story/he...we-e-trade-10644556-2015-11-19?dist=countdown
 
Selfish crowd funding drives me insane. I get crowd funding capital for an idea, I get crowd funding support for a charitable cause to help others, but this rise of "I made a bad decision, can you please help me out?" is just shameful.

I recently came across a crowd funding page for a young mother and her infant child to help them keep their house after the husband died suddenly in his 20s. Life insurance for him to pay off that house in full and support his family through until his kid was grown up? $650 a year or so based on what I knew about his job and age. At the time I saw it the page had about $7,000 in donations, with people climbing over each other to donate $100 or $200 to them. Maybe they should have crowd funded their life insurance premiums instead. The emotional tragedy of unexpected loss can't be avoided, but the financial aspects could have been if not for poor decision making. If that seems cold to some, I have these conversations with people every day and while most see value, you do get the occasional superman - invincible, immune to all harm.

"Oh no I shorted a biotech company and lost $100,000" isn't a worthy charitable cause, it's a joke.
 
The best part is at the end of the article: "my plan is to liquidate my wife's and my 401k, then make it all back trading again"
 
I wonder if it was a Tim Sykes inspired move. All I can do is feel sorry for him, which is really no help at all. If he gets fully bailed out, he won't learn the lesson. If he doesn't, it's a very painful lesson to absorb.
 
I'm guessing that those traders profiting from the long side of his short trade won't be pitching in, so why should anyone else be expected to take responsibility for another's folly, particularly when they had no part in it!
 
It reminds me of this guy: https://barefootinvestor.com/lost-money-trading-cfd/

IG offers a guaranteed stop loss product. You have to pay more on the spread, so I doubt it could be used by day traders but on positions you plan on holding for some time, I think it is a really good idea. On markets like gold the extra spread is so small and on very volatile markets it can be double the spread and potentially I have seen more. If you're holding for weeks though a spread of 2 points vs a spread of 5 points doesn't matter to you. It ensures you can load up the position and never go bankrupt and hold it comfortably for weeks or months. It is even better if it is a position where IG is paying you interest and you expect it to go in your favour. Given that there are no carrying costs you can hold that CFD indefinitely.

It is amazing people are willing to risk bankruptcy on positions that plan to hold overnight or over the weekend because they didn't want to pay an extra couple of points on the spread! You have to be careful it doesn't erode your profits, but I assume if you're holding over the weekend you're in for the long haul otherwise you should have closed Friday and reopened Monday morning. I find though if I am going to close and reopen I check how much that will cost and usually it is cheaper just to get the guaranteed stop loss given that it is mostly double the spread or less. If I plan to hold a position for weeks then a guaranteed stop loss is a no brainer as an insurance policy. I am not concerned about say +2 on the spread on positions on high risk/reward ratios.
 
Whilst a GSL may seem attractive for the reasons mentioned. They are generally offered by OTC derivatives providers whom often quote a grey market outside of hours. Has anyone else here experience a >200 points out of hours price spike that just touched your stop order?
 
GSL's cost a pretty penny. Usually 50-150bp depending on the stock. And they have to be placed x% away. 5% on a bank or bhp. 10% on a midcap, 20% on a small cap. And often they just won't do GSLs. (esp around earnings and announcements)
 
skyQuake said:
GSL's cost a pretty penny. Usually 50-150bp depending on the stock. And they have to be placed x% away. 5% on a bank or bhp. 10% on a midcap, 20% on a small cap. And often they just won't do GSLs. (esp around earnings and announcements)
Click to expand...

I actually have never used them on a stock themselves. You are right that they have to be liberal stops. I don't trade individual stocks. I despise the stock market in general. However, you can use GSLs on commodities and indices and they are very affordable. Often the minimum distance is far lower than a single ATR so you shouldn't have a stop as tight then anyway. They are good for counter-trend swing trading, e.g. if you think coffee is going to have a rally in its long term down trend you may place a GSL on the long position in case it crashes when it rains, that way you can hold for a couple of weeks if you have enough confidence in the weather being dry at certain times of the year. If you trade spot arabica coffee it's an extra 20 points on the spread but the standard spread is 30. A 50 spread on arabica coffee is fine for positions you will be holding for a while (like a week or more/over the weekend). The extra spread is the same on futures, being 20 but the base spread is 40, so it is actually cheaper in percentage terms on the futures spread.
 
Valued said:
I actually have never used them on a stock themselves. You are right that they have to be liberal stops. I don't trade individual stocks. I despise the stock market in general...
Click to expand...

It's good to hear that you've found an instrument and trading approach that works for you. GIven your aversion to other instruments, I cannot help but wonder about your reason for volunteering your posts in an effort to mentor experienced trader/s of same on their approach to risk mitigation!
 

Look, I don't mean to be mean here but you did something that I consider insane. I would like to hear TH's view on this, since that may be someone you might listen to since he appears to be well respected. The reason why I made the posts in the other thread was because I genuinely don't want people to be wiped out. I can't imagine the feeling of losing your trading account and how horrible it would feel.

You held a position on the Dax over the weekend, so you are trading I assume based on a daily chart. You account got wiped out by a 200 point gap on the Monday morning open. 200 points is the minimum ATR of the Dax. It is between 200 - 300. Your stop was significantly less than the ATR and your position sizing was based on your stop order being filled. However, it was not based on the fact that it could gap down on Monday morning after fundamental events occurring from two non-trading days. I believe the DAX is capable of gapping down the ATR on a Monday morning open often enough that you're going to be wiped out. Now I don't know how often it happens but even if it is once every 2 or 3 years (I imagine it is more common than that) that means you have a very high risk of ruin and that is exactly what happened. Therefore, for trades on the daily chart you should be setting your stop further out. As I explained previously, it is not because the stop helps when the market is closed but rather it changes your position sizing to something that can withstand a gap. I also disagree with your assertion that this means you can't use leverage or have to have the money to cover a 100% loss. That is simply not true.

I have a bit of an aversion to equities but I still trade index futures, but sparingly. I more so lean towards forex and commodities and most of my trades are in those markets.
 
why would he liquidate his 401k? I thought eTrade cant touch that ? and he is volunteering to liquidate it?

doesnt add up
 
I'm with you 100% Valued. I cannot see how two moves within normal expectations can inflict so much damage on a trader trading overnight if correctly sized. But it seems Cynic likes these swing for the fences trades by his often emotionally distraught post and complaints. So I'm not sure my view will be of much use.

I would imagine Cynic thinks the current losses are the irrational markets fault not his wrong sizing.
 
Well I'm on hopium that Cynics losses, which are the only thing he usually speaks of, are much smaller than his wins...
 
CanOz said:
Well I'm on hopium that Cynics losses, which are the only thing he usually speaks of, are much smaller than his wins...
Click to expand...

Apparently not. He said the last loss wiped out a five figure profit and sent him into a five figure loss and it wiped his trading accounts. He may very well be an experienced trader with a positive expectation, but he is trading with too high risk. I am really trying to help him. I don't pretend to be an expert on risk management. I don't have a phd in mathematics so I can't calculate risk of ruin with complex equations, but common sense tells me a gap down of the ATR probably happens often enough that you're going to be wiped out within your trading life if you don't account for that. Just because I lack the mathematical knowledge to be able to calculate the chance exactly over a given time frame doesn't mean I am wrong on this. I don't need to calculate whether risk of ruin is 5% or 6.7% or 12% or whatever to know there is a good chance someone will be wiped out over the next few years.
 
CanOz said:
Well I'm on hopium that Cynics losses, which are the only thing he usually speaks of, are much smaller than his wins...
Click to expand...

Thanks for your support Canoz. In years gone past that has often been the case, however, the past 18 months have proven to be an exception for which I cannot identify a singular cause for having 6 consecutive aborted trading quarters. On a few occasions an erroneous alteration to a strategy did result in an inflated position ssituation, on others the positions though relatively small were autoclosed at a 12month extreme due to a broker error!

I do not blame the market for any of it!

Although I experienced significant drawdown this week and chose to realise some losses yesterday, my accounts were not wiped out as some here seem to have presumed. I was still in profit until the early hours of Wednesday morning, however the damage was related to a difficult decision that had to be made pursuant to a confluence of events that occurred outside of hours on Monday morning!
 

Oh you didn't get wiped out? From what you said in the other thread I interpreted that you did. I think it could have been interpreted that way or at least interpreted that you were wiped out at some stage in the events that followed (specifically since you shorted on the gap down and then there was a large rally). You definitely did say you turned a 5 figure gain into a 5 figure loss though so your profits were completely wiped out and then some. I don't think that's important, it was more to indicate your position sizing was too high.
 

Okay. Now I see where you're coming from! As for position sizing it, I know from your posts that your approach to risk mitigation happens to be entirely different from mine. ATRs and chart patterns simply do not feature in my chosen trading methods and stop orders are largely ineffective and usually totally inappropriate. However I'd have to disclose key aspects of my method in order for others to appreciate the reasons for this which I am reluctant to do.
 
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