Trade going against me - your opinion?

[ertyu]

I bought GDX because I hoped instability and fear might feed a rally. But the next day the trade went against me. Right now, I am a walking stereotype: staring at the red, thinking about how much I've lost in monthly expense terms, freaking out what will happen if it falls more, etc. etc. My emotions are getting the better of me and it's difficult to keep a level head or make rational decisions. Would you hold if you are me, or would you terminate at a loss and hide in a corner to wail and lick your asshole, and why? I understand this is not investment advice, I just hope that it'll be easier to get in touch with level-headedness and logical thinking if I initiate a discussion so I can move this away from a freak-out and towards some semblance of rational, logical thought.

I am hoping to both start a discussion around this specific trade and around the psychology of investing and trading in general. I know of myself that I am risk averse. I am definitely one of those people they mean when they say "pushed out the risk curve." I would gladly sacrifice return if it means my returns are small but stable and predictable. Before I opened an Interactive Brokers account, my money was in a CD, which I was happy with, and then suddenly all interest disappeared. My money stayed in cash for four years because I wasn't comfortable with risk, and is still mostly in cash, pretty much evenly split between euros and usd as the 2 major currencies. I'm telling you guys this to give you an idea of my level of risk aversion. If stuff is going up, I want to sell asap to lock the gains because I worry it might go down and I might lose any gain my investments have made. If stuff is going down, panic-selling is a strong pull.

[Dave]

Investing is one of those things where everyone has to find the method that works best for them (it's not the same for everyone). The optimal strategy varies because of differences in time, skill, temperament, risk tolerance, etc. We have to work with who we actually are to find the best strategy for us.

It sounds like you know you are really risk averse. With that in mind, in the most general sense, you need to tailor your investment strategy around that.

To be blunt, making short term trades (if I'm understanding the GDX trade correctly: sounds like you bought for short-term rallying based off current market fears) does not seem to be a good idea for someone who is highly risk averse, because this sort of thing is going to happen routinely where the trade moves against you. It's just part of it - no one is right 90% of the time. So in those times you are wrong, you need equanimity in evaluating your decision: why isn't it working, can it still work, should I move on, etc. In your current state of mind, that seems very difficult, which is certain to lead to sub-optimal decisions over time.

Now, maybe you could change in regards to this over time and get more used to this sort of thing. If you're trying to do that, I'd suggest starting with a position that's so small relative to your net worth that you won't worry at all about at all, whatever amount that is to you.

On the other hand, it may just be that this style of trading/investing is not for you. Part of the appeal buy and hold mentality of owning things like index funds, certain sectors, or specific stocks is that it can help you in downturn scenarios. You know you aren't selling today, tomorrow, or anytime soon, and so you don't really need to worry what the current price is, since you are most concerned with where it is in 5/10/20/30/50 years.

I can't give you any advice on GDX because I don't do that style of trading. But this is a great opportunity to learn something about yourself and either 1) how to better handle this situation going forward and/or 2) prevent this situation from happening again.

And I'd add, I wouldn't beat yourself up too much over this. Investing is the sort of thing that you have to actually do to learn, because you cannot learn in a book how you personally respond to situations. Self-awareness is a huge part of it, and you're gaining that experience right now.

[Gilberto de Piento]

Did you go straight from holding cash in a cd to day trading gold miners? This is not my area but it seems like an extreme shift.

[Bankai]

It's really simple - if it hits your stop loss - you're out; if it doesn't - you hold.

Now, if you don't have a stop loss, you shouldn't be in this trade if the first place.

Also, as Dave wrote, the best trading/investing strategies are those that suit your personality. I don't think you should be trading at all - maybe look for more long-term and less volatile options.

[ToFI]

To be a successful long term investor, we need to refrain from short term trades based on speculation. It's specially important not to speculate as a retiree.
It's not a matter of which direction it'll go. It's matter of: is it a short term or long term investment? Can you afford to wait?

IMHO, VanEck Vectors Gold Miners ETF (GDX) is not a long term investment. It's not stable. It's inherently speculative even before this coronavirus. The problem is that it's ETF. It's likely to contain a lot of junior mining stocks. They are not good long term investment. The only good long term investments related to mining are those low cost, senior gold producers. A good example is: Northern Star Resources Limited (NST.AX). Notice it did not drop much and bounced back during this week's panic? That's its completive advantage. You shouldn't belindly believe anything related to gold is good investment especially it's an ETF.

All my stocks are long term investment. I don't care if they drop 10% or 50% in the short term. I picked them for the long term. I can wait for few years. I have enough cash set aside for few years.

If you strictly indexing, you are be better off to buy SPY(SP500 ETF) instead of mining ETF. And based on your risk profile, you shoud onl allocate a small amount to SPY.

[Bankai]

So you never sell? What if your stock drops 50% or 90% and never recovers? Do you have any exit strategy?

[Peanut]

I mean there is some key information missing here, like how much money we’re taking about, but I would advise holding. We’re talking about a 5-10% loss? Honestly for that little it’s worth waiting to see if you were really wrong or not. It looks like this etf bounces between 20-30 for the most part. You might sell when you’ve narrowed the loss to a couple percent, but selling now is not a good idea unless you really need to spend the money or have another place you want to invest the money that you feel very strongly about.

[ertyu]

@peanut: 3% loss of initial investment, a little less than 1% loss of NW. Yup, @Dave called me out correctly: I wasn't sized right for my risk tolerance. @Bankai was completely correct, too: I should've had a stop loss, if only so that I would've come to terms with the amount I was risking to lose if the trade went against me.

In general, lots of good advice so far. I'll write out what I was thinking with this trade in a separate post.

[Bankai]

If you're agonizing over 3% loss and realized trading is not for you, just sell and move on. You'll instantaneously feel relieved and 1% of NW is a cheap price to pay for a valuable lesson on one's risk tolerance. Don't fall into 'I'll wait and sell when it breaks even' trap - it might never happen (although it probably will, you never know).

[ToFI]

Wow! 1/03% = 33%. 33% allocated to a speculative mining ETF. That's too much speculation. I wouldn't even put 5% to a mining ETF. I wouldn't buy it in the first place.

[Seppia]

Putting 1/3rd of your net worth in a sector ETF doesn’t sound like a good idea in any situation.
I seem to be much more comfortable with risk than you are, and none of my assets represent more than 25% of NW.
sell, take the loss and the valuable lesson.
In more general terms, dealing with volatility is something you learn.
I would recommend starting with much smaller sums and start investing in something a lot less niche (ie an european stock market index fund with low fees), then watch it.
Also keep in mind that I personally know exactly zero day traders that make money. Zero.
Many have some impressive runs, but as I said before, you only need one zero.
I know successful day traders do exist, but your chances are very, very low.
To me, day trading is like betting with a martingale strategy

[Dream of Freedom]

As for GDX, brutal day you've probably lost more now. If it were my trade to clean up, and it's not, I would set a stop loss somewhere below 28. Maybe 27.50 or something. 28 looks like strong support to me. It was around major pivot points on 10/25/19, 10/31, 12/3, 12/12, 1/13, and 2/3. So I would set the stop below, not at support. I would then hope to sell into any rally we might get.

As for the psychology of trading. Some of the troubles I've had was that I've let my ego get involved and that is why having a bad trade hurt. I learned of the difference between a fixed and a growth mindset a few years ago and applied it in other areas. When I finally applied it to trading it helped. Having a bad trade doesn't make you bad. It is how you learn.

[ertyu]

@DoF you were completely right. it fell more and i got even more buttfucked. Spreads are really large, no one buying. Locked in a 5k loss because I am intelligent.

Good point on the fixed/growth mindset. I don't think my ego was invested, I was simply watching the thing go down in blind panic.

Might just sit on my hands for a while this experiment didn't work out too well for me

[Lucky C]

If you're a trader/speculator you're supposed to have specific mechanical rules for trading, often based on price movements, without any emotion factored in besides sizing your positions according to your risk tolerance (to prevent emotions from factoring in). If you're an investor you're supposed to buy and sell over longer periods than traders based on fundamentals, often regardless of price movements, also without emotion. Are you a trader or investor?

There are a bunch of different set it and forget it portfolios with a fixed gold allocation from 0% (e.g. 60/40 portfolio or most average folks' portfolios) to 20%-25% (e.g. Golden Butterfly and Permanent Portfolio). Of the investment professionals who recommend always having some percentage allocated to gold, the consensus seems to be 5%-10%. With these set & forget strategies you pick a fixed percentage regardless of market conditions, but if you want to vary it based on market conditions there are some valid reasons why you might want to weigh on the high side at this point in time:
- gold momentum has been very strong if you make decisions based on momentum or trend
- currently near the end of the business cycle, with risk of recession increasing?
- this low inflation era will end giving way to higher inflation?
- unsustainable government debt levels make gold more appealing than historically low yielding US govt debt?
- risk aversion and economic slowdown to be amplified with the virus on top of the existing potential economic slowdown?

On the other hand, now might be a bad time to invest in gold:
- may be overpriced from a fundamental value perspective?
- fears and risk aversion overblown & we won't actually enter a recession this year?

As for gold miners vs. gold itself:
- Miners are businesses so they try to grow and increase earnings over time and even give out small dividends
- But gold is a finite resource and we could see peak gold mean better performance of gold prices than miner stocks
- Gold has outperformed mining stocks significantly - will this continue or does this mean mining stocks will be undervalued if gold continues its rise?
- Mining stocks have to hedge gold prices to reduce risk so they could lose money when gold prices go up and their business is slow to catch up
- Volatility of mining stocks can be higher than gold itself (could be good or bad)
- Will a further crash in all stocks & a rise in gold prices cause a crash in gold mining stocks since they are equities too?
- Minor point but always consider fees over the long term. If you buy IAU gold ETF you pay a lower fee than GDX miner ETF but if you buy a few individual miner stocks you avoid fees altogether.

Of course this is all simplified and I'm sure I'm missing some other important points.

My upper limit to gold and mining stocks combined is 10%. Max of 5% in gold (which some would say is the minimum you should have in gold in any given year!) and 5% in mining stocks (which some would say is too overweight but they might also think QQQ with nearly 50% tech sector is perfectly fine). It is only this high because of all the data pointing to the high probability we are at the end of this expansion and due to the other reasons above, most importantly the strong momentum - which is still there. You can't make a momentum/trend-based decision on what could be the most extreme week of your investing lifetime. Don't get whipsawed to death. Zoom out on a price chart to at least the 1 year time frame and ignore the most recent month, and then tell me if you want to buy or sell.

[Generation-X]

This is a complex question that touches upon many facets of trading, imo.

The subject itself is complex. Gold is a tricky asset to begin with.

Then there is the psychology. And knowing when to sell. It's very hard to know when to buy and even harder still to know when to sell.

I would deal with this one at a time and not all at once.

These are all tough subjects that take people many years (decades) to understand and learn, imo. And everyone's style is different.

The other question to consider is, is it worth the time and effort? Is this really what you want to do? Do you have an interest?

Most people think buying stocks will make them rich. This is not so. This is work just like anything else.

Everyone's a genius in a bull market - until it crashes. Most of the time, it's about not losing money more so than making money.

The easiest and surest way to make money is to work and save. It will never let you down. Only trade/invest what you can afford to lose.

I also tend to be risk averse. As such, I have developed a style of investing / trading that suits my temperament, knowing and accepting its limitations.

But my core way of increasing net worth is to work and save - this is what I rely on. And establishing a close to a sure thing (pension, social security), but also knowing where / when it would fail. I also gamble (invest/trade).

There is more than one way to skin a cat and don't have all your eggs in one basket.

[Nomad]

I usually avoid individual stocks, I can't believe in them as much as a tracker or a fund - so I'm much more likely to panic in a bear market.

[ertyu]

i am weird because i both find active asset allocation and trading interesting AND am the weakest hand in existence apparently.

much appreciating all the good stuff people share here

[steveo73]

To be a successful long term investor, we need to refrain from short term trades based on speculation. It's specially important not to speculate as a retiree.

If you are investing for retirement I think the evidence is extremely clear. You pick a portfolio and stick to that portfolio. Your portfolio should consist predominantly of index funds.

Once you do this the idea of getting all worked up shouldn't happen. I lost 80k AUD last week and I'm not stressed. I am though thinking about selling off all my bonds and going all into the stock indexes that I use. I figure it's getting close to getting out of bonds and being in a position where I don't need to buy any more share indexes until post retirement (and even then I'd have to have too much money).

[steveo73]

So you never sell? What if your stock drops 50% or 90% and never recovers? Do you have any exit strategy?

My FIL was a hedge fund manager/foreign currency trader (and treasurer of a big bank in 2 countries) and he taught me how to trade. He doesn't believe in stop losses. He has made a lot more money (and lost more money) then anyone that I know.

Trading isn't like managing a portfolio. It's gut feel. It's having the balls to hold positions. It's gambling and it should be noted that lots of gamblers have a skill in their chosen field.

My take is don't take too big positions (but your position needs to be big enough to impact you) and develop a gut to handle the ups and downs. Personally though I think trading is the last thing you want to do if you want to retire and live off your portfolio.

[giskard]

I'm replying to this on 3/7/2020 - GDX closed at $29.41 on Friday, so GDX has since recovered.

Let's assume you bought in on 2/27 @ $29 a share. The next day on 2/28 it hit a low $26.22. Yeah that's a big drop but I'd argue it was unrelated to your trade - every single stock on the market went down that day. I think gold and gold miners sold off so hard because people were actually cashing out their gains (GDX did very well over the past year) to cover losses in other places.

I have had a lot of exposure to gold miners for about a year now, and I'm staying the course. I don't have any stop losses and I'm actually selling put contracts on individual miners to pick up more at lower prices. Here is my thesis:

- Central banks are going to cut rates further and probably do stimulus as the global economy goes into a recession
- This should cause people to buy gold.
- Oil has fallen and will probably continue to fall due to covid-19 fallout
- Oil is a big input for the cost of mining
- Gold miners should print record profits as gold rises and oil falls.