No matter how long you’ve been involved in the market, the potential is always there for a big trading mistake – that big blunder which, at a minimum will keep you awake at night, or worse, psychologically sabotage your trading, or even destroy you financially.

Fortunately, the chances of making this type of disastrous trading error tends to become more unlikely as you gain experience. This is not to say, however, that you’ll never experience some hairy moments in the market.

Even the best of us have been through it. The key is can you recover from it?

I asked our Tradingmarkets contributors about trading blunders they’ve witnessed and been involved in over the years. Some mistakes you’ll relate to, some you’ve made yourself, and others almost completely unfathomable.

Lewis Borsellino

"The Thursday after Black Monday, 1987, the Shearson broker was giving an order to sell 2500 S&P contracts and pre-market he opened the market 50.00 points lower. What happened was that the phone clerk put the order in twice, so instead of selling 2500 contracts, they sold 5000. They had to get out of 2500 of them, and by the time they got out, it was a $60 million error. Guess who’s order it was? George Soros'. "

(For a more detailed account of this trade, and many more, read Lewis Borsellino’s “The Day Trader: From the Pit to the PC.”

 
Carolyn Boroden

"When I first started about 10 years ago, I was scalping E-mini Treasury bonds on the Mid-Am. I scalped good money out of it using four-tick stops, and gave it all back, and then some, in one trade because I didn’t use a stop. I just remember it so well, because I was so blown away by it that I walked home from work that day severely depressed. I had my first-ever margin call. I was emotionally destroyed. I just remember how awful I felt. This is when I didn’t have a clue as to methodology. I’ve never entered a trade without using a stop since! "

Jeff Cooper

"The summer of 1987, takeover deals were prevalent. I remember I owned calls on Foster-Wheeler. There were takeover rumors on the stock, and I thought there was a takeout. The Friday before the crash was an expiration, and the calls were going out worthless. I exercised at the close so I could own the stock; I owned the stock over the weekend. Nobody thought the market was going to crash on Monday; I actually thought there was a chance that it could be bought out over the weekend. The stock, like every stock, collapsed Monday morning. I held onto the stock until it rallied on Tuesday, but I still lost money. On top of the options, I lost more by exercising and getting involved in the stock because I didn’t want to miss out on the coming takeover deal.

"I also had Dayton-Hudson options. The options ran up to a point where I was interested in selling them. It had gotten close to $10 and I was long at 1 - 1 1/2, and I was long quite a few. The position was worth close to $74,000 at the time — I started with $7,000. The stock was really running that day, and they actually halted the stock, and the options were still trading for a while and I thought I had hit a home run. It turned out it was a bogus takeover bid by a money manager that had gone off his rocker. Rather than sell them while the ducks were quacking, I put a limit order in to sell at $10. They were trading over $10 -- by the time the order got in, they were below $10. I’m on the phone with the broker, and I say ‘Put ‘em in at 9 1/2.’ They dropped to 9. They halted them and opened them back up at five or six. Eventually, I got out of them between 1.50 and 2.00. I think I actually had a net loss on that deal after commissions. The moral of the story was: It’s a stock market, not a stock limit."

Gary Kaltbaum

"The worst blunders I’ve had in years were last year, where I owned highflyers and I kept holding them. The first week down on the NASDAQ they held up like a rock. The second week down they held up like a rock, and I said to myself  'Man, no matter what the market does, they’re just gonna just stay up.’ I  held them, and they got hit like a rock. I went against my two most important mottos:

A)  In a bear market, they eventually get ‘em all, and
B)  Regardless of A, put in stops, and I didn’t. "

Dave Landry

"Late February 2000 I was on top of the world and everything was going real well, my trading was just incredible. I got caught in the bull market blow up with everyone else. I was recommending stocks in my column — I had one stock go up 54 points the next day after I recommended it. People were e-mailing me and telling me how great I am, and I sort of let it got to my head. I was so caught up in trading I was placing trades in the labor room between my wife’s contractions. I was up 4% on that day alone. With the birth of my child, March 9 was the first day the COMP closed over 5000, and I’m thinking ‘I’m gonna have her college paid for in a week or so, no problem.’ I got caught up in everything. One thing I did notice is that I had some positions in biotechs that got whacked pretty hard that day. I didn’t see the signs. I was too caught up emotionally.

"There are a couple of lessons there: Number one, don’t get caught up in the euphoria; number two, don’t trade around major life events, because your head is gonna be clouded. The lesson in this is keep your ego in check because the market will humble you, and don’t trade around major life events. It was a most painful lesson because I knew better — I shouldn’t have done that. If this would have happened early on I would have said ‘Well I’m just a newbie at this, I really don’t know what’s going on.’  That’s the most valuable lesson I’ve ever learned. "

 
Jon Najarian

"We always tell our guys to come home long or short because they want to; because they saw some reason to do so. Don’t let the market do it to you. Don’t let a big customer or big firm step in and buy a whole bunch of calls from you on the close. With two minutes to go is the most common time when someone that knows something would normally come in and do something like that. And then you come in the next morning short, and guess what, the guy knew something and the stock opens up. So we always tell them ‘Come in short or come in long because you saw something that you figured was a good reason.’ For instance, if you saw a big firm buying a lot of calls, that would be a good reason to come in long the next morning. If you saw a big firm buying puts, that would be a good reason to come in short.

"In 1990 one of our guys didn’t heed that advice, and a large firm came in and bought several thousand put options that were way out of the money. After the close, the stock had bad news and gapped down forty dollars! That was a million-dollar mistake. That guy is no longer with the firm. In the game we play, you see a lot of big moves happen very quickly, and you see million-dollar profits and losses happen in seconds. The mistake from our side was, ‘Just don’t let the market do it to you.’ Make a conscious decision, based on all the inputs that you have, to position yourself directionally -- which is not how we make most of our money. We make most of our money on the bid/ask spread and on volatility trading. But if you’re going to position directionally, do it because the inputs you saw caused you to make that decision, not because some idiot, or some very smart person, came in to buy or sell on the close, and by virtue of your accommodating that person, you’re coming in long or short. If you’re a daytrader you can’t get the stuff in at the price you want by the end of the day, just make sure that you want to be long or you want to be short coming in tomorrow, not just that you couldn’t get it in at a price that was a profit to you by the end of the day. Otherwise, you can pretty much write it in stone: You’re gonna be wrong more times than you’re gonna be right.

Tony Saliba

"This is a discipline slip-up more than anything else -- not covering teeny options when you’re short and have an opportunity to cover. Our practice is to pull in short options that are parts of our spread positions whenever we can. Whether they’re theoretically expensive or not, if they get cheap from a dollar standpoint -- we have different rules of thumb depending upon the stock, if they’re under a dollar, if they’re under 50 cents -- we like to just to take them off the sheets. The blunder that I’ve regretted is not doing it more often, you know, watching them return to grow teeth and bite you in the butt. We try to be pretty anal about it and pull in units when they get to a certain point. A number of our spread positions in the tech sector a year ago had cheap puts that were part of a spread position, so we were spread off. Had we been more aggressive to pull them in, they actually to went into the money and that’s just an opportunity cost that went by the wayside. It plays into the fear and greed factor, you know, you see those sitting out there and they’re short and out of the money and part of a spread and you don’t think about them. They’re an opportunity to capitalize on a big move or big event in the market."

Goran Yordanoff

"Aside from sitting there watching the market taking off without getting long ? This friend of mine who made money back in '99-'00 pretty much by buying whatever was on the Nasdaq gainers list 30 minutes into the day and holding it for two or three days -- a guy who had made millions -- convinced me that I needed to buy a hell of a lot of SDLI and JDSU because they were being added to the S&P 500. He had heard Kramer say 'The funds have to buy it' and he thought it was the Holy Grail to make money. I tried to convince him that it was stupid -- that the hedge funds were already front-running and that the index funds would have to buy it from them, like, 'Hey guys, you want the stock? We got it right here,' and then the bottom falls out. I got involved with the stock after it started creeping up after the S&P 500 announcement. We saw this happen with Broadcom. We saw this happen with Yahoo. We saw this with a dozen stocks during the bubble, when they announce the additions to the S&P 500, they just explode. I got involved, I got long, and I had a few other businesses going on at the time, and I wasn't in a few days, and I started getting calls from the people trading, like, 'What do you plan on doing with this SDLI?' I said, 'What do you mean?' and  they said, 'Well it's down to about 64 today.' I just sat there like a like a deer in the headlights, knowing it was the wrong thing to do. I tried to play along with the crowd psychology, and I lost a good crack of money -- around $100,000 on that trade. I was trying to make my friend feel good, I was doing the trade with him. I figured to myself, 'What the hell? It's worked in the past with these other stocks.' I basically felt like I was in Vegas. It was just throwaway money, you know, I was just going to gamble, and it cost me over 100 grand."

The moral of the story: If the crowd's doing one thing, do the other. Never take anything as a sure thing. Even though it may have happened a hundred time before, that doesn't necessarily mean it's gonna happen again.

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