He learns from mistakes to become better trader

This week, we profile a trader whose pain of losing money from making countless mistakes turned him into the consistent trader he is today.

Mr Nicholas Tan Wei Hong, 22, had made all the rookie mistakes, including hanging on to a losing trade as he feared realising the loss.

The National University of Singapore undergraduate says: "For any beginner trader, the desire to make a lot of money and not to lose any is very strong."

He started "live" trading in May last year and, in the first few months, tripled his initial capital of $6,000 through forex trading.

It was capital he had saved from his pocket money and his time in national service.

But Mr Tan, an economics student, once lost $10,000 in a day after tripling his initial capital.

He had taken on too much leverage by using a technique called pyramiding, where it multiplies profits but also losses.

He says: "Those kinds of tactics are used particularly when traders are greedy and become overconfident with their trades.

"When things did go bad, they went bad very quickly, and out of fear of realising such big losses, I would hold on to the position, losing even more money in the process.

"I could be making a lot of money, but because of these beginner mistakes, I would be losing all the profits."

He was forced to reflect on his blunders and learn from them.

"I have a little notebook where I write down these emotional mistakes," he says.

REMINDERS

It serves as a reminder of the pitfalls to avoid when he buys and sells currencies.

Hardened by blows of pain from trades in the red, Mr Tan developed "an internal discipline" when he trades.

There are certain rules that he abides by strictly, such as exiting trades immediately after a pre-determined loss (stop loss).

"I never put myself in the situation where I can lose more than, say $100, regardless of the likelihood of the event.

"I have to resist the temptation to overtrade, even though it is very entertaining, because sometimes, the more one trades, the more likely it is that he or she will lose money.

"I felt like a good trader when I was able to control my greed and make a small amount consistently, rather than winning a lot of money and losing a lot of money at the same time," he says.

His strategy now includes small losses over some time followed by a big win to make up for the losses.

Mr Tan has come a long way since starting trading two years ago.

He was about to complete his national service then.

A close friend, who was investing in the US stock market, introduced him to paper trading, in which he bought and sold currencies using virtual money.

"I was doing paper trading quite well," he says.

He read many books, among them Market Wizards by Jack D. Schwager and The Black Swan: The Impact Of The Highly Improbable by Nassim Nicholas Taleb, to gain knowledge.

But he says he could not put into action everything he read in the books.

As practice makes perfect, his losses have made him work towards being better at trading.