The Worst Trade I Ever Made In My Entire Career

My worst trade ever came about 12 years ago when I had just started trading S&P
100 (“OEX”) options. At the time, the OEX index was moving in a trading range
and I bought OEX put options (to profit on declining stock prices) when the
index was at the top of its range. Unfortunately, the index broke over the top
of the trading range and didn’t look back.

At a certain point, I believed financial markets couldn’t rise further so I
doubled my investment position, and then ultimately did so again. Eventually,
the OEX index did trade down. When I was in a small loss position, I decided not
to take the loss but rather wait for the position to return to a break even. It
never did and I lost my full investment.

I learned several important lessons from this debacle that helped me to profit
significantly thereafter:

1. Don’t fight the trend;

2. Know when the assumptions for entering a trade are no longer valid;

3. Always have a game plan in place (prior to entering a trade) for exiting a
trade if it goes against you;

4. Never formulate a strategy for exiting a trade based on the amount of your
prior investment.

Charles Sachs<