Research Article #21: Making and Losing 10's of Millions of Dollars as a Swing Trader - Charles Harris
Research Article #21: Making and Losing 10's of Millions of Dollars as a Swing Trader - Charles Harris
Charles Harris's Roller Coaster of a Career
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Introduction
As you know, I don’t have a traditional background that allowed me to work with other portfolio managers and gain their experience. So one of my research tasks is to listen to traders with similar styles as mine, and from each of them, I try to learn from their failures and successes. I came across this video of Richard Harris a momentum swing trader with an incredible story that I wanted to share with you. He mentions some of the massive periods of growth he has experienced and also the huge drawdowns that followed those massive runs.
This is a man that had 8-figure returns on his trading accounts only to be left with a 6-figure account by the end of it. An amazing story to read and to learn from. Here’s the sections we’ll cover:
Presentation in 2019
Trading Shouldn’t be Difficult as it is
On Being Incomplete
After the Divorce was Final
2019 - A Year of New Beginnings
2020 - Year of Covid
2021 - A New Approach to his Swing Trading Strategy
2019 to 2021 - Performance Summary
2022 - An Unexpected Large Drawdown
Propensity for Risk
The Why for The Same Mistake
Conclusion - My Own Opinion of Charles’s Journey
We will look into his mistakes, rules broken and try to understand how we can avoid them. One of the best ways to learn is to look at others in the same path as us, and learn from their failures so we don’t have to repeat them. They’ve already payed the price for the lesson, why should we double it?
Presentation in 2019
Charles gave a presentation in late 2019 when he was coming off a very painful and prolonged losing streak that lasted from March 2014 until August 2017. Around three and half years of drawdown. Can you imagine going through almost four years of drawdown? In the sector of crypto we’ve went through a similar experience from late 2021 up until 2023. But it definitely didn’t last as long. Just goes to show that we need to be prepared for whatever unseen duration of drawdowns because they will eventually come.
Charles mentions that this drawdown resulted in -87% of his account during this period. Something he had never experienced up until that point. He was trading a Roth IRA account and not even using margin. To top this out, he was in the middle of a divorce of his 27-year marriage which resulted in his assets being frozen in the second half of 2018, up until the divorce was final. He only started to dig himself out of that hole until 2019. What a rollercoaster for sure! What’s more amazing is how did this man ever achieve 8-figure returns after this? Let’s get into it.
Trading Shouldn’t be Difficult as it is
Charles makes the claim that trading shouldn’t be difficult as it is and if we stick to the three basic trading rules, a fortune could be made given enough time.
Being in line with the market
Don’t fight the trend
Cut your losses quickly and let your winners run
For most people these rules can be very hard despite how straightforward they are. One of his favorite books is Reminiscences of a Stock Operator based on the life story of Jesse Livermore. Livermore says something interesting:
“A stock speculator sometimes makes mistakes and knows that he is making them. And after he makes them, he will ask himself why he made them. And after think over it cold bloodedly, a long time after the pain of punishment is over, he may learn how he came to make those mistakes and when in a one particular point of his trades. But not why.”
It is good to remember that even though Livermore made fortunes during his career, at one point being the richest man in the world, he blew his accounts again and again. And he never figured out why.
Charles sometimes thinks of himself as a modern day Jesse Livermore. Not directly related to how much Livermore made during the peaks of his life, but he finds similarities in the roller coaster of their careers.
It’s not enough to know the rules, it’s not enough to know what rules you’re breaking. You have to figure out why you’re breaking them and address that. The rules he wrote down 27 years ago in December 1996, after he had just lost half of his portfolio still hold up today. One of the key aspects he mentions is that when he reviews his trading journal entries, after each drawdown he’s suffered over the 27 years, it’s the exact same rules he’s breaking.
He was young when he started trading back in 1995/1996. He only started with $3,000 which thankfully is not a life changing sum that would have destroyed his career. I am also of the opinion that most aspiring traders will most likely blow up their first few portfolios. Better to do that on a small account, save some more capital until you have a proven track record of success, and can manage a larger account effectively.
On Being Incomplete
Charles claims that all boom and busters, and people in general, are in a sense incomplete. Not in the sense of missing a skill or talent, people aren’t perfect and all of us lack something. What he means is that people don’t feel deserving and that they aren’t enough just as they are. He references Bernay Brown’s TED Talk, The Power of Vulnerability. What she found was that the difference between people that live with a deep sense of worthiness versus those that really struggle for it, was a sense of courage, the courage to be imperfect. They come to terms with their imperfection and don’t feel the need to hide or compensate for them. A large portion of the population aren’t out there living their life with a deep sense of worthiness, and he questions himself if that correlates with the fact of such a small percentage of people being able to achieve consistency in their trading endeavors.
After the Divorce was Final
After the divorce was final and his assets were split, he was left with half of an already very small account from what it once was. At his lows in 2017, he had lost 87% of his money. He was able to recover a portion of it in the following year, but he was still at around 80% drawdown when he had to split that in half with his former partner. At the beginning of 2019, he was starting back with about 10% of the assets he had previously in a non-margin account which was about what he had in August 2008. Imagine 10 years of performance down the drain.
Being a boom and buster who experiences large drawdowns, building great wealth in the market through compounding will be just about impossible. Albert Einstein claimed that compound interest was the eight wonder of the world. Large drawdowns are the enemy of compounding.
By 2019 the market was beginning to recover from that vicious 24% correction on the fourth quarter of 2018, and Charles started to rebuild once again. He didn’t know how long it would take, but he tried to focus on the road ahead and not the final destination or an arbitrary time goal for returns. He had to make a 10x return to get back to his old equity highs.
