Saturday, March 15, 2008

Setting the Record Straight

There is no question in my mind that people who are serious about their trading need to have accurate information. Without it, it is even harder, if not impossible, to succeed in an already difficult business. I wrote "Trade Your Way to Wealth" to try to help disseminate what I believe to be important considerations every potential trader and investor should take into account in their efforts to become successful or more successful. In the book, I included methodology and strategies that I have learned and used successfully over the years to try to help others avoid re-inventing the wheel.

Last week, for the first time, an unfavorable review of my book, "Trade Your Way to Wealth," appeared on Amazon.com. It was written, I suppose not surprisingly, by someone who wrote anonymously, unwilling to reveal their own identity. The critic claimed to have been trading for 10 years, but failed to reveal whether successfully or not. I can guess. In any event, under a heading, "The Bad," Sir Anonymous wrote: "The book shows a few options trading strategies such as collar (as risk free to low risk free), iron condor, spreads, etc." Sir Anonymous found those strategies to be "very basic or introduced for novice traders." In fact, the book, along with setting out how to create a business plan and manage money specifically discusses 15 separate stock and options strategies in depth and identifies the risk, capital requirements, relative lengths of time each generally requires, the level of monitoring required by the trader/investor and the market direction to which each applies. The strategies set out are: buying stock, writing covered calls, selling stock short, protective puts on long stock, selling naked puts, protective calls on short stock, buying calls, buying puts, bullish call spreads, bearish call spreads, bullish put spreads, bearish put spreads, iron condors, collars, straddles and strangles. In addition, there are discussions about trading REITS and generating regular tax free monthly income on vehicles like closed end funds.

Sir Anonymous says that one may not be able to make millions using collars. Of course that is true. Whether a trader makes millions or not depends on many factors including knowledge, risk awareness, capital devoted to trading, ability to cut losses and so on and so on. I should note that reportedly, the very wealthy use collars as a device to significantly reduce and even eliminate risk in trades while still leaving quite an attractive upside in many situations. I certainly use them myself. Our critic also says it is difficult to find a collar where you can get a credit on the option legs at entry. I didn't say it was easy. Successful trading does require work. I find many such collars during the course of a year. When I was asked to speak at Traders Expo in New York last month, for example, I wanted to illustrate a trade with an assured profit (and no risk). The day before my talk, I did a little searching and found a good one within 10 minutes.

I'll conclude my harangue by noting my belief in the critical importance of formulating a business plan for yourself. Sir Anonymous criticizes "Trade Your Way to Wealth" for failing to set out my own personal business plan. In fact, I did not set out my personal plan for a couple of reasons. First, a good business plan must be constructed for the individual as I describe in the book. My goals, capital, risk tolerance, choice of strategy, time spent studying and trading, knowledge level, and experience are unique and undoubtedly different from that of each reader. What I have done in "Trade Your Way to Wealth" is to set out a road map for you to create the plan that fits you, not me. Second, as I note in the book, the trader's business plan is a living document, a work in progress. It can and should change as you gain more knowledge, accumulate more capital or suffer losses in your trading. You may practice new strategies and add them to your trading arsenal. Copying someone else's plan when it does not fit your knowledge, experience, goals, risk tolerance, etc. would be absolutely foolhardy.

I have been fortunate and successful in my own trading. I sincerely believe in making things as simple as possible and I believe we all are better off if we study and completely understand the critical basics of trading. Some of those basics, in my opinion, are the understanding that successful trading isn't easy and we tend to make it even harder than necessary, it does take work, it will not be handed to us on a silver platter and there is no holy grail of trading. In my teaching and coaching, I have found that two of the most common faults of unsuccessful traders are a failure to understand the real risk in the trade and a propensity to try to add complexity to their trading. In "Trade Your Way to Wealth," I have tried to address those failings in an effort to help readers become better traders and investors within the framework of their own lives and personalities.

by Bill Kraft, Editor
Copyright 2008, Makin' Hay, Inc.
All Rights Reserved


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To comment on Bill's article click on the "comments" link below.

15 comments:

Anonymous said...

Mr. Kraft,
You seem to have taken offese at the comments of this one dissatified customer. That is one out of how many copies sold? I puchased and just finished reading your book. While I realize that in the great cosmic scheme of the things my opinion is worth ( I think the scientific term is) diddly, I thought your book was outstanding. I am just starting to attempt to learn all of this options stuff. I thought your explanations were clear and considered. For what it is worth....WELL DONE
Oh, yea I am willing to sign my name.
Sincerly, Sidney D Cook

Anonymous said...

Mr. Kraft,

I enjoy your articles and have read many books and have gone to seminars. The stratigies that everyone teaches seem to work for that person.
I still have a problem finding the right stock.
I trade options and stock.

Keep Smiling, Sam Stote

sebcoeggs said...

Bill over the past 2 1/2 years I have looked forward to you Saturday e-mails. I have found them quite informative & helpful for an armature trader(me) Here it comes! I have a question & comment. Are your book sales slow? For the past two weeks all you have done is plug you book & not offer any helpful suggestions. I realize we are in a bear market & book sales produce income but come on Bill! Help us learn!
Eggman

Anonymous said...

Bill, I have been trading successfully for 15 years. Your articles on trading are so down to Earth and very well written. I always read them every week. I have not bought your book, but from your writings each week, I am sure it is an excellent book.
Though you can't write a business plan for everyone, there are things like risk control as a percentage of your equity that holds true no matter how big or small your account.

If the critic can't figure out how to make money with 15 different strategies, he/she won't be able to with 30 different ones either. I found that you have to work one strategy until you MASTER it, than you can add another. Newbies make the mistake of jumping from one strategy to another as soon as they get a couple of losses. They become the master of none and eventually give up when they tire of looking for the Holy Grail.
Tony D.

Anonymous said...

Mr. Kraft,

I bought your book. I read your book. I liked your book, I learned from your bo0pok. I am continuing to learn from your book. Forget Mr Anonymous. There are more of us satisfied buyers of your book than guys like Mr. Anonymous. Chin-up!

Ron Waeckerle

Bill Kraft, MarketFN.com said...

Thanks, Sidney. I guess I am too thin-skinned. I did take offense, not because it was a criticism, but because I think the criticism unfairly misrepresented the content of the book. I should note that the critic only ordered the book a couple of days before he/she wrote the criticism so it is hard to believe they even read the book. In the great cosmic scheme you are absolutely right and thanks for your kind comments and for signing your name.
Bill Kraft

Bill Kraft, MarketFN.com said...

Hi Sam. One of the questions I am most frequently asked is how do I find the "right stock." My own approach leads me to conclude that finding the stock is much less critical than learning how to cut losses when it goes against us, as many will, and how to let the profits run when we get the good ones. I believe technicals are extremely helpful in finding the entries that enable us to accomplish those important tasks. Hopefully, the Newsletter articles down the road will help in that regard.
Bill Kraft

Bill Kraft, MarketFN.com said...

Great question, Eggman. Book sales have been quite good, actually. I did plug it heavily this week because I am proud of it. I don't think there was anything but a mention of the book last week and, if anything, a plug for someone else's book. In the FREE NEWSLETTER I do try to give valid information and, quite frankly, I have personally been doing well in this bear market. A little tongue in cheek -- if you want me to help you learn even more, get a copy of the book.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thanks for the good points, Tony D.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thanks, Ron. Glad you liked the book and learned from it.
Bill Kraft

Anonymous said...

Dear Bill:
I enjoyed the book but nevertheless found it very difficult to understand at times because it is so compactly presented in the text. More simplified examples showing each step of the trade e.g. collars would have been very helpful. I am still unable to complete a collar when using Etrade?
thanks
Wicomb

Bill Kraft, MarketFN.com said...

Thanks for your comments, Wicomb. I've already spoken to the publisher about having larger type in the next book to which I have committed and I'll try to do better in follow your suggestion of step by step examples. I guess doing collars on E*trade may require two or three separate steps. Buying the stock, buying the protective put and selling the covered call. Each broker differs in how they require orders be placed. My internet broker, for example, has a specific screen for placing collar orders.
Bill Kraft

George T. said...

Hi Bill,
The following is a paragraph from the most recent Reader's Review on your book :

"Here's the questionable data: the author sold $250 calls for 40.40 (short call portion of the collar), and bought the stock at $231. Then two months after, with the stock trading at $380, he unwound everything. The author bought back the $250 call option for $61.20. What?!?!? Can the market be that inefficient? A call option with intrinsic value of $130 was bought for $61.20? Too good to be true. If this were true, then maybe this is how the author made his millions...but I doubt it. After reading this section, I must say I began to question the credibility of the other examples used..."
Care to comment on that ?

Bill Kraft, MarketFN.com said...

Thanks, George. I have included a paragraph in this weekend's Newsletter about the mistake on page 88 of my book. Yes, I do care to comment. There is an error regarding the numbers used on the Google trade I set out on page 88. I failed to catch my mistake in the final edit. I can assure you that the principle set out there is true; I am now a multi-millionaire; I do use the strategies set out in the book; and, I am aware of no other mistakes regarding any other examples used in the book. I am truly sorry I missed my error, but I can assure you I often use the collar strategy and trade in and out of the call leg to enhance returns. I am currently in the process of doing the same thing with AAPL. Thanks, again, George.
Bill Kraft

George T. said...

Hi Bill,
Thanks for your quick clarification. I've got one question regarding your collar strategy, which is indeed equivalent to a bull spread, most of the IRA accounts nowadays allow spread trades anyway, so is there a special reason that you opt for a collar strategy instead ?