Saturday, May 30, 2009

What Do We Really Want?

I remember my start in trading more than a decade ago. It began with a book I read that just hooked me. It talked about some amazing returns and exposed me to strategies that previously had been unknown to me; strategies like writing covered calls and buying LEAPS calls and selling naked puts. I suppose it was the amazing returns that first attracted my attention, but it was only after trading a few years that I realized that the returns the author used to illustrate his points were annualized, not annual, returns. He would show a trade that produced a 30% return in a month and then discuss it as an annualized return of 360%. Some of the examples as I recall even referred to annualized returns over 3000%! Definitely, that kind of trading was for me so I embarked upon my career as a trader.

At that time, the market was a roaring bull and the tech bubble was expanding. Quite frankly, it was pretty hard to make a very bad trade as long as I entered a bullish position. Though I felt like I was doing pretty well, I could not get annual returns anywhere near the 1000% mark. My naivety was rapidly crushed when I learned that trades could actually lose as well as win, especially when the market turned over and rocketed downward. At that point I understood that if I intended to continue as a trader I needed to do a few more things: I needed to learn how to trade a down market and I needed to set aside the greed factor as much as possible and figure out what I really was trying to do.

Figuring out what I was trying to do was not quite as easy as it sounds. Obviously, the goal was to make money, but underlying that were questions of what expectations were reasonable, what rewards would I seek, what risks would I be willing to trade off in exchange, and how would I go about it? Later, in talking with many seminar attendees and private coaching students, I learned that most people fail to take those things into consideration at first just as was the case with me. Most jump into trading because they see the marvelous potential, but learn as they go forward that though it may be simple it definitely isn't easy.

One of the questions is whether a trader is in it for the big hit or whether he is willing to play the game steadily, being satisfied with a relatively steady advance. I find that those seeking the big payday only rarely achieve it and often take themselves out of the trading business without ever achieving success through inattention to things like reward to risk awareness and money management flaws.

My personal conclusion, and the decisions are personal to each of us, is to treat the market as I would eat an elephant -- one bite at a time. In other words, my primary focus is on regular, steady production of income and increase of assets through a variety of strategies. My secondary focus to which I devote less time, energy, and money is to seek big hits. Those huge returns do come on occasion, but in my experience they are relatively rare and are not frequent enough to satisfy my financial needs and wants.

It is my sincere belief that almost all of us would be well served to establish a variety of streams of income in addition to our own labors. That is the reason I wrote the material I discuss in my new book, "Smart Investors Money Machine." Most of us have differing abilities and differing requirements, but we share a desire if not a need to increase our assets. Before "Smart Investors Money Machine" was released, some self-anointed critic on the blog suggested that the book was just about diversifying, but he is wrong. While diverse methods to create streams of income are an important part of the book, it goes beyond that concept to illustrate how various methods and strategies can be employed by people at various stages in life and with varying amounts of time to devote. It is designed specifically to show the individual reader how he or she might improve their financial lot using investing and trading methods and devices that work best in their own lives. In other words, "Smart Investors Money Machine" was written to help interested readers decide not only what they really want, but also how to get it.

by Bill Kraft, Editor
Copyright 2009, Makin' Hay, Inc.
All Rights Reserved


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24 comments:

Anonymous said...

You are so "right on", Bill. I have been trading for the last 2 months, and you continue to remind me of the fundamentals of the human spirit; learning to treat trading as a business, not a "get rich scheme" or "roll of the dice." You words keep bringing me back to the table of truth, inspecting my insides and then challenging those human frailties of "greed." Thank you so much!

Anonymous said...

Bill,

I've been thinking about getting one of your books. Perhaps you could devote an article to comparing the two books and presenting some guidance as to which one is more suitable, depending on the needs of the reader.

Bill M.

Anonymous said...

Bill, thank you so much for all the effort you put into this newsletter. Sometimes, I don't think people realize just how hard it is to come up with something interesting every week...AND, you do it for free. So, thank you.
As to the question of your books, I have purchased and read the first book and I have to say that I really got a lot out of it. It is on my desk right next to my computer. I use it as a reference book constantly. It was well worth the price I paid for it.

leveragedlady said...

Dear Mr. Kraft: I enjoy reading your articles and will buy your new book. I like your "back to basics" approach, it is very practical and keeps me from veering off course. I hope you sell many copies and make a mint!

Sincerely,

Leveraged Lady

Ivo Leclère said...

Again a very interesting article. Indeed, trading has nothing to do with surching for the big hit.
I have learned that you need to surch for the right tradingtools and analysetechniques and then focus yourself on one or two indexes or stocks. By training every day the same index or stock you get a connection with them after a while. For instance I know every timeframe of the qqqq. That means I can see the 3' in the 60',the 60' in the daily and the daily in the monthly. With the knowledge that the bigger timeframes the smaller overrules I can predict very often the direction of the market.

Bill Kraft, MarketFN.com said...

Anonymous, you are welcome. Back to basics and the KISS principle are things that often benefit us all.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thank you, Bill M. I'll take your advice and compare the two in an upcoming article.
Bill Kraft

Bill Kraft, MarketFN.com said...

Anonymous, thank you for the kind comments about "Trade Your Way to Wealth" and the Newsletter articles. As you write, it can be difficult coming up with an article week after week that, hopefully, is of interest to my readers, but it has definitely been fun doing it.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thank you, Leveraged Lady. I sincerely appreciate your buying "Smart Investors Money Machine." I also appreciate your wishes that it "make a mint," but I have to say that trading books, even pretty successful ones like "Trade Your Way to Wealth" don't make nearly as much as most people seem to think they do. It turns out to be more a labor of love.
Bill Kraft

Bill Kraft, MarketFN.com said...

Great point, Ivo. I once had a student who was very successful trading just one stock. She was so familiar with its movements that she learned its "personality" and did quite well. Thank you for writing.
Bill Kraft

Anonymous said...

Hi Bill,

Thanks for providing your analysis. Do you think, is the market bullish? Are we getting into another financial and commodity bubble? How to identify market move ahead of time to position for a profit?

Regards,
S.

Anonymous said...

What is the title of the book you reference at the beginning of this article?

Bill Kraft, MarketFN.com said...

Hi S and thanks for writing. Identifying market moves ahead of time suggests some ability to predict and, as I have written, attempts to predict can be futile since markets and life are often affected by the completely unexpected. Even if I think a market is going up, what influence would a serious earthquake in a major center, or a real pandemic, or another terrorist attack have? How could we predict the arrest of the CEO of a major company? No matter how much effort we put into predictions, uncontrollable outside influences can destroy the prediction in an instant. My own philosophy is to utilize technical analysis to provide a discipline and to show me my exit strategy before I ever enter a position. For example, if a market is trending up as it has been recently, my bias is for bullish plays, but a break in that trend would be reason for me to exit a bullish position.
Bill Kraft

Bill Kraft, MarketFN.com said...

Anonymous, I did not provide the title and author of the book that I referenced because it is no longer in print, and the author has come into some serious disrepute, not for the information in the book, but as a result of a federal conviction for tax evasion.
Bill Kraft

Anonymous said...

Excellent description of the trading game. It's interesting how critics of the written word often fail to recognize that readers approach lessons from every direction, gaining value in those areas that meet their needs. BTW my first trading book was "Technical Analysis of Stock Trends" which laid a firm foundation for that type of trading.
Sincerely,
Marvin Keith, Evanston, IL

Anonymous said...

Hi, there, I would like to know that dairy trading and weekly trading which is better? or how many time I can trade per week to be better. Thank,

Anonymous said...

Bill-
Really enjoy your weekly email and have been studying your "TRADE YOUR WAY TO WEALTH " for about a year - treading lightly in options but learning good lessons as i go - thought if you did not already see this sight that you might be interested in some of their options trading strategies that they write about - Wishing you continued success - Mark

http://evilspeculator.com/

Bill Kraft, MarketFN.com said...

Hi Marvin. Thank you for writing and for your kind words. "Technical Analysis of Stock Trends" is a good book on technicals as is the relatively new work of Charles Kirkpatrick and Julie Dahlquist entitled: "Technical Analysis."
Bill Kraft

Bill Kraft, MarketFN.com said...

Anonymous, it is impossible for me to say whether daily or weekly trading is better. If, by daily trading you mean "day trading" there is a fairly large body of evidence that suggests a high percentage of day traders fail. If you mean looking at the market on a daily basis and trading when you discover something that looks good, the answer probably depends almost totally on the individual and how much time he or she has and is willing to devote to the trading. I discuss this at length in "Trade Your Way to Wealth" as I go through the elements of preparing a personal business plan for trading.
Bill Kraft

Anonymous said...

Hello Bill, from the Ole Trader. I am a broker and I am getting broker and broker as time goes on. I would like to join the many commenters that express Thanks for your weekly newsletter. It is a welcome dose of common sense, business sense and trading insight. Keep up the great work.
Now, about the very high annualized returns some authors and advisor services tout: Perhaps they never really made those trades but were simply "past posting" the results. You know, looking back and determining that if one would have bought X company and then .... etc., the return would havd been, and on and on. They only want to make money selling a book or service. It is easy to rack up great returns and pick winners when you are using 20-20 hindsight. Unfortunately, the real world is different, as you know and try to tell us every week.
Thanks again,
dsb

Bill Kraft, MarketFN.com said...

Thanks, dsb. I appreciate your comments.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thank you for writing, Mark. I'm happy to hear that you have been enjoying the articles and have been learning through your study of "Trade Your Way to Wealth." Good trading!
Bill Kraft

Travis said...

I'm posting a link to this on my site. This is going to be one of my must read articles for all new traders.

OMG I'm glad I stumbled across this site.

To Your Success,

Bill Kraft, MarketFN.com said...

Thank you, Travis. We're glad you found our site, too.
Bill Kraft