Saturday, October 31, 2009

Education

I was talking with an investor the other day and he mentioned how odd it is that so many people come to trading with no education or training and without knowledge specific to trading yet expect to do well. There are few endeavors in which we can expect success without knowing what we are doing, but, oddly enough, it seems that many evidently believe that trading is something they can do without gaining the knowledge first. Sadly, I have been contacted by quite a few folks in that category. They have called or sought help or coaching, but only after losses had mounted to high levels.

A few weeks ago, I wrote about my coaching sessions and mentioned the cost. One reader thought my price was way out of line. Certainly, he is entitled to his opinion. The fact is, almost all traders wind up paying for their trading education one way or the other. Many prospective students have called only after having lost literally hundreds of thousands of dollars. They call to try to find ways to stop the bleeding. Compared to such losses, the cost of a day or two of coaching is minuscule. The cost of a day's coaching can be equated to the size of a relatively modest trade. Nevertheless, it seems like many new and inexperienced traders choose to pay for their trading education through the school of hard knocks, and the losses are regularly greater than the cost of getting an education up front.

I am a believer in preparation first and action thereafter. Ready, fire, aim is definitely the wrong way to go when entering the trading arena. I don't mean to suggest that everyone should hire a coach before trading. There are a wide variety of ways in which to get a trading education other than by losing money and learning the really hard way. Many books are available to guide the trader. Among them, my own "Trade Your Way to Wealth" and Dr. Alexander Elder's "Trading for a Living" can start a would-be trader on their way. DVDs and live seminars are available and many brokerages include excellent education on their websites. The Options Industry Council and the CBOE are among many of the organizations that offer wonderful educational opportunities. In my view, people should avail themselves of these resources first and only after gaining some education should they even think about beginning to trade.

As I have written before, after first gaining some education one can then gain some experience without putting real money at risk by paper trading. I know paper trading isn't the same as trading real money because the same emotions are not involved, but paper trading does permit the trader to learn a strategy before exposing his emotions to real money trading.

Trading is a very high risk endeavor. Good sense would seem to dictate that we learn to appreciate the risks specific to what we are doing before we actually undertake them. Few do, and those who don't can be expected to have an exceedingly short trading life expectancy.

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


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

11 comments:

Mr Custody said...

Re: QCOM email example
You wrote: I am looking for a bounce up to buy to close my short leg at a profit.
Maybe I'm missing something, but if you're short calls, thats a bearish position. Don't you need the stock to drop in order to BTC at a profit?

bills754@yahoo.com said...

Mr. Kraft:

I've had the good fortune to find you on the web, in spite of all the more questionable and objectionable competitors out there, and have been quietly learning from your "spot on" techniques and comments (as a fly on the wall, because I did not feel smart enough to comment one way or the other), but I wanted to volunteer a comment about coaching.

How does the student (or too often, the victim) know that the quality of what is being presented is worth the price of admission?

Also, paper trading does not take the place of "skin in the game", but commission charges can make the learning experience very expensive without a good understanding of the real effects of "slippage". Could you devote a column to this?

Bill Kraft, MarketFN.com said...

No, Mr. Custody. I started that leg of the spread by selling calls. As the stock dropped in price, the calls were worth less and continued to lose value as the stock dropped in price. Now I can buy them back for less than I sold them to capture a profit by first selling high and then buying low (it's the same as buy low sell high except done in reverse order). I wait for an upturn to buy to close since as long as the share price is falling and time is passing, the calls become less and less valuable and therefore cheaper to buy back. As soon as the fall stops, I buy to close that leg and capture the profit. Thanks for a great question. I hope that explains it.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thanks for writing, Bills754. I guess one can never know whether the quality of coaching is worth the price of admission until after the session, but asking for and speaking with references is one way to help find out whether others have found the coaching to have been worthwhile. Certainly reputation is very important. I guess as you've mentioned, if you have read articles and/or books by the prospective coach you can also get a feel for whether any specific individual can be a helpful coach. I'll see if I can't do an article in the future about slippage and commissions.
Bill Kraft

Anonymous said...

Hi Bill thanks for your weekly comments I really look forward to them.
About a year ago I took a day trading course from a well known educator out of N.Y city.It cost over $2000.00 usd .For about 24 hours for traning. It basicly boiled down to find somthing trending buy or sell it ,set stop .10 to .15 away and try and catch .30 to .50 cents. It was fast pace, and he taught 30 sec rule (if it don't go your way in that time get out). I found it difficult to make decisions that quickly and he wanted you to make at least 5 trades a day so I ended up forcing some trades .I kind of wished I could have got some feed back from other studens before I signed up.Is it posible to talk to some students you have coached in the past, for feed back on your 2 day coaching course.

thanks
Morris

Bill Kraft, MarketFN.com said...

Thanks for writing, Morris. A couple of things I would like to respond to. First, absolutely it is possible to talk to past coaching students of mine if you are seriously interested in a coaching session. Just contact me and I will supply some names. Secondly since you did not identify the coach with whom you worked, I feel free to be very critical. It is clear that your coach did not make any attempt to help you within the structure of your own trading personality. As you note, you find it difficult to make decisions quickly yet the trainer forced you to do exactly that and that resulted in your forcing trades. Forced trades are rarely good trades. In a word, as far as I am concerned, that is unadulterated nonsense. There are many ways to trade successfully and one of them certainly isn't to have to put yourself in a position where you have to force trades. While your trainer's approach may work well for some, that does not mean it is good for all. My own approach is to gather information about the student before we ever meet and then try to work within the framework of that persons unique trading personality to find a way that can help them and still keep them comfortable with their methodology. Please feel free to contact me if you are interested.
Bill Kraft

Grant W. Johnston said...

I wish somebody had told me it is not wise to use a "market order" to buy "in the money" calls. I knew I wouldn't be online when the market opened and the calls I wanted had closed at $1.10. I decided to make it a market order since I figured the calls would stay around $1.10.

When I got online about 15 minutes after the open I discovered I had paid $2.25 at the market. I checked the 'ask' price and it was $1.15.

How did it go from a close at $1.10to a market price of $2.25, then back down to $1.15 in 15 minutes?

It happened because a dumb uneducasted investor thought a m,arket order at the open was a good idea. I'll never do it again.

A good class would have been cheaper.
Grant Johnston

Bill Kraft, MarketFN.com said...

Thanks for writing, Grant. Yours was not too expensive a lesson, but a good lesson nevertheless. In "Trade Your Way to Wealth" I discuss market vs. limit orders in some detail and knowing how and when to use each can be very helpful and rewarding. Not knowing, as you learned, can be a kick in the pants.
Bill Kraft

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Bill Kraft, MarketFN.com said...

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Bill Kraft

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