Saturday, June 27, 2009

This Half Year

As far as I am concerned, it is definitely true that the older you get the faster time seems to pass. I just looked at the calendar and suddenly realized that 2009 is almost half gone. That observation gave me pause to look back on the year so far. It has been quite a year for trading. The Dow 30 Industrials fell almost 2600 points from the first of the year until the March low and then climbed back just over 2400 points to the highs in the first third of this month. Similar violent action occurred on the S&P 500 and the Nasdaq Composite. The S&P fell from a January high of 943.85 to a March low of 666.79 only to rebound to a new high of 956.23 on June 11th. Though volatility as measured by the VIX failed to attain the all time heights achieved in late 2008, they remained uncharacteristically high as the markets fell to the March lows. In short, this year has seen a pretty wild market; one that resulted in very substantial losses for many from January to March.

During that descent, I attempted to trade very cautiously, only to become more aggressive during the run-up. Most recently I pulled back as the market looked like it was turning over. In the alert services I edited, I probably have made fewer trades than in other years. As I write this article on Tuesday, June 23rd, I checked the Trade Tables to see what my percentage of winners has been for trades closed in 2009. I was pleasantly surprised to see that the overall percentage of winners in all the services I edit combined (Option Trader, Trend Trader, and $10 Trader) was 82.8%. Broken down, $10 Trader achieved a winning percentage of closed trades of 86%, Trend Trader 83%, and Option Trader 75%. Those statistics were particularly interesting because both Trend Trader and $10 Trader are essentially designed as bullish services in which I am illustrating situations where I open a position by buying a stock and closing the position by selling. Option Trader uses a variety of strategies designed to attempt to profit on bearish and neutral trades as well as bullish trades.

In the last six months, I was also very fortunate to have my new book, "Smart Investors Money Machine," published and my new DVD "Trading for Keeps" released. I discussed the book in some detail in the article last week. I am really pleased by the DVD that was produced by and includes subjects like trend line use, principles of disciplined trading, how to let profits run, the use of collars and protective puts, and the effective use of stop losses. All of those are subjects with which I have dealt in many private coaching sessions as well as in my own trading.

One of the sad things I have noted over the past 6 months is the number of folks who have contacted me regarding coaching sessions who have lost very significant amounts of money in the most recent crash and who are looking for ways to stop the bleeding. In past articles, I have written about concepts that I consider to be critical to successful trading. They include things like money management, establishing exit strategies before entering positions, recognizing reward to risk potential, educating themselves about trading, and having a trading plan in place. Most of those who called about coaching because they had suffered severe losses were unaware of those concepts or failed to put them into practice. Whether they signed on for coaching or not, I encouraged the callers to learn and apply those concepts. In trading and investing ready, fire, aim is definitely not the way to go.

No one, including me, knows what the next six months will bring in the markets. As is often said, we can only trade the right hand side of the chart, but to do so successfully, we must prepare ourselves and we must continue our trading education. As all too many learned in the disastrous market fall from October 2007 until the March low this year, buy and ignore is simply a dangerous strategy. I wish you all good trading and hasten to add that the "luckiest" traders are generally those who work the hardest at learning the craft.

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

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Anonymous said...

I read a few weeks ago in an interview with Taleb's (author of BLACK SWAN)investment partner that an important key to being a successful trader is to be able -- and quick -- to take small losses.

Your insistent point about having one's trades pre-planned, including the exit pre-determined ESPECIALLY IF A TRADE GOES AGAINST ONE, has been incredibly valuable advice to me. Indeed, everything you write in the chapter of your first book (TRADE YOUR WAY TO WEALTH) re: creating a business plan seems never to be covered in any trading book that I have read. This is astonishing: creating a business plan is so vital.

The concept is simple...but not simplistic.

I just got your new book. I haven't read it yet, but I look forward to cracking it.

Thanks for your blog!

~ Gemma Star

Anonymous said...

Period reviews of results are truly beneficial.

I thought I was doing better than I actually was doing. A no-nonsense review of my trading results over the past several months a few weeks ago prompted a great deal of soul-searching and review.

I learn a lot from your blog, which I just started reading a few weeks ago. Thanks for writing it.


Bill Kraft, said...

Thank you so much Gemma Star. I suspect almost all successful traders would echo the sentiments about cutting losses. After that, the really successful ones learn to let profits run and as simple as that sounds, it isn't necessarily easy. As you say, a business plan for traders is an essential ingredient.
Bill Kraft

Bill Kraft, said...

Thank you for writing, Ken. One important thing I suggest all traders do is create a plan for themselves as I have often mentioned in the articles and deal with in depth in "Trade Your Way to Wealth." Once the plan is established, I believe it should be revisited with regularity to see how it is working for the individual trader, to see how well it is being followed, and to consider improvements. As you write, "Period reviews of results are truly beneficial."
Bill Kraft

Anonymous said...

Hello Bill,

I’ve been receiving your complementary weekly Newsletter since September 2005 and I today thought it was about time that I acknowledged with thanks the many interesting trading recommendations you have supplied me with. I like the very clear way you have of explaining things.

I live in the Canary Islands, Spain, so the heading Informing Investors Around The World shown as a heading is very appropriate.

If it is at all possible and not too much of an inconvenience I’d like to ask you to comment on a matter brought to me a couple of days ago by, like myself, a non professional investor colleague. As the markets look as if they are about to turn and take a slide, he like myself would like to make our first trial investments in an appropriate trade showing a downward trend, but before doing so we have a very simple question – How is it possible to sell something which one does not have? We have both heard of put and call investments in Warrants, also of CFd’s, but have never taken the plunge because of our logical cautiousness due of our lack of experience and personal training in investing techniques.

Many thanks in advance and I hope your comments will help us out.


P.S. I, like my colleague, am of the opinion that before being able to sell something one has to own it and it looks like that in trading this is not the case.

Bill Kraft, said...

Harry, thank you for your email from the far away Canary Islands. You have asked about a short sale where one sells something one does not own. Short sales are quite common and since you brought it up, I'll probably devote an article to them in a future Newsletter. In answer to your question, however, when one sells a stock one does not own, it is done by borrowing the stock from the broker and then selling it. Since the stock is borrowed, it must someday be replaced and, while short the stock, the trader who has sold the stock short is responsible for paying dividends. I should also note that there can be very significant risk in selling short if the stock price goes up since the short seller will be required to buy to cover his position at the then current price. As an example, suppose you sold 1000 shares of XYZ short for $30 a share. Once you have made the short sale, $30,000 less commissions would come into your account. Suppose, then that the stock went down (as you wanted it to) and you decided to close the position when the price was $20 a share. You would then pay $20,000 plus a commission and have attained a profit of approximately $10,000. On the other hand, suppose that the stock price went up instead of down and it went to $50 a share. In that case if you bought to cover the position you would pay $50 a share plus commission or a bit over $50,000 and would have lost $20,000 plus commission. Hope that helps your understanding a little.
Bill Kraft