Saturday, August 22, 2009

Random Thoughts on Trading

The other day it occurred to me how much I really like trading. It has given me a quality of life I never dreamed I would enjoy. In my former lives I practiced law for many years and then ran a photo processing business and portrait studio. The law practice was interesting and relatively lucrative but came with heavy burdens of time and obligations to courts and clients. Many times my work day began at 6:00 A.M. and didn't end until 10 or 11 at night. I don't mean that as a complaint, only as a fact to be compared to my trading experience. The photo business came about as a result of my passion for photography. The only problem was that it was a retail business and as anyone who has been or is in a retail business knows, you are a slave to it.

As I have written in "Smart Investors Money Machine" and in "Trade Your Way to Wealth," trading changed my life completely. Once I advanced through the learning curve, my time became my own. I am no longer beholden to clients or customers and my calendar is not set by the courts or the needs of others. I can pretty much do what I want and when I want to do it. Rarely does my trading day extend beyond a couple of hours and I can do it anywhere in the world that I can hook up my computer. It has given me the ability to travel, spend more time with my family, and live life as I choose.

Of course, I do perform functions that take up some of my time. I edit the three alert services (Option Trader, Trend Trader, and $10 Trader), and I write this Newsletter article each week, but I am able to do those things because I choose to rather than from any financial need. I take on the occasional coaching student because working with people who are interested in trading helps keep me sharp and introduces me to some fascinating folks. Trading enables me to do these things that I enjoy and have fun doing. If there is a time when they are no longer fun, trading has enabled me to be in a position where I can just stop doing them.

As I write in "Smart Investors Money Machine," I have learned, and in that book I share, a variety of ways to create streams of income that are at least somewhat independent of the constant use of my time. I've learned that almost anyone can add substantial income with relatively little effort once they have made an effort to learn what to do and how to do it.

Maybe that's the rub. All too many come to trading thinking it will be easy and the truth is that it isn't easy. Successful trading can be simple, but that isn't the same as being easy. Before trading can work for any individual I am convinced that the person must make serious efforts to understand that it is a business and as such requires knowledge, a specific plan, and practice. Successful trading also requires self-knowledge and understanding. One of the greatest battles we seem to fight in reaching the ultimate status of becoming a winning trader is against ourself. We must learn to achieve a level of discipline that removes as much as possible the elements of greed and fear from our trading decision making process. All of these things involve real effort and without that effort it is difficult if not impossible to become a really good trader.

For most, the question becomes is it worth it? For me the answer has been a resounding yes. One of the best trading teachers I have ever known once said something like: "If you are willing to do for 6 months or a year what others won't, you will be able to do for the rest of your life what others can't." That thought has stuck with me for more than a decade of trading now and it rings as true today as when I first heard it. When I began, I spent about 5 or 6 hours a day studying and I did that for at least 4 months. At that point, I had no job so I was able to devote the time. I understand that most readers simply can't devote that much time a day to study, but most could afford an hour or so on the average. Maybe it would be a great trade-off in the long run to give up an hour of TV a day in exchange for a better quality of life not too far down the road. Sure, it will take longer devoting only an hour a day to study than it took at 5 hours a day, but in the end the rewards can be unbelievably great. Imagine a life where someone could work half the time and make three or four times the money. Would that be worth the effort? Only you can say. Trading and investing definitely isn't for everyone. It involves risk and oftentimes risk that an individual may be unwilling to take, but armed with appropriate knowledge risks can be managed and controlled.

Anyway, that's my ramble for this weekend and I hope it provides some food for thought. Personally, trading has been very, very good to me and maybe it could be to you as well.

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

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Angie said...

So true! Several years ago, I changed from paying a broker to trading online. Nov. 2008, I decided to become a "swing trader". I took $10,000 and turned it into $19,011 as of today. My goal is to double the money annually. It sure looks like it will be possible, even after taxes and fees, since I still have 3 months left. This is so much fun for a retired 69-year old!!!

Anonymous said...

hello, interesting article. im very new to day trading 1 week. i took a class with fausto pugliese, cyber trading university. what have you got that will help me make some money day trading. im just about ready to start . as soon as i can open an account . i dont have $25000 so im using his $ to trade in his brokerage account.

Unknown said...

Dear Bill:
I read your letters with much interest and I also have both of your books. The first book I thoroughly enjoyed but the second one seemed to be more of a repeat of the first. The examples in the book/s would have been clearer for readers if they were displayed line for line in an equation format rather than on consecutive lines and is distracting. The actual reason for this blog is that most professionals like yourself - I subscribe to three others, all perform tasks of selling or teaching others for phenomenal fees. This truly implies that you are battling in the market and need a more regular stream of income. It will be hard for you to convince me otherwise - for reasons such as love of the task etc Secondly you all mention how easy it is to have money with a business plan and disciplined trading strategies but what of the poor guy/gal who only has 1000 bucks to enter the market. One failed option can devour all that money. Such people can never participate in covered calls until they are able to buy one cheap stock for 5 dollars or so that never moves in the market. I firmly believe that money in the market is fully dependent upon the market circumstances - there are good periods and bad periods. We all lose in the bad times and those with excessive monies are able to enter when things start looking good and then make the big bucks then they sit on their money in an conservative manner until times become good again. Hope this makes some sort of sense but I wanted to get a word in because there seems to be too much boasting by the experts how money is easily made?
thank you
Winston Wicomb

Anonymous said...

Hi,I am know is fun and great when making some profit. I am currently trading online, I only risk USd 10 per contract. But I have some problem with my trading style. Whenever I trade with 1 - 2 contract, I always seem to make profit. I can easily grow my initiate deposit of USD 50 up to USD 150 within 2-3 weeks times. But when I have USD 150 in my account, I tend to trade up to 10 contract or more. I want to grow my USD 150 to 300 or more. I intend to multiply it 100 percent each time so that I will achieve my goal faster. I would say I a very greedy man on earth and in the hurry to become millionaire in short period. I will get frustrated every time i lost all of it and had to start all over again. Not sure is trading is suitable for me. Please advise me. Thanks.

Bob Henninger said...

Dear Bill, Just wanted you to know how much I appreciate your thoughful insights to trading and human nature. With several rather expensive courses under my belt in efforts to better educate myself I've been able to reflect on past trading practices where the greed and fear factors were like siren calls to disaster. Your reinforcement of the need for steady progress in mastering the fundamentals of good judgement coupled with education is surely the real "key" to success. Bob H.

Anonymous said...

Dear Bill.I just wanted to say how much I appreciated this this comment nothing is ever as easy as it may seem and to be educated in what you are doing is one of the keys that you need to be successful in this, you also need the mind set and discipline.
I am doing a lot of studying on this at the moment and have had some good and bad results but I think of it as a learning curve. I tend to agree with some of Winston's comments on all of the professionals out there claiming this and that for the love of it and want your dollars to teach you.Maybe I'm wrong and just expect to much .Your short story just now connected with me.I hope its true.Tim Pakis

Bill Kraft, said...

Angie, that's great. Good for you. Congratulations. It really can be fun and you are living proof.
Bill Kraft

Bill Kraft, said...

To Anonymous who took the cyber trading university class. At this point, I would encourage you to paper trade what you have learned in your class. Make sure you are correctly applying what you learned and that it is working. Always continue learning and have reasonable goals and expectations. Maybe most of all, be patient. Day trading is a tough game. I wish you the best.
Bill Kraft

Bill Kraft, said...

Well, Winston, you already indicated it would be hard to convince you. The facts, for me, are as I have written them. As for your comment that the second book is a repeat of the first, I think that is quite unfair. For example, the second book includes material on dividend investing, MLPs, bonds, annuities, and reverse mortgages. Many ways to create streams of money that are not covered in the first book. I guess your comment just proves I can't please everyone and I've come to the realization that there is no point in trying.
Bill Kraft

Bill Kraft, said...

Dear Anonymous who is talking about increasing the number of contracts and then losing. One of the critical aspects of successful trading is an understanding of money management. Everyone has losing trades and an important fact is to stay in the game even when a trade loses. In other words, don't bet everything on one trade. I discuss several ways to manage money in "Trade Your Way to Wealth" as do other authors such as Dr. Alexander Elder and William O'Neil in their books. I do agree that trading is not for everyone. At the same time, it sounds like good money management could go a long way in helping you achieve success.
Bill Kraft

Bill Kraft, said...

Thanks, Bob. It sounds like you are heading in the right direction. I am often puzzled by those, unlike you, who complain about the cost of their trading education. I spent a great deal on mine, too -- probably over $35,000, but the rewards have been many fold that amount. My experience is the cost of most classes or seminars are easily recouped in a single trade. Overall, at least in my experience, the costs are quite small compared to the rewards and one way or the other traders ultimately pay for their education.
Bill Kraft

Bill Kraft, said...

Thanks for writing, Tim. I am extremely aware that there are many out there making false claims. I know from experience that one way or the other would be traders will pay for their education. It might be through losses resulting from their ignorance and it might be from utilizing unscrupulous teachers. Quite frankly, I personally take no more than 10 students each year and if I never get another one, I don't care. I am confident that those with whom I have worked will all tell you that they have been helped by their sessions. Since I have always tried to be forthright in these articles I take great personal offense when people like Winston who don't know me from Adam lump me together with the charlatans. I didn't ask Winston to come to me and would refuse him if he did. Obviously he already thinks he knows all he needs to know about me. I know enough about him to know it is pointless to engage in any dialog because, as he wrote, it would be hard to change his mind. Tell me why I should make the effort.
Bill Kraft

~ Nona said...

If anyone wants to know whether Bill Kraft is the "real deal", give him or her my phone number. I have benefited from Bill Kraft's books and private tutoring.

And, yes, trading is a craft. Learning any craft demands study and practice. Spending money for training is not "spending", it's "investing".

~ Nona

Anonymous said...

Hi Bill: I have enjoyed both your books and found them very helpful. Is there away you could focus on educating on steady stream of income i.e MLPs ETFs and how to use them to create a secure investment strategy? AJ

William Conner said...

Hello Bill.

Heh,heh. Straight talk does tend to shake the bushes, and the response comes from a range of viewpoints. But, response is response. Thank you for sharing your experience and practical wisdom. This is community, and we all learn from each other, even the seemingly skewed or condemning comments.

A year ago I paid $6000 for an options course that I think I received a lot of technical info but didn't learn HOW to trade with it. I might be wrong. It is possible I wasn't teachable. I am still paying off that credit card charge--a transaction I would not have entered without the lure of a guarantee to recoup my tuition in one year....not even close!

I grew my acct. from a $2000 start in 4/08 to $5200 by early Oct., mostly on self-education. None attributable to that costly course!

I was in cash on crash-day. Even so, by the end of my first year, after a losing first quarter, I was only up 13%. Much loss to slippage; stop-out after stop-out.

But, I am determined to succeed. Without this success I will have near zero retirement income. Your newsletter is a weekly inspiration.

William Conner

Bill Kraft, said...

Thanks, Nona. I really appreciate your comments and I'm glad you're doing well.
Bill Kraft

Bill Kraft, said...

Thanks for writing, AJ. Regarding your question of focusing on educating on steady streams of income from MLPs and ETFs, as you have seen in "Smart Investors Money Machine" MLPs, as an example generally pay distributions on a quarterly basis with some potentially important tax advantages. Over the past several months, in my own accounts, I have entered some positions where the distributions on an annual basis have been as high as 14% on an annual basis. In addition, many of these are optionable as well so the investor has the opportunity to sell covered calls on a monthly (or farther out expiration) basis to generate regular income through the sale of those covered calls. Assuming that out of the money calls can be sold that average 1.5% per month (certainly not out of the question), that could add an additional 18% a year for a potential overall annual return of 30% or more. You can find detailed information on MLPs in "Smart Investors Money Machine" and a fairly extensive description of covered call writing in "Trade Your Way to Wealth." I'm glad you have already found those books to be helpful and hope a re-reading adds even more knowledge. Thank you for buying them.
Bill Kraft

Bill Kraft, said...

Those are some great comments, William. Learning the HOW of trading really is the difficult part and you have definitely hit the nail on the head. I think most courses teach strategies and there is no doubt that strategies are very important factors in trading, but as you note, there is more. Starting next week I begin a series of three articles designed to help the reader achieve a beginning understanding of the how of cutting losses and letting profits run. Most folks in my experience know they should cut losses and let profits run, but actually often do the opposite simply because they have never been taught or learned how. Thanks for your comments, William.
Bill Kraft

Anonymous said...

AH. YES, Some random thoughts of my own on trading.

It seems to be a skimming off the top of others actual investments in usually valid, working, entities with men and materials in productive enterprise. What have we produced when all is said and done other than what a leech produces. Just like in poker, we outsmart someone and take his money, we just don't know who it is.

It causes excessive turbulence. We love to tout a stock that we're in and let the mob run it up so we can get out with our loot, and let the late comers lose that same amount when the price goes back down. That, and of course everybody jumping in or out to follow a trend really accelerates the trend.

And, therefore, a question occurs to me--usually, for every time we gain, don't we generate an offsetting loser? (That wouldn't include gains where a company is simply moving up to stay at fair value as their true value advances). I often wonder, though, at the benefit to society from the conduct or our business.

Bill Kraft, said...

Anonymous, No, every time we make a gain we do not generate a loser. Suppose you bought XYZ at $10. Isn't it perfectly possible that the person who sold it to you bought it for $5? Then suppose you sold it at $12. Did you both make money and isn't it also possible that the person who bought from you will also make money? Ownership by many through shares can help companies grow and without shareholder investments, many could not. Am I wrong, or are you just against capitalism?
Bill Kraft