Saturday, October 03, 2009

Quick Fixes

Many traders lose. That is no secret. The important question is why so few actually succeed. I have had quite a bit of experience teaching trading classes and working with individual coaching students over the years and I thought it might be useful to discuss some of the observations I have made, particularly in the coaching arena.

In my experience it is unfortunate that most students do not seek help from a trading coach until losses have reached significant levels. It is not at all unusual for prospective students to call telling me that they have lost 30% or 50% or more of their portfolios. It seems sad that losses have to reach such depths before help is sought. Recently a student commented to me that it is so odd that in almost all other endeavors in life we get training and education first but in trading and investing the norm seems to be to wait until losses have piled up before looking for help.

Undoubtedly, one of the reasons a lot of losing traders wait so long to seek a coach is that they perceive the cost to be so high. In my own case, I charge $3,000 for a single 6 to 7 hour day and $5,000 for a two day session. At times, special discounts are applied that can reduce that cost. I am aware of some coaches who charge more than twice that amount. Yes, I can agree that $3,000 is a lot of money, but if we really look at it in comparison to trading, it is probably equivalent to one or two trades. When compared to someone who has lost half of a $250,000 or even a $1,000,000 portfolio it is minuscule. As has often been said, we pay for our trading education one way or the other.

In any event, what can coaching actually do for a trading student? In my own case, when a prospective student contacts me I usually start with a brief conversation on the phone so we can begin to get to know one another. I try to find out what they've been doing and what led them to contact me. I try to make a determination whether or not I think I might be able to help them and suggest what I might have to offer in their specific situation. I always suggest that they think about it after our conversation to make sure it is something they believe could be helpful to them. Assuming they follow up and decide to go forward, we schedule a date and place and I then send them something I title "New Student Information" along with a form of agreement that essentially says that I will not be responsible for their losses.

The answers to the few questions on the New Student Information form help me learn a little more about a student's background. I'm trying to begin to determine what the individual's biases might be so I can see what obstacles they might have to overcome. For example, it is almost a joke in the industry, that people who are trained as engineers often have a great deal of difficulty achieving success as traders. Engineers are trained to gather every fact possible before proceeding and then often seek perfection in the trade. This approach can be problematic in that (a) it is not possible to know every fact that is relevant to a trade, and (b) even if we did, the facts would quite likely change to some degree by the time we actually entered the trade or shortly thereafter. Please, understand that I am not trying to pick on engineers. I am only using this as an example and do not mean to suggest that no engineer could ever be a good trader. Just one anecdote: I once drew a rough sketch in a class to illustrate how the time value of an option diminishes ever more rapidly as the option nears expiration. It was a hand drawn rough sketch and meant as an illustration only. During the break when I came back into the room, an engineer had a protractor and was measuring the slope on my drawing. We made a big joke about it in the class, but had I not walked in on him, protractor in action, he may have tried to apply the specific math to later trades.

In any event, after asking background questions, the New Student Information form seeks things like what the student has studied with respect to his trading, whether he has a plan, and, if so, what it is. I ask what strategies the trader has been using and how they have worked out. Finally, I want to know what they expect from the session with me.

Inevitably, the answers provide us with definite direction and often pinpoint problems with the traders method. While many times the trader puts his finger precisely on the problem even before we have met, it is clear that he has been unable to provide the solution. Oftentimes it is as simple as the fact that the trader has a plan but he doesn't follow it or that he has an exit strategy but doesn't pay any attention to his own exit. Sometimes focus is misplaced and the trader may be fixated on creating watch lists while the whole idea is not to create a watchlist, but rather to find the entry in a trade. The point here is that there is rarely a quick fix. If there were, the trader would already have accomplished it for himself and would have no need for me. I always try to go back to basics and identify precisely how the unsuccessful trader is failing to cut losses and/or let profits run. From there we try to look at ways the trader can improve his abilities to follow his own plan once created and not let the emotions of the heat of trading overrule his pre-determined decisions. Recognizing the problem is only the first step and even though a problem may be apparent to me it often is not apparent to the student and even if it is, the solution may not be easy. The fixes are not necessarily quick, but once the problem is identified and potential solutions discussed, the student can go forward to work through their problems.

Good trading may be simple, but it definitely is not easy.

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

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1 comment:

Anonymous said...

outrageous fees