Friday, January 15, 2010

A Secret about Successful Trading

Over the years, I have observed a whole lot of traders looking for the secret that, once revealed, will lead to riches. The search often seems to be directed to a way to find the perfect candidate or a "can't miss" strategy known only to some chosen few. I remember a husband and wife who studied with me back in my seminar days who I believed were convinced that I was holding some secret back from them. In fact, one day, the husband got me in private and asked what the secret really was. I laughed, thinking there was no secret, but now I know there definitely is a secret that can really help.

As I mentioned in the article last week, I'll be speaking at the Scottsdale/Trading Group next Wednesday, January 20th at 7:00 P.M. In thinking about my upcoming presentation, I decided I'd talk about the elements of what I believe is the secret to successful trading. If you live in the Scottsdale/Phoenix area, I hope you get a chance to attend.

However, even if you aren't coming to that presentation, there is no reason why I shouldn't reveal the secret as I perceive it to you as well. I must caution, however, that there is no guarantee that the secret will work, but I believe that use of the secret be a piece of very valuable information. Nevertheless I am sure that many will be disappointed as I disclose this secret because, like many secrets, once known it looks obvious and easy.

Secrets often are simply a revelation of something that may be quite apparent with a little thought anyway. Consider, for example, the illusions of a magician. Seeing the lady sawed in half may be astonishing until we are shown how it is done and then it is obvious and easy though maybe a bit clever in concept.

I know, I know -- enough! What is the secret. For me, the secret is that the successful trader always returns to basics. She has a plan for money management, a minimum requirement for potential reward to risk, an exit strategy, discipline, and study. That's the secret. In my estimation, those things are critically important to sustained good trading and are often overlooked, by-passed, or forgotten in the quest for some non-existent secret holy grail. That's it. That's my secret. Basics in trading are absolutely invaluable and are far more important than specific strategies or algorithmic systems.

I hope you forgive me for the tease about revealing some hidden secret. I do believe this is an important secret but wonder how many readers were hoping or anticipating I was going to write something much different when I wrote that I was going to reveal a secret of trading.

Incidentally, the Scottsdale/Phoenix Trading Group to whom I'll be speaking on Wednesday the 20th will meet at The Inn at Pima, 7330 N. Pima Rd., Scottsdale. It would be a good idea to let them know you are coming and please introduce yourself.

by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
All Rights Reserved

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~ Nona said...

I recall reading the comments of a person who turned in to a successful trader after losing, losing, losing. He said that he long sought the great secret that the really successful traders seemed to be holding to themselves. Finally, he figured it out. The secret contained three elements, none sufficient in itself; each equally important: hard work (i.e., study); discipline; patience.

He also noted that every successful trader has a certain set-up (or set-ups) that he or she best understands and/or relates to. It's his "edge", which may take a while to uncover. Because of that, money management and position size (small! please!) is crucially important.

Several things from my private tutoring with you stand out in my mind. Two are relevant here: Having a business plan; always having an exit in view that is clear and near.

I’m also trying to Keep It Simple. In this connection, I am looking follow only a few indicators, ideally, fewer than four. (So far, I pay close attention to three.) I keep in mind the famous case of those brilliant quants who developed a zillion criteria for trading – and blew up completely. I think that this is yet another area in which less is more.

I’m also hoping to develop a list of trading candidates to trade again and again. If my theory on this is right, this way I can quickly check out the set-ups on, say, up to 75 candidates. If one or more candidates fit my criteria, including having a near, clear exit(s), then I have a tradable possibility. If none fits my criteria, be patient and STAND ASIDE. I always remember another thing you said: selecting candidates to trade is mostly a matter of elimination. So true! Indeed, I’d appreciate knowing if you think it’s reasonable to develop the list I have in mind, i.e., just 75 candidates or fewer. Very likely every year I would eliminate a certain number and bring in new replacement candidates.

Trading is a constantly evolving, learning experience.

I hope your presentation goes really well on Wednesday. I wish I could be there!

Anonymous said...

HIHO Bill!

BRAVO on your secret! I have been teaching that, and patience to peeps for a while.

Your articles are truly a pleasure to read.

Thank you.


Bill Kraft, said...

Great to hear from you Nona! Happy New Year! Yes, I believe a trader can be successful with a relatively short list of candidates whose "personalities" she understands. Years ago, I had a student who quit her day job and became a successful full time trader although she traded options on only one stock. I believe we can over-complicate things for ourselves and a short list might well be one way to help avoid that problem.
Bill Kraft

Bill Kraft, said...

Thanks, Michael.
Bill Kraft

Anonymous said...

hi bill- - -
i enjoy your weekend comments very much. i get so many emails from "investment professionals" who espouse a "secret" they are willing to reveal to me (and thousands more). i hate the use of that word "secret". do these "investment professionals" think their audience is made up of idiots? i join no investment service that uses the word "secret" in their marketing

Bill Kraft, said...

Thanks for writing, Anonymous. I agree. The "secret" sellers usually are just pointing out and/or using something that is pretty well-known anyway.
Bill Kraft