Some Random Thoughts About Brokers and Trading Knowledge
-- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Whenever I have written about brokers in the past, it seems to
have stirred a storm of emails relating either horror stories or
positive experiences with brokers. Like anything else, there are good
and bad and the key for us, as traders, is to figure out which is which.
Not so long ago, many brokers cloaked themselves in an aura of
supposedly secret knowledge. It seems to me that the idea some wanted
to convey was that the average investor couldn't possibly understand
the mysteries of the markets and had to rely on the expertise and
advice of the broker. There was almost a "shaman-like" attitude that
only they could appropriately analyze the market and individual stocks
and suggest to the investor the way to invest. That way, of course,
was the "buy and hold" strategy. Generally, over relatively long
expanses of time, that strategy worked quite well if the investor
didn't need the money he invested and was willing to wait. The
problem with the strategy, it seems to me, is that there is never an
answer to the question: "Hold until when?" Brokers who advocated the
strategy would call clients, recommend the client buy a stock and then
never make a call suggesting that the stock be sold to either cut
losses or take a profit.
Those were also the days of exorbitantly high commissions. $200
or $300 commission to buy 100 shares of stock was not out of the
question. What did the investor pay for? Research and analysis was
often the answer. How did that help coming into the crash of 1987 or
even as late as 2000? What about now? Of course, there are many
internet brokerages now and, as a result, commissions are generally
much lower with them and discount brokers in general. If all we
intend to do is buy a stock and hold it, why would we even consider
paying high commissions any more. Research and analysis is readily
available on the internet if we are willing to make the effort to seek
it out. In fact, one wonders how valuable brokers' advice actually
is. Just look at the recent troubles at Bear Stearns and several of
the very large brokerages. These folks who say the retail investor is
incompetent to manage his own money have recently lost billions of
dollars with completely inept investments. Do we really want them
advising us how to invest our money when they have proven that they
can't do very well in their own accounts?
I have long been an advocate for the individual learning to
manage his own money. The individual can learn to invest and, quite
importantly, to manage risk if he is willing to make the effort.
There are, in fact, some wonderful full-service brokers who will help
in that learning process. The trick is to make the effort to find
them. If you are relatively new to trading, you may want to search
for a broker who is using strategies you like in his or her own
account. He must be using the strategies himself and he must be
willing to spend some time with you to help educate you. The
commissions at a full service brokerage will be higher than at a
discount broker or an internet broker, but in some cases they may be
worth it. If you need hand-holding (and I don't mean that in a
derogatory sense) you won't get it at a discount broker, but if you
make the effort to find the full service broker, you may find someone
knowledgeable who is willing to help. The key is you must make the
effort. Interview prospective brokers before hiring them. Find out
where their expertise lies and what, specifically, they are willing to
do for you. If it fits your needs, consider using them; if not,
continue the search.
Instead of hunting for the full service broker who is willing to
really work with and for you, you can educate yourself as many
successful traders, including myself, have done. That means reading,
attending seminars, talking to successful traders and even employing
personal coaches. Earlier this week, I spent a couple of days
coaching a wonderful lady who has a lot of trading knowledge who
wanted to take it to the next level. Those opportunities are
available. They may seem time consuming and/or expensive, but trading
without the knowledge almost assuredly will be much more costly.
One emailer last week complained that I was plugging my book too
much in this column recently so I backed off a bit this week. I do
need to say, however, that a reviewer on Amazon.com as well as a
subscriber here pointed out an error I made in "Trade Your Way to Wealth" . On page 88 I made a mistake that I failed to catch in the
final edit where I was discussing dynamically trading in and out of
the call leg of collars. I used the wrong premiums and apologize for
my mistake. The principle, however, is quite accurate and I do use it
myself quite often.
Good Trading!
Bill Kraft
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Bill Kraft
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
Polycom, Inc. (PLCM)
PLCM broke out of a consolidation with an almost 5% move
on Thursday. The stock has shown a positive MACD divergence and looks
as though it may be ready to crack up through the down trend line.
There is some resistance at the $22 level so I want to watch how price
and volume act in that area before committing to a trade.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
Casual Male Retail Group, Inc. (CMRG)
This stock moved up on above average volume on Thursday.
It has formed a fairly wide double bottom with the lows in January and
March and now looks as though it might be able to gain some ground.
Life has been tough in the cheaper stocks with the recent bearish
market conditions, but with the potential that the markets may now be
ready to move up a bit, this is one candidate I think may be worth
watching. It does need to clear the $4 hurdle in my view before I will
consider an entry.
Good Trading!
Bill Kraft
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