Random Thoughts for Traders on a Holiday Weekend -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
As an advocate of discipline in trading, I am a firm believer in
having a precise exit strategy in place before I ever enter a trade. I
try to do that in my own trading and believe it is important to actually
exit according to that plan rather than relying on that little voice in
my head that tells me: "Don't worry, hang in there, it'll come back."
One of my random thoughts this weekend is whether everyone has that
little voice. In talking with traders and students over the years, I
suspect almost everyone has heard that voice and maybe even heard the
same advice. It can be awfully easy to listen to that voice and stay in
a play just a little longer than originally planned. Maybe the voice is
right. Maybe it will come back. I'm sure many would argue that you
should stay in because the market goes up and the market goes down and,
after all, it is best to buy and hold. On the other hand, could it be
that it won't come back? If it is coming back, when? Since I have
absolutely no ability to predict the future with certainty (and neither
does anyone else as far as I know), what effect does my believing that
"it'll come back" have on the price movement of the stock? Obviously
saying "it'll come back" does not make it so. Trading, quite simply, is
done in the present. That, I guess, is one of the main reasons why I
set up my exit strategy before I enter a play and exit when it is hit --
almost always, at least.
Another of my random thoughts this weekend is why don't people make
the effort to take over the management of their own money? Why, for
example, was there such a furor over the idea that as at least a partial
replacement for social security, people be in charge of investing their
own retirement money . Really, now, how has the government done
investing the social security trust monies? If we are going to have
retirements, who is going to provide the money? Social Security?
Corporate pensions -- how many people coming to retirement thought they
would have a pension and now don't? My thought, and you certainly may
disagree, is that everyone should be in charge of their own investments. That means that
they may need to invest some time first in educating themselves and it
could take time away from watching the "Bachelorette" or some other
reality TV show. Is it worth the effort? It was for me. I had no
savings, no pension, no appreciable 401k, but took the time to learn
about risk and money management and strategies and it has done me very
well. If I didn't do it, who was going to do it for me? So I did it.
The apprehension about learning trading and investing is, quite frankly,
much worse than the learning itself. We have been led to believe
investing, trading, stock and 'oh my gosh,' options are too complex and
well beyond our abilities. Frankly, I believe that is nonsense or an
excuse not to learn. I wrote "Trade Your Way to Wealth" in an effort to
show readers many different strategies that could make them money. None
of the strategies is particularly complex and money can be made with any
or all of them. I tried to use clear simple language and teach basic
strategies using stock, stock and options, and options in order to try
to make understanding easy. Building on sound basic foundations, almost
anyone can take a book like "Trade Your Way to Wealth" and gain an
understanding of how risk can be managed, limited, reduced, or in some
cases even eliminated while employing strategies potentially leading to
high profits. Almost any of us can learn ways to trade or invest
successfully providing we are willing to commit to learning. Why do so
many of us simply refuse to do it and expect it to come from somewhere else?
The next random thought for the weekend is why do so many people
always go after the home run in trading? I've seen so many over the
years who are in a highly profitable position only to see the profits
fade and ultimately turn into a loss all the while waiting for the big
hit. Though 'ten baggers' do occasionally occur, why not generate
profits in smaller increments as well. I've heard it said that no one
can get rich selling covered calls, for example. I disagree. As a
purely hypothetical example, suppose we could make 2% a month selling
covered calls, the compounding effect can lead to some pretty hefty sums
over time. Let's say you could net 1.5% per month selling those
unexciting covered calls. That would be an 18% gain in a year. Using
the rule of 72 and compounding at 18%, it would take about 4 years to
double your money. $10,000 could grow to $160,000 in 12 years or
$100,000 to $1.6 million in 16 years. As one instructor told me, one of
the great ways to make money in the markets is the same way you eat an
elephant -- one bite at a time.
My final, though not so random, thought for this weekend is that
you have a wonderful one and a great Memorial Day.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
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Here is a play from the Success Trading Group:
Johnson and Johnson (JNJ)
Our Success Trading Group members opened a position in Johnson & Johnson
(Ticker: JNJ). We like JNJ at its current price for new positions.
Have a great weekend and we'll trade next week.
Success Trading Group Team
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Option Trader -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles and enjoy the challenge of options trading. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on always minimizing our losses!
The Option Trader service utilizes standard trading in Puts and Calls as well as strategies using Leaps, Straddles, Credit Spreads, Calendar Spreads, and Naked Puts. But no matter how sophisticated a strategy may be, we ALWAYS know our downside potential on every trade.
Here's a look at a trade Bill is currently working on:
NVIDIA Corporation (NVDA)
NVDA has been consolidating along a support/resistance line
in the $22 to $24 range. If it can hold at the current support, I am
looking at the possibility of buying some in the money LEAPS calls with
a relatively high delta (.70 or so) to try to profit on an upward move.
Good Trading!
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:
Terra Industries Inc. (TRA)
TRA has been consolidating into a triangle on the daily
charts. A bounce off the uptrend line could trigger an entry for me
with a first target in the vicinity of $46. In my personal account, I
recently played this profitably on the downside move, now I would like
to catch the bounce in the other direction.
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:
Qiao Xing Universal Telephone Inc. (XING)
Recently $10 Trader realized a before commission gain of
almost 6% in 4 days on XING. It now appears that this stock may provide
and opportunity for a re-entry with the possibility of another upward move.
Good Trading!
Bill Kraft
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