Aggressive or Conservative
-- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Last weekend a couple of subscribers offered differing points of
view regarding conservatism in trading. One, who comments with some
regularity suggested that my investing approach was too conservative
and defensive for his blood and mentioned that it was unlikely that I
had made my money placing collars. Another subscriber and long time
investor wrote and took the position that defense and conservatism is
an important ingredient in successful investing.
The disparity between the two views points out something that I
always address with my individual coaching students. We are all
different and we should formulate a trading plan that is specific to
each of us. The fellow who argues for a more aggressive style may
well be better be served by employing more aggressive strategies
provided he has the stomach for the risk and truly appreciates the
risk he is undertaking. I have found that an aggressive approach
entails higher risk than a conservative approach and I am on board
with Will Rogers who once said: "I am more interested in the return of
my capital than the return on my capital." As Warren Buffett
reportedly said when asked how to make money in the markets: "Don't
lose." The first rule for all investors, therefore, should be to
recognize the importance of staying in the game. I have known and
spoken to many aggressive traders over the years who are no longer
trading because they lost all their trading money.
That, of course, does not mean that a trader should not use
aggressive strategies. It simply means he should use them wisely. He
should be prepared to cut losses quickly when things go the wrong way.
Little is riskier in the trading world, for example, than buying a
stock. When we own a stock we are at risk of losing our whole
investment. If anyone doubts that, just look at Enron, Lehman
Brothers, Bear Stearns, or Washington Mutual. Does that mean we should
not buy a stock? Certainly not, but when we do we should be aware of
the risk and, in my view, take measures to reduce the risk by doing
something. We could have a stop in place, for example, or buy
protective puts, or at least have an alert that we follow and sell
when our predetermined exit point is hit.
Blind risk taking may well result in disaster. As the conservative
investor wrote, she learned to be conservative over years of
investing. I have learned that lesson as well. My aggressive
subscriber suggests you can't become wealthy trading collars. He is
both right and wrong. Placing a collar is a way to preserve capital
and if one just places it and does nothing else, he is correct.
However, if one places a collar and then trades the option legs
dynamically as I do, he is dead wrong. I recently had a collar on a
stock (BIDU) that dropped more than 100 points yet I realized a fairly
hefty return because I did just that. Understanding is the key. We
can be defensive and conservative and still be quite successful in our
trading. We can also be aggressive and may also do well, but when we
are being aggressive we must realize we are upping the ante and
exposing ourselves to large losses.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Here is a play from the Success Trading Group:
Emerson Electric Co. (EMR)
Our Success Trading Group members closed 3 more winning trades this week. We
closed a position in National Fuel Gas Company (Ticker: NFG); Kinder Morgan
Energy Partners, LP (Ticker: KMP); and Emerson Electric Co. (Ticker: EMR).
We currently like EMR for another entry on a pull backt to the $31.25 area.
Have a great weekend and we'll trade next week.
Success Trading Group Team
Trade Quality
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Over 320 winning trades and only 9 losses!
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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:
Watson Pharmaceuticals Inc. (WPI)
Watson Pharmaceuticals (WPI) has come off a double bottom
and now appears to be trading in a range. If it can break above the
resistance in the $24 area, it looks like it could be poised for a run
to the next target near $27. Buying a 6 month or longer option with a
delta around .70 could bring a pretty decent return if it performs up
to the target level.
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:
Granite Construction Inc. (GVA)
With the likelihood of building infrastructure suggested
by the incoming administration, heavy construction has garnered
renewed interest. GVA broke out of a range last week and then
retreated back to close above a former resistance. As the share prices
fell this past week, volume also declined day by day. Under the
circumstances, I am watching this one for an entry.
Good Trading!
Bill Kraft
Try our Trend Trader Real-Time Alert Service
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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:
Ultra Financials ProShares (UYG)
$10 Trader had another very successful trade close this
week in UYG for a 4 day gain of 23.9% before a small commission. This
ETF closed right on the uptrend line on Friday and is close to a
resistance. A break through the resistance could provide another
opportunity for yet another play on this one.
Good Trading!
Bill Kraft
Try our Under $10 Trader Real-Time Alert Service!
Dividend Investor -- by the Dividend Investor Team
Our Dividend Investor service focuses solely on the "best of the best" dividend paying stocks. We attempt to buy these stocks for their powerful dividend producing income; and we will also buy these with a purpose to make capital gains as the stock increases in value. Our Dividend Investor service is a perfect fit for an IRA account.
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