Start from the Beginning -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Over the past several months the markets have shown
extraordinary volatility and we have been witnessing a serious bear
market. During that time I have spoken to many traders and investors
who have accumulated large losses. More recently, quite a few have
said that they have just sold their positions for significant losses.
I am regularly asked whether I think we have hit the bottom.
Each of those facts, the accumulation of large losses, the
closing of positions after a big drop, and the quest for opinions of
whether a bottom has been reached signal underscore some problems
common to many unsuccessful traders. Accumulating large losses is
generally evidence of a buy and hold philosophy and fails to honor the
concept of cutting losses. Instead, it illustrates an all too common
issue of letting losses run. As many regular readers know, I have
long advocated an exit strategy be in place before a position is
entered. It can be a variety of things, but it needs to be there or
the large losses will inevitably accumulate.
Selling positions only after losses have become too painful
rather than as a consequence of a pre-determined exit strategy is
another characteristic of a high number of retail investors. Many
traders lose and, sadly, but interestingly it is because they tend to
buy near the tops and sell near the bottoms. The fact that so many of
the folks to whom I have spoken are now liquidating positions may,
indeed, be a signal that we are nearing a bottom. We are getting to
the point where there are fewer and fewer sellers left.
Of course, neither I nor anyone else can say whether we have a
final bottom or not and I personally believe it is a futile exercise
to try to predict that or almost anything else. A big sell-off on
high volume is often a tip that we may be seeing a bottom, but like
anything else in the markets, it does not tell us with certainty.
While we may predict that an index or a sector or a stock is going to
move in a certain direction, we must always keep in mind that doesn't
necessarily make it so. We must understand and accept that our
prediction may be wrong and ready to pull the plug as soon as the
error is demonstrated.
I titled this article "Start from the Beginning" and, for me,
the beginning of a directional play is the determination of what the
market is currently doing. In general, roughly 80% of the stocks in
an index are moving in the direction of the market (otherwise, the
market probably would not be moving in that direction). Why play
against that direction? Would we rather choose something that has an
80% chance of success or only a 20% chance of success. If we see
there is a downtrend, it just makes sense to make bearish plays or
stand aside. If the market is trending up, the reverse is true. In
general, we make profits when we can enter and follow a trend so why
not do just that as we start from the beginning?
Merry Christmas to those who celebrate Christmas and to those
who don't may whatever your holiday is be filled with joy for you and
your family.
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:
US Bancorp (USB)
Our Success Trading Group members closed another winning trade this week. We
traded in and out of US Bancorp (Ticker: USB) this week. We like General
Electric (Ticker: GE) around $16 and will be watching GE and several other
stocks for new entry points.
Have a great weekend and we'll trade next week.
Success Trading Group Team
Trade Quality
Stocks Over and Over Again
Over 320 winning trades and only 9 losses!
Register Now
and Get $50 off our Normal Website Rate
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:
SPDR Gold Shares (GLD)
With the continuing financial world financial crisis, the
SPDR Gold Trust (GLD) provides a vehicle to attempt to hedge against
conditions. After a steep run-up, GLD has retraced to a level of price
support while staying in the uptrend that began in November. I am
watching for a bounce either off support or up off the trend to consider
an entry to buy LEAPS calls.
Good Trading!
Bill Kraft
Try our Option Trader Real-Time Alert Service
and Get $50 off our Normal Website Rate!
Achieve returns with us like
16.48% return in 5 days!
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:
Royal Caribbean Cruises Ltd. (RCL)
Trend Trader jumped into a position in RCL on Thursday and
closed it out on Friday for a neat $1.53 a share gain before commission.
The trade resulted in a single day gain of 13%. After the exit, RCL fell
off a bit and may well offer a new entry in the near future.
Good Trading!
Bill Kraft
Try our Trend Trader Real-Time Alert Service
and Get $50 off our Normal Website Rate!
$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:
Blue Coat Systems Inc. (BCSI)
BCSI has been forming a base since the low in November. It
closed at $8.49 on Friday and has a little overhead resistance another
75 cents higher. I have his one on a watchlist for a possible buy if it
can crack that $9.25 level.
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.
Register Now
and Get $50 off our Normal Website Rate
