Welcome 2009 -- By: Bill Kraft
Copyright 2009, CutLoss, Inc., All Rights Reserved
Bill Kraft
Editor |
I hate to see any year end because every one has provided
wonderful experience and pleasant memories. 2008 was no exception in
those categories, but most of us are glad it is over from a market
perspective, at least. The Dow finished down 34%, the S&P 500 lost 38%
and the Nasdaq and NYSE both fell 41% Most of the calls I received
from prospective coaching students included comments that they wanted
help because their accounts were down significantly.
In mid-December, I received an email from Dr. Alexander Elder
(author of several excellent trading books including "Trading for a
Living" and "Come Into My Trading Room") pointing out that up to that
time, none of the U.S. Stock Mutual Funds tracked by Morningstar, not
one, was up for the year. In fact, the average performance was a
whopping minus 43.63%. That information underscores the importance of
cutting losses, paying attention to reward to risk ratios, and of
money management, topics I have repeatedly addressed over the years in
these articles. If we are down 50%, it means our position must gain
100% just to get back to even. That is a significant problem with the
buy and hold philosophy.
It has often been said that even the best traders only win about
1/2 their trades. If that is so (and I believe it is) how can they
succeed? First, they can cut losses so that the amount of gains, in
general, exceed the amount of losses. One important way to do that is
to pay attention to the potential reward versus the risk assumed in
any given trade. If, for example, we enter trades where the potential
reward is 2.5 times the risk we are taking, we can lose 70% of our
trades and still make money. Looking at the Table below, we can see
that if we lose $1 on each losing trade and make $2.50 on each winning
trade, in 10 trades, even if 70% are losers, we would still make a
little.
Lose Win
1. -$1
2. -$1
3. -$1
4. -$1
5. -$1
6. -$1
7. -$1
8. +$2.50
9. +$2.50
10. +$2.50
_____ ______
-$7 +$7.50
Of course, in some cases, the winners would run beyond the $2.50
while the losers can most likely be kept fairly close to the loss set
at the beginning of a trade.
All that aside, I reviewed my trades in the three subscription
services I edit for MarketFN and found that I did not trade
particularly actively as a result of market conditions. I closed 19
trades in Trend Trader, 27 trades in Option Trader, and 28 trades in
$10 Trader. Not surprisingly, in light of the downward direction of
the market, Option Trader had the highest percentage of winning closed
trades with 63%. $10 Trader came in a close second with a winning
percentage of closed trades of 61% and Trend Trader with a not too
shabby 53% profitable trades. Both Trend Trader and $10 Trader are
services in which I am looking to buy stocks so they are directed more
to bullish plays where I want to buy the stock and then have the stock
price to increase. 53% and 61% winners, respectively, in those
services when the Nasdaq fell 41% and the Dow 34%, and not a single
mutual fund followed by Mornignstar had made money by the middle of
December seems pretty decent all things considered.
What will 2009 bring? I can assure you that absolutely no one
knows. One thing we can do is add to our knowledge. I guess I wasn't
surprised when the publisher of my book "Trade Your Way to Wealth"
told me that sales of trading books were down this year, but it seems
to me that it is exactly at times like these when people should be
reading books, adding to their knowledge, learning how to cut losses
and profits run rather than throwing unopened brokerage statements
into the trash. I feel assured that those who took advantage of my
reduced price offer for private coaching all came away with added
knowledge about risk management, discipline, money management, and
methods by which they could cut losses and ways to avoid cutting
profits. All trading is risky, but the more effort we make to learn,
the better chance we give ourselves to succeed.
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 entered a position in US Bancorp (Ticker: USB)
this week. We like USB at its existing price for a new trade position.
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:
Aetna Inc. (AET)
AET is at resistance at the $30 level. It closed
near the 9 day moving average on Friday and if it breaks below that
level, I'll be looking at a 30/35 bearish call credit spread with a
February expiration. That spread, based on the Friday closing quotes
offered a potential return on risk of almost 41% on the February
expiration. Of course, I am waiting to see how the stock handles the
resistance level.
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:
Alcoa, Inc. (AA)
AA has been trading in a relatively narrow range, has
recently come off a double bottom and now is retracing toward an
uptrend line. It looks like there may soon be an entry opportunity on
a bounce off the horizontal support or the trend line as these two
important supports are about to converge. I closed a trade on AA this
past week for a 9% gain before commission in less than a month.
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:
Exide Technologies (XIDE)
XIDE has established an uptrend and I was able to capture
a before commission gain of 8.4% when I closed a position on
Wednesday. The stock has since retreated toward the trend support and
is a potential buy candidate for me on a bounce up from that line or
on a break above the October high of $6.48.
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
