I have written an Article for this Newsletter each weekend over the
past many months. Now, I’d like to indulge in a little review. I
wonder how many of my readers agree that trading is a business and that
most successful businesses have a business plan. I’d guess that most
everyone would agree that a business plan is a very helpful, if not
necessary, device to run a business successfully. Next I wonder how
many of you actually have formulated your own business plan. Darned
few, I’ll bet. I always question students who are availing themselves of
the free retakes of our basic seminars whether they have done their
business plan. It astonishes me how few have done their plan. Not
surprisingly, most who fail to do their plan usually just plain fail.
In the April 29th, 2006 edition of this Newsletter “Business Plans for Traders and Investors”, I set out 13
elements to help get started on creation of your own plan. Take a look
at that again if you’d like. All you have to do is fill in the blanks
as they apply to you and you have the foundation of your own plan. I
believe most plans are better than having no plan at all, and if yours
isn’t working, go back and see where the plan is failing and then fix
it. Making money in trading, like in almost anything else, requires
work, study, and knowledge. As you progress with paper trading (trading
without using real money), you’ll begin to see risks and pitfalls you
might otherwise miss and then you can adjust your business plan
accordingly. Remember that the business plan is always a work in
progress and can change as you grow in knowledge and experience or can
and should change as your own circumstances change. For example, you
may initially decide you only have time to look at the market on
weekends, but after some successes, you may decide to allocate more time
to trading and you might then change your plan to look at the market
each day.
Another critically important but little discussed factor is money
management. Proper money management keeps the trader in the game.
Failure to properly manage trading money can lead to very large losses
and can quickly make one an ex-trader. I wrote fairly extensively about
money management in the March 25th, 2006 edition of the Newsletter “Money Management and Reward to Risk”. In
that article, where I discuss ways to manage money, I demonstrate how a
trader who employs sound principles can lose 6 out of 10 trades; that is,
lose 60% of the time and still be profitable. Do you recall how to do
that? Isn’t it worth knowing?
What about emotion? I believe and have consistently written that if
one is making emotional decisions about their entries and particularly
about their exits, they are quite probably losers. How can we
discipline our trading in an effort to take the emotion away? Check out
the May 27th article “More About Disciplined Trading”. Have an exit plan in place before you ever enter a
trade and stick to it.
Aside from selling naked calls, what do you think is the riskiest
thing we can do in the market? How about buying stock? What is the risk
when we buy a stock? It’s the price of the stock, isn’t it? Or, how
often is my stock going to go to zero, you might ask. Do you know
anyone who owned Enron or Worldcom or United Airlines before the
bankruptcy? Was once enough for them? Would once be enough for you? If
we understand that the whole price of the stock is our risk when we buy
stock, shouldn’t we have an exit and/or hedges in mind before we ever
enter the position? Read, for example, last week’s Newsletter “What’s A Put and How Can It Help?” where I
discuss the protective put as a way to limit losses. Of course, there
are other ways to limit losses and that brings me to the most important
point of all. The money that you use to trade is yours. The risk is
yours. Isn’t it important to learn how to protect your hard earned
money? I submit it is critical for anyone who wants to trade to get
“real.” Trading isn’t a get rich quick endeavor (even though that has
happened), it is a business that requires the trader’s attention and
devotion to education. If you aren’t willing to obtain the education,
by all means, don’t trade. It’s that simple.
How can you get the education? You can read. There are many
excellent books and articles on trading. You can subscribe to services
such as Option Trader, Trend Trader, or $10 & Under Trader to see some
of the things someone who actually trades for a living does. You can
watch DVD’s. You can attend seminars. As some of you know, we are
putting on our SWAT (Stockmarket Weapons and Tactics) Seminar outside
Denver on the 26th and 27th of August. Subscribers to Option Trader,
Trend Trader and $10 and Under Trader get the full two days for $799,
others pay $1299. We give a full refund of the seminar tuition if any
attendee doesn’t like the seminar for any reason by lunch the first day.
We’ve never had anyone ask for the refund. There are many other
wonderful seminars available. Many cost much more, some a bit less. I
think the important thing is who is teaching. Is the instructor someone
who actually trades for a living or is it someone who makes their living
by giving seminars? Before you sign up for a seminar, find out who the
teacher will be and whether or not they trade for their own living. Ask
what percentage of their income comes from trading and what comes from
giving seminars. If they won’t tell you, you have the answer. Many
students seem to think that seminars are too expensive. I paid about
$3500 for the first two-day seminar I attended. It took me less than 4
days to make that back with the knowledge I gained and it ultimately
resulted in a fantastic change of career for me. I don’t mean to suggest
that just by attending a seminar you’ll suddenly become rich, or even
that you’ll make money. You may attend a seminar, read books, watch
DVD’s and still wind up losing. Trading is risky business. The one
thing I think I can assure any new trader is that unless they treat
trading as a business, learn money management, work on disciplined
trading and constantly strive to gain knowledge, their chances of any
long-term success fall in the slim to none category.
Bill Kraft, Editor
P.S. Bloggers! Subscribe to my Trend Trader Service at MarketFN.com and use this link for $50 PER MONTH SAVINGS!.
P.S. Bloggers! Subscribe to my Under $10 Stock Trader Service at MarketFN.com and use this link for $50 PER MONTH SAVINGS!
P.S. Bloggers! Subscribe to my Option Trader Service at MarketFN.com and use this link for $50 PER MONTH SAVINGS!.
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Bill Kraft
Eric Aafedt
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