One trader I’ve great respect and admiration for is Charles Kirk of http://www.kirkreport.com. Charles is a trading pro who runs a blog which chronicles his trading progress, thoughts about the market and general helpful information. There are many trading lessons to be learnt from him and his daily blog.
His daily blog is a useful resource and his members’ only section (accessible following a $50 donation) is a goldmine of useful trading resources. This perhaps isn’t for anyone looking for a wonder system, more for someone who’s currently trading one method or another and wants a bit of help and pointers on a few things. Charles trades US stocks and ETFs only, but the trading pointers are universal.
I personally really enjoy reading his personal reflections as they are often brutally honest and chime with many of my own experiences. Recently Charles shared his lessons from 2009. There were some real gems in there that I thought it would be worth sharing.
Charles Kirk’s trading lessons from The Kirk Report
Here’s my selection of Kirk’s lessons with some comments of my own beneath. The full list of lessons is available in the Kirk Report membership area.
“What would you say is the most important thing you’ve learned about investing and/or trading in 2008?”
The role of luck
“Knowledge is better than luck, but luck surely helps.”
My thoughts – Many people underestimate how much luck plays a role in trading. You’re speculating on an uncertain outcome, but hopefully you have an edge like a dice with two sixes instead of a five. With an edge like that, you should make money, but don’t be surprised if you meet long runs when you don’t hit a six at all. Trading is a great destroyer of egos and recognising that luck plays a big role is an important step.
Plan the trade
“Clear entry and exit points before the trade is critical.”
“Don’t just think about stop losses – use them!!!!!!”
“Understand the various scenarios that the market may present you and then plan your actions for each of them. That is preparation, not prediction. Prediction tends to bind you to one point of view because when that doesn’t come true, you don’t know what to do.”
“The real edge of an individual investor comes from the ability to cut losses fast”
My thoughts – I know all this, yet far too may times last year I found myself taking speculative/on the hoof trades. These are the worse type of trades, not because they will automatically lose, but because they leave you open to caveman trading. Our brains are still pretty much the same as an early homosapien hunter-gatherer. Put a caveman’s brain in today’s high tech society and you’re bound to have problems. Advances in neuropsychology have shown that the brain’s mechanisms for handling money are similar to those for love and attraction. I don’t know about you, but I’ve certainly done a few silly things in the past when under the influence of cupid’s arrow.
When we are in a trade, in some ways our brain is operating differently. You make decisions that in the cold light of day look stupid/ foolish/ greedy/ fearful.
The best way to guard against this is to have a plan in place before you get to a crucial point or ideally when you open the trade.
I’ve found the same is true when it comes to evaluating a system or trading a new product. I find it’s important to set down a plan before testing a new product or system. This includes the time period for testing the product, what I’m looking for and home much time/ money I’m going to allocate. This helps me to not get over excited by short term profits or to drop things too soon if there are initial losses.
I’m doing better than I have done in previous years but my caveman brain still rears its ugly head more often than I’d like.
Manage risk
“Thoroughly understand your own risk tolerance.”
“Cash is not trash & capital preservation trumps all.”
“Never chase opportunities. The best opportunities will come to you if you’re patient and remain focused.”
“Think both pros and cons about a trade instead of only thinking about the upside.”
“Position sizing is more important than I previously thought.”
“He who fights and runs away will live to fight another day.”
“Takes a long time to build profits and very little time to lose it all. Risk management is key.”
“There’s nothing wrong with conservative investing. Strategies that attempt to shoot the moon often blow up.”
My thoughts – When I talk about trading with some people, I sometimes get the response: “Well it just sounds like gambling”. I used to get offended, but now I just smile. In many ways it is gambling in another name. The difference between a ‘punter’ and ‘trader’ in my eyes is how they manage risk. This is ever more important in today’s volatile trading environment.
A few more choice quotes:
“Gurus who predict the future about the stock market and particular stocks are no better than me.”
“Trends, once established, last much longer than anyone expects.”
“The importance of buying in increments.”
“Fundamentals do not trump fear in the short-term. Stock prices can decline dramatically in spite of outstanding financial statements and soaring earnings.”
“The ability to change and adapt to market conditions quickly is more important than I thought.”
“Keep a better trading journal so I can go back and review things.” (This looks a useful little tool – http://www.memiary.com)
System watch
If I’ve not mentioned a system you’re interested in, it will be due to lack of time/space so get in touch if you have a question or feedback.
Interesting times at http://www.fxnewswiz.com. Mr X is going through a rough patch and things haven’t been helped by him forcing a few trades through to keep members happy. There’s a lot of newbies in the room who complain when there is no action, who should be ignored. Hopefully he’s now learned his lesson and trades will be more cautious. Past performance is genuine, but I’ll be interested to see how things work out over the month.
Another live room I’m enjoying is Phil Newton’s http://www.trading-strategies.info. I’ll be writing a full review in the forthcoming What Really Profits, but so far I’ve been very impressed with Phil’s overall package.
London Forex Rush – I’m still testing this, but from what I’ve seen, I think it could have potential. It’s a relatively simple range break-out system. I’m not sure if it’s enough on its own, but perhaps combined with some sort of filter or better profit/stop loss targets, this could be a robust program. What I don’t like is the fact that they present the system with suggested money management rules with no indications of how successful the system actually is. True, everyone might trade it differently but there is enough automation in this system to provide some sort of results reporting.
Money Earners Plus Evening trader – Only just got hold of this, but on first read the system looks to be well explained. It involves trading the Dow Jones each evening. I’ll report back more in the future.
FAP Turbo – I had a couple of emails asking my opinion on this, from people unsure whether to keep trading or not. Firstly I must say that any decisions you make, must ultimately be yours. I look at things from my point of view which isn’t necessarily right or the best thing for you.
It’s a tough one to call in my opinion. As Expert Advisors go, I must say, this is one of the better ones, at least from a support point of view. There’s tons of help on the forum with regard to which broker to use and how to get FAP turbo set up properly. I’ve made a profit over my testing period, but…
The ‘long term’ 1-minute strategy has been haemorrhaging pips and is therefore in my opinion unworkable.
There are big differences in reported results depending on the broker used. The key appears to be the size of the spreads that you get. If you are scalping 10 point moves, a 10 point spread can kill you.
A few recent scalp trading losses on EUR/ CHF and USD/ CAD were rather large and it wouldn’t take many of those to put a serious dent in your profits.
To really make it work, you need to have your computer on 24/7 or to be using a virtual server.
A new version is released each month. I’m just installing this now. I’d be interested to see if adding the new version erases previous losses when you run a back test. If this is the case, each new version of FAP turbo could look even better, but it may not necessarily improve the forward profitability.
Previous ‘Marcus Leary’ products blew up eventually with their gradual small profit target/ Large losses approach. FAP turbo seems to be better as there is a mix of small losses as well, not just the big ones.
Having said all this, I’m going to keep using FAP turbo. I’m not going to go crazy with huge live account, but there are enough positives to keep me intrigued here. That’s saying something for a cynical old bugger like me. I won’t be shocked if this blows up like previous such products, but so far I’m giving it the benefit of the doubt.
A good contact of mine is running this site if you want live update videos: http://www.fapturboreview.net.
I’m collating feedback from testers who’ve been looking at a variety of other systems from LS trader to FX pro and will feed back soon.
Million Dollar Trader
I thought I’d end by mentioning a program I caught on TV last night called Million Dollar Trader.
It’s effectively ‘the apprentice’ at a hedge fund.
A bunch of complete beginners attempt to make money for a hedge fund using the hedge fund manager’s real money.
There’s a typical reality mix of contestants from an environmentalist to a soldier.
Their initial aim is to make money for themselves and the group as a whole. These complete beginners couldn’t have had a hotter baptism of fire as they started trading just as the sub prime crisis started to break. There were trading errors, tears and pressure to perform. The highlight was when the entire team separately went short on banks just before Citi group announced earnings. These earnings were better than expected, making banking stocks shoot higher. Ouch!
Potentially this could have been a fantastic programme and although watchable, could have been so much more. There was a lot of ‘follow the news trading’, which perhaps makes sense to producers, but unless you have a lightning fast feed, you’re always going to be behind the curve. There was a lot of emphasis on short termism and encouraging trading activity for the sake of it.
“If you aren’t in the market you may as well just stick your money in the bank and earn 5%!” was the quote from their hedge fund mentor.
We weren’t told exact how good this trader was himself. Hedge funds themselves had their worse year ever last year with an average loss of around 15.61% last year. To be fair, it still better than the near 40% loss in the benchmark S&P 500 index.
Some hedge funds did very well last year, the best made nearly 100%. The worst lost nearly the same amount!
I’m intrigued to see how the series progresses and at the very least I’m look forward to seeing all the emotional ups and downs the fledgling traders go through.
You can watch last night’s episode using the BBC iplayer.
My trades
After a shaky start, my S&P 500 short is working out well. The news flow continues to be negative, but we’re just about to enter US earnings season so things could get really jumpy from here. I’ve booked some profits and my stop has been moved to break even. Not a bad thing to take some money in the current trading environment.
My personal forex trades have been mixed. Hard work segregating personal trades while testing other products for the next What Really Profits. That’s why the hard work of my testing team is worth its weight in gold.
This week’s hot trading buttons
The coming week is relatively quiet, starting off with Bernanke speaking today. US retail sales come on Wednesday, with PPI and unemployment claims to follow on Thursday. The UK government has announced its big vote grab jobs package as the news flow continues to worsen. Last week’s rally in sterling has faltered, but I’m still not convinced that the euro is as impregnable as many think it is at the moment. As a recent Gavekal research note wrote: “The important question of 2009 will be whether Milton Friedman’s prediction that the euro will not survive its first recession intact will turn out to be prophetic”. Spain and Ireland have already had their sovereign credit ratings reduced. I’m not going to fight the tape for now, but I’ll be keeping my eye on it. On Thursday, the ECB (European Central Bank) set their rates and most analysts are expecting a 50 base point cut, but the post announcement news conference at 1.30 could have an even greater impact.
Trading wisdom
“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas Edison
