trend trading stock, trade stock

As I end my trading for 2006 and look forward to 2007, I thought it might be appropriate to review how I did in each of the subscription services I edit. The Trend Trader service began in March of 2006 and I closed 29 trades over the course of the year. 21 of those were winners and 8 were losers resulting in a winning percentage of 72.4%. I was in the average trade for a little less than 14 days and the longest closed trade lasted about 82 days. 13 of my closed trades lasted a week or less. As you can see, these trades generally fall under the classification of swing trades and, from a federal income tax standpoint would generally be classified as short-term capital gains which are taxed at the regular income tax rate. I should note that I remain in one position which was initially purchased for its income stream since it pays monthly dividends at an annual rate of well over 8%. That position is actually a closed-end fund which trades as a stock. I bought it for $7.99 a share and it is now trading around $8.45 a share so it also has given me some unrealized capital appreciation. Trend Trader, with 72.4% winners of the trades closed turned out to be the least successful of the three subscription services I edited in 2006.

The most successful service was the $10 and Under Trader. That service began in April of 2006 and I closed 24 trades since inception. Of the trades I closed, only 2 were losers so the winning percentage was 91.7%. The average length of trade was about 20 days and that included two trades where I held the positions for almost 3 months each. Seven of my trades were closed in a week or less. As in the case of the Trend Trader, I also purchased a position in a closed-end fund for $6.35 a share in order to generate regular monthly income. At the $6.35 a share I paid for that closed end fund, it was producing an annual dividend of approximately 9% paid monthly. It is also up in price about 3% since entry. I have remained in a few positions for quite some time awaiting either a breakout or an exit. Frankly, I have been surprised by the excellent performance of the $10 and Under trader since I believe cheap stocks are more difficult to trade successfully with great regularity. They do, at times, offer a strong upside for a relatively inexpensive entry, but 2006 was definitely a terrific year for the $10 and Under trades.

I have been the editor for Option Trader since 2004 and had a pretty decent year again this year. I closed 35 trades, 26 of which were winners for a winning percentage of 74%. Again, most of these trades were relatively short term. Some, however, exist for quite some time since adjustments can be made and income earned by creating various spread positions. It is difficult, therefore, to calculate the average length of time, but the vast majority fall into the short-term capital gain or capital loss category.

In the weekend newsletter of March 25 of 2006, I wrote an article entitled "http://www.marketfn.com/articles/moneymanagement.shtml">Money Management and Reward to Risk." In that article, I demonstrated how a trader could lose 60% of his trades and still come out ahead by using money management and reward to risk principles. That means a trader can win only 40% of the time and still be successful. Recognizing that fact, I am extremely pleased when my worst-case scenario yields well over 70% winners.

As we enter 2007, I must re-emphasize that past performance does not predict future results. We must always be aware that trading involves risk and that every trade incorporates the risk of loss. As I recently wrote, there is no holy grail of trading. It is a business that requires time, knowledge, and effort. As Michael J. Fox purportedly said: "I am careful not to confuse excellence with perfection. Excellence I can reach for; perfection is God's business." As I go forward into 2007 I intend to continue to reach for excellence in my trading.

Good Trading!
Bill Kraft

Mr. Kraft's past articles are posted on our website for your review.

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