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Weekend Newsletter for March 31, 2007 Please forward to a friend! (Subscribe)
The Week At A Glance According To The Charts
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Realistic Expectancies
Realistic Expectancies -- by Bill Kraft
Copyright 2007, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
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Every once in a while, I receive a communication that reveals what I
consider to be an unrealistic expectancy and I know that many novice and retail
traders do not have realistic expectancies. The other day, I received an email
asking why I didn't find more higher returns in the $10 Trader. The writer was
inquiring whether I couldn't find trades that made more than 30 or 40 cents. He
is not alone. I would love to find more trades with better and higher returns
on cheap stocks, but the reality is that a 40 cent gain on a $5 stock is 8%.
Most of the trades I make fall into the category of swing trades and are closed
within a few days to a few weeks of entry. 5% or 8% in a week or two really
isn't too bad in my world. Compare that kind of return to a savings account or
a CD and you quickly realize that such a trade makes more in a short time than
the CD or savings account makes in a year.
I believe it is critically important to successful trading to have
realistic expectations. The following list sets out some expectations that are
part of the realism of trading:
It takes work to make money trading
It takes knowledge to make money trading
No matter who you are, you will have losing trades
No single trade is likely to make you rich
Only expect to make money if you understand and apply money management
principles
Expect to take risk in order to trade
Make your profit expectations reasonable - 100% a month probably isn't
a reasonable expectation
Don't expect that anyone is going to have 100% winning trades
Expect to study markets, strategies, and psychology if you want to be a
successful trader
Don't expect to get rich quick
Expect to pay for your education (college wasn't free was it?)
Expect to keep careful records so you can see what you are doing right and what
you are doing wrong
Expect to be responsible for your own trades, and recognize that no one else is
Expect to go through a learning curve before you are a good trader
Obviously, this is only a partial list, but I want to emphasize the
importance of realism over fantasy. Believe me, if I could predict which
trades on cheap stocks would make more than 5% or 10% in a short time, I would
be placing them. Trading is not an easy business. In the heyday of day trading
in a super bull market only about 16% of the day traders were making money. If
it were easy, everyone would do it. It takes work, persistence, regular study
and good money management to be an overall winner. Luck may be with you on
some trades, but reliance on luck will ultimately lead you to the poor house.
Make the effort and the expectancy of making money is more likely to be
fulfilled. If you won't make the effort, then don't expect success. It is
really that simple.
Good Trading!
Bill Kraft
Mr. Kraft's past articles are posted on our website for your review.
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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.
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