Alumni Mega Options

The Kirk Report

noreply@blogger.com (Admin) — Fri, 03 Feb 2012 13:11:06 PST

The Kirk Report

Posted: 03 Feb 2012 11:38 AM PST

“The market doesn’t know your emotions or care about your portfolio. The market is moving on. And so should you.” – Terry Savage

One of the most challenging aspects of trading is learning to understand and appreciate that our constant desire to be right and smart in the markets will always cloud our judgment and too often work against us at the most inconvenient times.

In this current bull stampede, there are unfortunately too many traders and investors who are short or sidelined and now in desperate need for the market to move lower. How do I know this happening? This past week alone I received dozens of emails from those who expressed utter confusion and disappointment in why I’m not paying much attention to a number of bearish factors (i.e. low volume, overbought conditions, VIX readings, earnings/data not surpassing expectations, Baltic Dry Index, poor February seasonality, etc.) My reply in every single case was the following:

“The price action remains positively firm and our job is to be aligned with the price action as long as it remains that way. While that doesn’t mean we ignore the risks or think this market is somehow has magically become invincible, we have to constantly align our positions in the direction that offers the great probability for profit. In this environment that means you stay opportunistically bullish until we see that change. And, don’t worry – I’ll be here to help you see that change as soon as it happens.”

The challenge, as all of us will learn soon or later learn, is that Mr. Market doesn’t listen or care about anyone’s else opinion but his very own. This is especially true when we are wrong and not following his hidden and often very confusing agenda. Mr. Market often acts like a rebellious teenager and does exactly what he wants to do, when he wants to do it, and at the same time pays no respect for anyone who disagrees with him or believe he should act logically or within reason. In fact, a recent tendency is for the market to do exactly the opposite of tendencies we’ve seen so many times before. This is why you must place so much importance on what the market is actually doing rather than what you think it should do.

In truth, we’ve all been there, haven’t we? I know I have. In fact, more times I can even recall or really care to admit. I have also wasted and missed far too many opportunities by devoting precious time and energy looking for reasons to justify mistakes I have already made hoping that somehow that will make it better or help me to overcome my disappointment in my bottom line performance. Unfortunately, that never works and, even worse, only increases the pain and lengthens period of poor performance. This is not good especially if you are trying to make a living from trading!

While I know many of you don’t want it, here is some free advice for those who were positioned wrong for the past few weeks and who are significantly under performing so far this year. Your job right now is not to spend a moment longer asserting you were just early (which is the equivalent of being wrong in this game) but rather own up to the mistake and then figure out why the mistake was made. After you do that, it is just as important to figure out what lessons there are to be learned so you don’t repeat the same mistake again. In simple, ask yourself this – what could you have done differently or better to have profited more since this rally began? That’s the question to ask right now. Once you have your answer, then move on.

In my experience, that’s what winners do that losers do not. And, since we all desire to be winners, that’s what you need to do right now to get back on track especially if your among the many who have been left in the dust in this bull stampede!

The Kirk Report

noreply@blogger.com (Admin) — Fri, 27 Jan 2012 13:26:44 PST

The Kirk Report

Wisdom From Jason Zweig

Posted: 27 Jan 2012 01:03 PM PST

Members often tell me about the books they find most helpful. As you know, there’s a lot out there to read if you so desire about just about every topic you can think about regarding investing, trading and the markets.

Recently a member expressed appreciation for my prior recommendation of Jason Zweig’s Your Money & Your Brain. I recommended the book after he told me about several situations over the past few years where he seemed to mentally work against himself and his performance in the markets.

With my member’s expressed permission, here are some of key points of Zweig’s book many of which are true gems for both traders and investors alike:

There are only three kinds of investors – those who think they are geniuses, those who think they are idiots, and those who aren't sure.
One of the clearest signals that you are wrong about an investment is having the hunch that you are right about it.
Investors who focus on price levels earn between five and ten times higher profits than those who pay attention to price changes.
The only way to be more certain it's true is to search harder for proof that it is false.
Business value changes over time, not all the time. Stocks are like weather, altering almost continually and without warning; businesses are like the climate, changing much more gradually and predictably.
When rewards are near, the brain hates to wait.
The market isn't always right, but it's right more often than it is wrong.
Often, when we are asked to judge how likely things are, we instead judge how alike they are.
Most of what seem to be patterns in stock prices are just random variations.
In a rising market, enough of your bad ideas will pay off so that you'll never learn that you should have fewer ideas.
The more often people watch an investment heave up and down, the more likely they are to trade in and out over the short term – and the less likely they are to earn a high return over the long term.
Investing is not you versus “Them”. It's you versus you.
The single greatest challenge you face as an investor is handling the truth about yourself.
Hindsight bias keeps you from feeling like an idiot as you look back – but it can make you act like an idiot as you look forward.
Ignorance of our own ignorance haunts our financial judgments.
Investing requires taking a stand on at least some of the uncertainties that the future holds. So your goal is to be as sure as possible that you don't think you know more than you really do. How much you know is less important than how clearly you understand where the borders of your ignorance begin. It's not even a problem to know next to nothing, as long as you know you know next to nothing.
Being part of the herd is fun while it lasts, but it's seldom lucrative for very long, and it's impossible to predict when the herd will change its “mind.” If you want to make more money than other people, you can't invest like other people.
Knowing, or even imagining, that someone else is relying on your advice can make you feel more accountable, forcing you to go beyond your gut feelings and fortify your opinions with factual evidence.
Find out who has a negative view and give this devil's advocate a full hearing.
Whether you should take a risk depends not just on the probability that you are right but also on the consequences if you are wrong. You must always weigh how right you think you are against how sorry you will be if you turn out to be mistaken.
We are often most afraid of the least likely of dangers, and frequently not worried enough about the risks that have the greatest chances of coming home to roost.
When an intangible feeling of risk fills the air, you can catch other people's emotions as easily as you can catch a cold.
Overreacting to raw feelings “blinking” in the face of risk is often one of the riskiest things an investor can do.
There's safety in numbers only when there's nothing to be afraid of.
Many of the world's best investors have mastered the art of treating their own feelings as reverse indicators. Excitement becomes a cue that it's time to consider selling, while fear tells them that it may be time to buy.
A mistake that stems from an action hurts worse than a mistake that results from inaction.
Once you have a handful of options, adding even more choices will lower you odds of making a good decision and increase your chances of regretting whatever decision you do make.
The harder the choice feels, the less people want to choose. Yet, the threat of having less choice almost always disturbs us.
The closer you come to hitting your target, the more regret you are apt to feel if you miss it.
The human brain is a brilliant machine for comparing the reality of what is against the imagination of what might have been.
There's no end to the roads not taken.
Investors probably hurt themselves more by avoiding risks they imagine they might regret than by taking risks they really do end up regretting.
Instead of making judgments one at a time, you should follow policies and procedures that put your investing decisions on autopilot.
The more you can automate your investing, the easier it should be to control your emotions.
The pleasure you expect tends to be more intense than the pleasure you experience.
We often find out that what we thought we wanted before we got it is no longer what we really want once we have it.
There are two tragedies in life. One is to lose your heart’s desire. The other is to gain it.
Your memory of what was is shaped largely by what is.
If you focus too narrowly on the task at hand, you may never use your peripheral vision.
Chance favors the prepared mind.

Those are some very interesting and I think overall very helpful observations! When you have time, Jason’s website is also worthwhile and has many items of interest you might find helpful as well.

* This report was originally posted at the members' only site on July 19, 2011. If you’re not a member, I invite you to become one. Here’s what I offer.

The Kirk Report

noreply@blogger.com (Admin) — Thu, 12 Jan 2012 13:45:44 PST

The Kirk Report

Think Less & Keep It Simple

Posted: 12 Jan 2012 11:09 AM PST

Every once in awhile I read something from another trader who I respect that I really wish I wrote myself. Here’s one such example:

“One of the most difficult things to get investors and traders to understand is that no matter how much they investigate an investment, they will probably do better if they did less. This is certainly counter-intuitive, but the way that our brains function almost guarantees that this will happen. This kind of failure also happens to those investors frequently regarded as the smartest. In essence, the more information that investors have, the more opportunity that they have to choose the misinformation that suits their emotional purposes.

Speculation is observation, pure and experiential. Thinking isn't necessary and often just gets in the way. Yet everywhere we turn, we read and hear opinion after opinion and explanation on top of explanation which claim to connect the dots between economic cause and market effect. Most of the marketplace is long on rationale and explanation and short on methods.

A series of experiments to examine the mental processes of doctors who were diagnosing illnesses found little relationship between the thoroughness of data collection and accuracy of the resulting diagnosis. Another study was done with psychologists and patient information and diagnosis. Again, increasing knowledge yielded no better results but did significantly increase confidence, something which the smartest among us are most prone to have in abundance. Unfortunately, in the markets, only the humble survive.

The inference is clear and important. Experienced analysts have an imperfect understanding of what information they actually use in making judgments. They are unaware of the extent to which their judgments are determined by just a few dominant factors, rather than by the systematic integration of all of their available information. Analysts use much less available information than they think they do.

This underscores the value of using a simple method. I didn’t say easy – I said simple!” – Jeff Cooper

I could not have said that any better than Jeff. Well done!

* This report was originally posted at the members’ only site on July 20, 2011.

The Kirk Report

noreply@blogger.com (Admin) — Sun, 28 Aug 2011 13:29:18 PDT

The Kirk Report

An Hour With Arnold Palmer

Posted: 28 Aug 2011 08:35 AM PDT

“It is deceptively simple, endlessly complicated, a child can play it well, and a grown man can never master it. Any single round of it is full of unexpected triumphs and perfect shots that end in disaster. It is almost a science, yet it is a puzzle without an answer. It is gratifying and tantalizing, precise and unpredictable. It requires complete concentration and total relaxation. It satisfies the soul and frustrates the intellect. It is at the same time, rewarding and maddening and it is without doubt, the greatest game mankind has ever invented.” – Arnold Palmer

What a wonderful quote about the game of golf. Although to a lesser extent, the same things can be said about trading as anyone who trades every day in the trenches will tell you.

I was reminded about this perspective this weekend when watching an hour interview Charlie Rose recently conducted with Mr. Palmer. Many people don’t know this, but it was an biography of Arnold Palmer that I read as a child which originally sparked my interest in taking up the game. So, all of these years of both frustration and incredible enjoyment, I owe directly to Mr. Palmer.

Now in the twilight of his years, I found this recent interview really enjoyable particularly after the 30 minute mark. If you have an opportunity to watch this, I think his advice about developing a system is so very important especially for new traders and investors as well as what the discussion after that about what it takes to win. Much like the quote above, the perspectives are priceless. Even if you don’t play golf or even hate the game, don’t miss this interview!

The Kirk Report

noreply@blogger.com (Admin) — Wed, 24 Aug 2011 13:17:40 PDT

The Kirk Report

What Do You Really Want?

Posted: 23 Aug 2011 04:53 PM PDT

I frequently share inspirational quotes with my membership and one of my favorites has to be this:

“First, you decide what you want specifically; and second, you decide if you’re willing to pay the price to make it happen, and then pay that price.” – Nelson Bunker Hunt

What a terrifically true and powerful statement. If you had the privilege of knowing some of the most profitable and successful traders in the world as I have, you would quickly figure out that each and every one went through this process and ultimately made made numerous sacrifices to achieve the level of performance only others could dream about and many think is simply impossible. Yes, these are traders who are making over $500K a year if not several times that just trading their own money independently.

While so many in this business want others to think it is easy for them, that they’ve somehow become smarter than the market, and/or that everything they touch easily turns to gold AND that they are just the person to show you how to do it provided that you give them money (If you are unfamiliar read Ritholtz’s Investor Types To Avoid), I’m going to let you in on a little secret that I want you to always remember – there are no magic secrets to successful trading and investing!

The reality is that to be successful you must work really hard for a very long time and consistently make huge sacrifices to improve yourself so you can give yourself every opportunity at success. Yes, it is that simple and so difficult at the very same time. As my late father often told me “Anything worthwhile is not going to come easily or by chance….you simply have to work at it as hard and as often as you possibly can and, even then, you will not win all of the time.”

In the many years I’ve been mentoring others, I have learned all too painfully that while many have the desire to be successful in the markets, when it comes right down to it most do not fully understand and appreciate that they must also make tremendous amounts of sacrifice to achieve the goals they’ve set. Yes, they may give it a good try for a little while and dedicate themselves when things are working well and the markets are cooperative. But, when times get rough, their strategies are out of sync, and they experience painful demoralizing defeats as we all do, these same people give up on themselves and the goals they’ve set. Based on recent emails I’ve received, recent market conditions have already caused many to give up and quit.

Whatever it is that you want, both from the markets and in life in general, do yourself a favor and please figure that out first and then decide if you’re truthfully willing to pay the price and make the sacrifices that you’ll need to take to make it happen before you start that journey. That way, when the tough times come, you won’t bail out but instead you will step up and do what is necessary to stay on the right track.

For me, this was always the easy part as I knew that I wanted to trade for a living and to do it to the very best of my ability. As my members will tell you, the intense efforts I put in every day also show by clear example the level of commitment and enormous sacrifices I have made and continue to make to achieve my success. Although at times I have wondered if it is all worth it, in the end, the decision was clear and my commitment remains. To achieve my goals I must continue to make many sacrifices and work like crazy, but so far it has been well worth it and given me every chance of success. In the markets – that’s all any of us can ever hope to expect!

The Kirk Report

noreply@blogger.com (Admin) — Tue, 02 Aug 2011 13:47:32 PDT

The Kirk Report

How To Maintain An Optimal State

Posted: 02 Aug 2011 03:16 AM PDT

No matter what the market conditions may be, especially in weeks like this, it is very good idea to do everything you can to stick to the normal trading routine. While none of us can control what the markets do, we can control what we do everyday to be in the right place at the right time and to take advantage of opportunities we see by creating and maintaining an optimal state.

How do you create and maintain an optimal state? One way, at least if you are like me, is to develop a daily routine and stick to it no matter what. This will also help relieve some of the stress and tension markets like this create for all of us. What you do today, in essence, should be exactly the same thing as you did last week, the week before, and the week before that. The market’s performance shouldn’t disrupt or change your daily approach, how you spend your time, or even what you focus on. Doing this will help you sustain calm under pressure which is important.

For those of you who don’t work by the routine and are feeling stressed, I do have some suggestions for you to consider. First, I would recommend you increase the time and effort of your workouts. This will also help you get to sleep faster and burn out excess energy, frustration and emotion. Nothing will impact your judgment or increase your vulnerability to emotional market swings than being stressed out or overworked. I also recommend you try to go to sleep one hour earlier especially when feeling stressed. Also, if you can take an entire day away from the trading desk during the weekend, I recommend you do so to clear and rest your mind.

Second, I recommend you do not watch television and make a concentrated effort to read less news and opinionated social media. While this is helpful to many traders and investors as a general course of action, this is especially true in a noisy, news-driven market. While most seem to think being in the know will translate into making more profits, usually the exact opposite occurs as information overflow turns into paralysis by over analysis. In all likelihood, you already know everything you need to know to make money in the weeks ahead and more information and opinions are not going to build the bridge between here and those profits.

Another area I would recommend is for you to work on improving your eating habits. While often helpful generally, especially during stressful situations try to eat far less food while increasing the frequency of your meals to maintain and sustain optimal energy levels throughout the day. Also, try to eat more energy-focused foods and be mindful of your intake of both caffeine and energy drinks. If possible, avoid those altogether or at least moderate your intake as both will keep you hyped up and more emotional than necessary. Everyone is different here, but in general when stress increases, poor eating habits also increase and that will work against you and maintaining an optimal state.

Finally, please take significant steps to build a wall between your work and personal life so you can get the break you deserve. The best way to do this is to set work hours and stick to those even when market conditions are challenging and emotions run high. While many traders constantly check what the futures are doing right before bed, checking emails, and researching potential trades at all hours, you and your brain need several hours of solid rest and time away every single day to perform at your very best when you are at work. In fact, after 6PM and my after-hours preparation is finished, as part of my daily routine I turn off my cell phone and I never check emails or do anything related to the market. For me, that has made a world of difference.

Good and efficient routines take weeks, if not years, to develop into automatic routines but in my experience are well worth it. By taking small but consistent steps now to improving your work routine, will work wonders for you in the long-run.

The Kirk Report

noreply@blogger.com (Admin) — Fri, 15 Jul 2011 13:22:55 PDT

The Kirk Report

Lessons From Irwin T. Yamamoto

Posted: 15 Jul 2011 07:45 AM PDT

One of the greatest privileges of my life was my friendship with Irwin T. Yamamoto who passed away two years ago today on July 15, 2009 at the age of 54.

Our friendship began eight years ago after I wrote an something that discussed The Yamamoto Forecast and his excellent track record. Following that Irwin contacted me by email and our friendship flourished in all of the years that followed.

We would talk at least once per month about the market and I could always count on him offering a different perspective. In fact, in 2008 my wife and I traveled to Maui with the goal of meeting and spending time with the man who will always be known as “The Maui Contrarian.”

As with all great friendships, I learned a lot from Irwin and I’m better at what I do because of him. While our strategies were very different, it was also these differences that I believe also made us so interested in one another. They say that opposites attract and that you frequently learn from people who are the most unlike you. This was especially true with us. In my case, I really wanted to learn how Irwin was able to achieve the level of success he had for so many years and at the same time make it look so darn easy. What I ultimately discovered was a man who possessed simply all of the right characteristics, strategies, and the ideal mind set to a succeed in the market over the long-term.

It is a tragedy that Irwin is no longer around to share and help investors around the world with his contrarian perspectives. This post is dedicated to Irwin’s memory and, to honor him, I would like to share some of the many lessons I learned in the sincere hope that it may benefit you as well.

Lessons From Irwin T. Yamamoto

Be a consistent contrarian: Being contrarian was Irwin’s nature. Whenever possible he took the unpopular view and found ways to make money from it. While some people love to think they are a contrarian as far as the market is concerned, when the heat is on and everyone (including the market itself) thinks you are dead wrong, they always run back to the herd. Irwin never did. Not once. No matter what. And, trust me, he was tested many times throughout his career.
Have courage: Every call Irwin made was a bold call. If it wasn’t bold, he simply didn’t make it. He refused to hedge his bets by trying to take the middle road or offering up so many contradicting opinions so he could later say he was right no matter what happened as so many experts do. To do well in the market, we all have to have the courage to make and stick with our convictions. Often the investment decisions that will work out the best are the ones that simply require the most courage to make.
Believe in yourself: Irwin had an unshakable belief in himself. That’s so very important when you have your hard-earned money in the market. Through thick and thin, Irwin always expected to win and he did more than most. Every winner I’ve met has possessed this important characteristic. However, what made Irwin truly special was that he also had the humility to keep his confidence in check.
Focus on quality not quantity: Irwin told me often that he was a happy man if he could just one good opportunity in the market every year. Yes, that’s right – just one opportunity. In fact, subscribers to his newsletter will testify to the fact that Irwin rarely had more than just a handful of positions on at any given time and was not afraid to be in cash for extremely long periods when he found no excellent opportunities to share.
Patience: When taking the unpopular and contrarian view, Irwin understood that time was on his side. Although he would admit that it was “not easy to be alone in the crowd and swim continuously against the tide,” by maintaining a long-term perspective, Irwin was not tempted by the seduction of the short-term market swings. His focus was instead to concentrate on the big picture trends and profiting from them.
Ignore short-term noise: Irwin had the ability to ignore the short-term noise and concentrate on what really matters over the long haul. Yamamoto believed that the real-time coverage of the markets were severely detrimental to investors and he refused to watch the market during the day. Irwin told me that he would stay up late enough (Hawaiian time) to watch the premarket futures and premarket headlines, but then would go to bed once the market opened no matter what was going on. By doing this, the daily ups and downs didn’t phase him which is why he was able to be so consistent in his approach. In a day and age where everything is coming at us fast and in real-time, this was Yamamoto’s edge and he used it well.
Let your track record speak for itself: There’s a lot of puffery out there in the investment world as people try to sell newsletters, tips, advice and tools on the backs of people’s hopes and fears. Irwin never did. He simply did his job, produced the best results he could, and let the cards fall where they may. In both good times and bad, he never sought out public exposure or engaged in aggressive marketing techniques that is so very common today. Yamamoto was successful because he simply produced excellent results. He didn’t waste time creating hype or seeking attention by telling others how right he has been in the past. Instead his focus was on finding the next opportunity. Always.
Be in control of your destiny: Irwin understood both his strengths and weaknesses and created a business model that he loved. He started his newsletter back in 1977, found a format he liked (a typed newsletter usually no greater than a couple of pages sent out once per month) and he stuck with it all of those years. Although he was under pressure by his subscribers to make more frequent updates, go online, etc., he never did because he saw it as overkill and unhelpful to his clients. Say what you want, his outperformance among his peers over a long period of time shows he was ultimately right.
Know yourself: Irwin’s strategy was reflective of who he was and took advantage of his unique skills and personality. Irwin didn’t use indicators, sophisticated timing strategies or mess around with investments he didn’t know much about. Rest assure he never even considered daytrading stocks or adopting strategies of others that didn’t match his own personality. He knew who he was and aligned his strategy accordingly.
Be happy: The market and the performance of his investments never impacted his mood. In fact, some of the happiest conversations I had with Yamamoto was when he should have been the most frustrated and disappointed in his recent performance. When times were bad, he simply kept doing what he always had been doing and refused to let the market get the upper hand over his emotions. A skill many of us so desperately need.
Keep learning: Yamamoto was always in a learning mode and displayed a child-like enthusiasm for learning new things. It was my impression based on our conversations that he never felt like he knew everything or that there wasn’t so much more to learn. He was an avid reader and spent the vast majority of his free time reading and, more importantly, thinking about the market. Like many great students, Irwin sought out the ideas from people who he disagreed with the most so that he could “know his enemy.”
Think like a businessman: He told me often that he viewed himself as a businessman. A successful one “simply looks to purchase wholesale and sell retail.” His goal was to know the worth of a company and then acquire it below its true value. After finding an interesting opportunity, he would then scour the balance sheet and read all of the footnotes focusing primarily on the company’s cash position and relative cash flow. If those things looked good, he was especially encouraged if he saw insider buying. A simple, but effective strategy. To my knowledge, Irwin had only one stock screen in his toolbox – the new 52-week low list.
Play make believe: Irwin was insistent that most people shouldn’t be in the market until after they acquired the skills and strategies to consistently succeed. He often urged people to play “make believe” by mentally selecting a few stocks and tracking them for some time to see how they react to news and events. Only after doing that for long periods of time and after showing success should a person ever be in the market with their own money.
Don’t lose your values: We would often talk about how subscribers often wanted us to sway bullish or bearish, especially at the sentiment extremes. Like offering short sells after a major correction or buys after a rally, versus the exact opposite and how that often was the wrong approach. Irwin would often lose subscribers because of it, but he didn’t care. He stayed true to his own views through thick or thin even if it cost him money and lost subscription revenue.

In the end, it was a true honor to have Irwin Yamamoto as dear and loyal friend and so much wish he was still around so that we could discuss and debate the issues and opportunities that face the markets today!

The Kirk Report

noreply@blogger.com (Admin) — Wed, 29 Jun 2011 13:37:43 PDT

The Kirk Report

How To Trade While Away

Posted: 29 Jun 2011 10:18 AM PDT

Many have asked me over the years how I trade while on vacation. Here are my two rules: 1) I don’t trade during vacation, and 2) I close out all positions no matter what their upside potential before I leave.

There was a time when I wasn’t nearly so smart. Like others I would drag the cell phone and laptop with me and every single chance I would get I would check in to see how the market was doing and my positions. I know I’m not alone in doing that since every single time I go on vacation I see groups of people doing the same thing from the strangest of places. In fact, I recall not too long ago sitting and holding hands with my dear wife on a beach in Kauai enjoying a most amazing sunset while others were not paying any attention and instead had their heads and eyes only on their laptops, iPhones or other gadgets. Talk about a missed opportunity!

Sooner or later, many of us learn to mature and wise up. Vacations are for taking time away from the market and not for working. Like most lessons, I wasn’t smart enough to realize why without first having the lesson taught to me in a most painful and memorable manner.

Back in the Spring of 1999, my wife and I were on vacation and I took my laptop so I could trade. I recall being really juiced up because I had a trade in play that was already blowing past my profit targets daily and looked likely to make my month if not my entire year. At worst case I thought I could at least pay for the entire trip just with the profits from that one trade.

Well, you can probably guess what happened next. While sleeping in a little bit during during our trip, I woke up a little late to finally check in and quickly discovered that my trade was down by over 30% after some speculation that the stock I was trading had cooked its books. Not only was I terrible vacation partner for that day, but the whole trip was ruined because I couldn’t stop beating myself up for being so stupid. To this day, that was one of the worst vacations we ever had!

So, please learn from my experience. When on vacation – be on vacation!

With that said, I know many of you treat the entire summer as a pseudo vacation period away from the markets. I know this because website traffic slows down significantly and my email inbox suddenly becomes almost manageable. The period between the first of July and the end of August before the kids go back to school is when most people tune out. And, in recent years, the market’s performance has given them plenty of justification for doing so.

For those who are looking to scale back a little during summer but NOT trade during their vacations, I think Alan Farley’s advice on how to trade remotely can be of some help. Here are his 10 recommendations:

Long-term charts: Weekly price patterns work very well for folks unable or unwilling to watch the short-term markets. Just keep in mind that you’ll need to focus on trade setups lasting for weeks or months instead of hours or days. The hard part will be in picking the entry point that takes full advantage of the longer-term trends.
Trade smaller size: You don’t have to be a gunslinger to book long-term profits. Stop using margin, take small positions, and then get out of the way. This lowers risk considerably by letting price jump around without shaking you out of good trades. Even a hundred shares can produce outstanding gains when held for weeks or months.
Choose wisely: Pick the right stocks to trade. This means you should forget about Chinese rockets, thinly traded biotechs and secondary agricultural players. Instead, limit your portfolio to slower movers that are less likely to exhibit overnight price shocks. More-lethargic sectors that let you sleep at night include: cleaning products, packaging and beverages.
Play the exchange-traded funds: ETFs let you take on measured exposure to entire market groups. This has both benefits and disadvantages for remote traders. On the plus side, you can avoid company news that sends individual issues through the roof, or over a cliff. On the negative side, you have to play against automated programs that dominate these instruments.
Loose stop-loss strategies: Remote traders need a quick nightly review to check out the day’s progress and readjust their stop losses. Longer-term position stops aren’t placed in the same way as a day trader or a swing trader. You keep them loose and out of the way, making sure they’ll only get hit if there’s an obvious change in trend.
Apply weekly Bollinger Bands: Long-term Bollinger Bands show remote traders the most favorable periods to enter and exit positions. It takes patience, though, because many weeks will pass between major trading signals. Here’s a hint: Place a weekly 5-3-3 Stochastics under the price bars and look for convergence with Bollinger Band signals.
Let the market come to you: Place deep limit orders and sit on your hands until they get hit. Look at the weekly pattern and find the price where weak hands will get shaken out. That’s where you want to place your buy or sell order. You won’t get filled every time, but this technique will get you into many great trades at perfect prices.
Use dollar cost averaging: Long-term trades are price-sensitive because of the great distance between closing bars. You can address this challenge by combining classic investing and trading techniques. Build the position over time with dollar cost averaging, but line up your entries with large-scale support and resistance. For example, add to your position each time the market pulls back and tags a horizontal weekly Bollinger Band.
Play the index cycles: Negotiate the minefield of conflicting trends with a smoothed Wilder’s RSI (relative strength index). Place a 14-day RSI, smoothed by 7-periods, under the S&P 500 index chart. Then watch for major turns below 20, and above 80. These cyclical shifts are highly predictive and tell you when to establish longer-term positions.
Master the waiting game: Stalk your long-term setups and do nothing until the market planets come into perfect alignment. It’s easy for remote traders to feel left out of the action and start chasing the market. But their edge relies on absolute detachment until their chosen entry prices come into play.

This is a very good set of recommendations. In fact, many of these are also appropriate for those of you who cannot stay on top of the market as much as I can most of the time.

A common theme you know I stress so very often is how important it is to use and adopt a trading and investment strategy that is in complete agreement with the amount of time, skill, and effort you can put in. Vacation time is no different. And, always remember, the market and its opportunities will be here when you return!

The Kirk Report

noreply@blogger.com (Admin) — Wed, 15 Jun 2011 13:33:47 PDT

The Kirk Report

Dr. Bob’s 10 Rules

Posted: 15 Jun 2011 07:59 AM PDT

In looking for paths to improve myself and to help those who I’m privileged to mentor, I have been reading a number of books and articles regarding applied sports psychology. Many of these books can offer more perspective and guidance regarding the mental aspect of trading much better than most books I have read that focus exclusively on trading and the markets.

Traders and investors, after all, have a habit for making things far more difficult than they really need to. And, as many of you are aware, the biggest challenges in the markets usually come from within and not from the market.

One of my favorite in the applied sports psychology realm is Dr. Bob Rotella. Dr. Bob is a sport psychologist for many professional golfers and is considered one of the best in his field. He has written a number of terrific books about golf and trading. In fact, if someone in the trading field simply performed a search and replace feature for the word “golf” with “trading” I think many would think these are some of the best books about the mental side of trading ever written.

To give you some idea, a couple of years ago Dr. Bob wrote this article to help golfers achieve better performance. The concepts outlined there are as helpful to a golfer looking to win as it is a trader looking to achieve peak performance in the market. To see what I mean – let’s review each of Dr. Bob’s 10 rules and my own interpretation of Bob’s comments as they relate directly to trading:

Rule 1: Believe you can win. If other traders can do well in the market, so can you. However, if you don’t have enough courage and confidence in yourself, you will never achieve success. The events over the past few years have tested many people in this way and many now believe the game is rigged against them and, even worse, that no matter what they do, in the end they will ultimately fail in the markets. In my experience, nothing could be farther from the truth and those who will win in the markets first start by believing they can do it. Of course, those who do create success also must back up that belief in themselves by working hard and show consistent determination to find, develop and exploit their trading edge.

Rule 2: Don’t be seduced by results. You must stay in the present and focused on executing each trade to the best of your ability. Don’t let yourself think about how much you hope to win, but instead focus on both proper and consistent execution and risk management. Do this and the results you desire will follow.

Rule 3: Sulking won’t get you anything. One of the worst things you can do for your prospects of winning is to get down when things don’t go well and market conditions are not favorable. If you start feeling sorry for yourself or thinking the trading gods are conspiring against you, you’re not doing your job by focusing on the next trade. Good traders readily accept and realize their mistakes, they learn a lesson if there is one to be learned, and they quickly move on to the next trade. They don’t let a series of bad trades or mistakes carry over to the next.

Rule 4: Beat them with patience. Every time you have the urge to make an aggressive trade, especially out of emotion, take a step back and reevaluate. The moment you get impatient, bad things tend to follow. In tough markets, stay patient and let others beat themselves in order to be ready and fully prepared to pick up the low lying fruit from the sheer destruction and capitulation from others.

Rule 5: Ignore unsolicited advice. You will have lots of well-meaning friends and experts who want to give you advice. Don’t accept any of it. In fact, stop them before they can say a word. Formulate your own opinions and generate your own analysis and you’ll do far better as your skills develop and improve. In life, as in trading, to succeed you must find your own way as no other person no matter how much you may want them to is going to take you where you really want to go.

Rule 6: Embrace your personality. The key is to find what works best for you and this can take years to discover. There are many good approaches out there, but in reality there is only one trading approach that will best utilize your skills, talent and personality to create and sustain your profitable edge. One of the most common mistakes a trader can make is to try to embrace or copy a strategy of someone else. Like a fingerprint, your strategy and focus should be unique to yourself. Yes, learn as much as you possibly can from others who are successful, but still understand that in the end your priority is to develop your own strategy toward the markets and that path will be unique and unlike any other.

Rule 7: Have a routine to lean on. Every trader should follow a mental routine on every trade. It keeps you focused on what you have to do, and when the pressure is on, it helps you manage your emotions and nerves. While none of us have any control over the markets, we all have control on how we trade and the decisions we make. Having a solid routine will inject consistency that will keep you calm under pressure. No matter if the market is up 2% or down 2%, your routine should look exactly the same each and every day.

Rule 8: Find peace in the market. The market has to be your sanctuary. Yes, you will experience both good and bad times (everyone does), but through it all you must learn to enjoy and revel in the journey. It is the path you take that will provide the most content, not the end destination. In time, you must also learn never to trade for emotional or ego satisfaction, but instead, trade because you enjoy the challenge.

Rule 9: Test yourself. Don’t look for easy trades and setups at all times. Test yourself by working challenging trades and difficult markets in order to test and improve your skills. For example, if you’re uncomfortable and not skilled in trading options, spend a month just trading options. If you’re uncomfortable with shorting stocks, spend a month just shorting stocks. We only have the opportunity to improve if we constantly test ourselves and work on things we find most difficult. If you don’t learn to work on your weaknesses, sooner or later they will catch up to you when it will hurt the most.

Rule 10: Find someone who believes in you. Having confidence in yourself is important, but it helps to have someone who believes in you, too, whether it’s a spouse, a friend or a mentor. No man’s success can be entirely attributed to his own actions. You must surround yourself with people who believe in you and will hold you accountable for your progress.

As you can see, this is a very powerful set of rules that will not only help you trade better, but also to help you find more success and contentment in any challenging endeavor.

The Kirk Report

noreply@blogger.com (Admin) — Fri, 10 Jun 2011 13:21:40 PDT

The Kirk Report

Learn To Overcome Your Obstacles

Posted: 10 Jun 2011 09:34 AM PDT

When I look back and think about the things that make me the most proud of what I have accomplished over my life, each memory can be directly attached to some specific obstacle I had to first face and then overcome to achieve an important goal. In mentoring another trader this morning, I was thinking about this and an important lesson I learned back in high school. If you don’t mind, I thought I would share the lesson with you as I think it is instructive.

When I was younger there not much more than I desired than to pummel anyone I competed with on the golf course. My competitive spirit and energy was focused on being one of the best golfers not only in our high school division, but within the entire state as well. Unfortunately, I didn’t have much natural talent or skill so I had to really work hard for each victory.

I recall there was a match in particular that I wanted to win more than any other. The guy and his team I was competing against were the nastiest, most despicable creatures I ever met on the golf course. They were rude, obnoxious, ego maniacs who did just about everything they could to upset you including laughing at poor shots, stepping on putting lines, conveniently coughing during swings, and other assorted unsportsmanlike conduct.

Unfortunately for me and my team, they also had the skills to back up their behavior and they were considered the best in our division and were unbeaten.

Facing a critical approach shot on the last hole in which I was tied evenly with my competitor, I was had a daunting 3-iron shot 220 yards over water into a well-protected green on a long par 5. While my tee shot was perfect, my competitor previously stepped up and hit a terrific shot into the green in two (10 feet away from the pin) and I had to hit a similar shot to have any chance of winning the match. The problem was that I despised hitting my 3-iron. It was the very club I was least confident with and I avoided using it whenever possible. In fact, I never even practiced with the 3-iron as I was that uncomfortable hitting the ball with it.

Much to my chagrin, the yardage I had left into the green provided no other choice but to hit that 3-iron. Other clubs would have me hitting over the green into a big pot bunker or too short in the water that protected the front of the green. Since my competitor was already on the green in two and had a relatively easy putt for a win, I could not lay up and take the easy way out either.

After taking a few practice swings, I gulped and then proceed to snap hook the ball so much that it went screaming out of bounds and could never be found. I was so upset by what I had done that I then proceeded in a fit of range to chuck that 3-iron into the pond. Not only did I lose the match and the entire tournament for my team, but I became just like my enemy – a spoiled sport and loser. And, of course, to make matters even worse, my golf coach, my entire team and beloved Father were watching the whole debacle unfold from the green.

I was so upset that I stormed off and told my father to take me home and we didn’t speak a single word the entire way. I was so very disappointed in not only that I lost, but I let everyone down and also enabled those bastards get the better of me!

The very next morning Coach pulled me aside before our team meeting and asked me where my 3 iron was. I told him in a snarky manner, as if he didn’t already know the answer already, that it was still back in the pond. He then told me that if I was going to play again for his team that I first needed to go fish it out and bring it to him.

On the next very next team practice, Coach started out by asking me again for my 3-iron. I then proudly pulled it out of my bag and handed it to him after diving into a muddy pond filled with moss, mud and other lively reptiles which I considered both cruel and unusual punishment. Coach then took one look, handed it back to me, quickly grabbed my golf bag away and said to me in a not too happy voice…

“Son, I am going to teach you to love that 3-iron. For the next three weeks, you are benched. Instead, in every practice and in every round, every single shot you take will be only with this 3-iron. At the end of the three weeks, if you can’t show me you can hit that thing like a PGA pro, you are going to stay benched for the rest of the year!”

At first I thought Coach had it in for me and was just trying to punish me for losing the match. With the exception of that final hole blowup, I was playing quite well and this was going to screw up my game not to mention hurt my team. However, I still trusted Coach enough to know I needed to do what he told me if I was ever going to play for him and the team again. You see, Coach realized that I do what many people do which is that I avoided playing and practicing with the 3-iron because I knew it was my weakness and when it mattered the most, I paid the price. Truthfully, I was completely unprepared and not skilled enough for that 3-iron approach shot and when the pressure was on, I choked.

At first I thought I was going to go crazy when practicing and playing with that 3-iron. I mean how do you hit a 3-iron 100 yards to a par 3 green, use it to blast out of a bunker or make a putt? It also didn’t help that I felt like a stupid idiot and those who played with me had far too much fun watching me hack around with it. But, slow and sure, after the three weeks passed, I learned how to hit the darn thing.

Although I would never admit it to anyone at the time, I also discovered enjoyment in learning how to play all sort of different types of shots with it. After hours and hours at what seemed like sheer torture, the 3-iron was no longer my obstacle but instead became an asset. And, in the process, I learned a life lesson that sticks with me some 25 years later. To this very day, that very same 3-iron sits in a corner of my office and every time I see it I remember the valuable lessons it taught me.

First and foremost, we cannot let our fears and weaknesses conquer us by simply avoiding them. Sooner or later, they will always catch up to us and hurt us if we let them. Looking back, I should have known that someday I would have to hit the 3-iron well and should have taken time to practice with it first so that I could do so when it mattered!

Second, I must say that when we screw up or choke as I did, we need to look at ourselves first and foremost to place blame and own up to it. Instead of having a fit of rage and throwing the 3-iron in the pond, I should have instead taken responsibility for not practicing with my 3-iron and preparing myself for that shot. In sum, I should have taken the defeat in stride, figured out what lesson I could learn from it, and used it as an opportunity to grow and get better. My reaction to the shot in so many ways was so much worse as it clearly showed the level of immaturity I see so often in traders who lose and look everywhere else but to themselves to why they were defeated.

Finally, when you have an obstacle in your way, the best way to overcome it is to make it your best friend. By focusing on nothing but hitting that 3-iron for three weeks, I actually learned to like hitting the club and, in turn, I hit it much better and consistently. Yes, it was uncomfortable at first, not a lot of fun, and required confidence in Coach and myself that it was the right thing to do, but in time the struggle I undertook created a skill that continues to help me play well to this very day.

In the markets, we all face numerous obstacles. For many of us, the biggest obstacle we face is ourselves and not the markets. For example, many of us trade in ways that sabotage our returns by avoiding mistakes, failure and whatever weaknesses we have instead of facing and owning up to them. However to thrive and succeed, we must always constantly work and challenge ourselves to face these obstacles and learn to enjoy the process of overcoming them. That’s what makes our journey in the markets so very rewarding!

In the end, it is never about the money you earn, but the lessons you learn and obstacles you overcome that will determine your success. The only question that remains for you is this – what obstacles are in your way today and, more importantly, what steps are you going to take right now to work on overcoming them?

The Kirk Report

noreply@blogger.com (Admin) — Sat, 09 Apr 2011 13:38:04 PDT

The Kirk Report

15 Fundamentals To Win The Battle

Posted: 09 Apr 2011 09:40 AM PDT

Gerald Loeb was a founding partner of E.F. Hutton, a renowned and successful Wall Street trader, and the author of the books The Battle For Investment Survival and The Battle For Stock Market Profits.

Mr. Loeb promoted a contrarian view of the market as too risky to hold stocks for the long term in direct contrast to many of his generation. At the time, many considered Loeb’s comments heresy to the buy and hold doctrine so common among many in the industry. While Loeb never had the opportunity to trade in an environment now ruled by quants, algorithmic trading and massive government intervention, his wisdom and insight is still applicable in today’s environment. After all, the more things change, the more they always stay the same!

Based on his two books, here are 15 fundamentals Loeb argues that you need to understand to win the battle not only against yourself, but also against the market:

What everyone else knows is not worth knowing.
Stocks are always way overvalued in a bull market and way undervalued in a bear market.
The best stocks will always seem overpriced to the majority of investors.
Expectation, not the news itself, is what moves the market.
Three basis elements should be considered when evaluating a stock – 1) quality (fundamentals, liquidity, management), 2) price, and 3) trend (the most important).
Stocks act like human beings and go through the same stages and phases as people do, including infancy, growth, maturity, and decline. The key in trading is to be able to recognize which stage the stock is in and to take advantage of that opportunity.
Pyramid your buys – start with an initial position and then add to it only if the trade moves in your favor.
The more experienced and successful you become, the less you should diversify.
Traders must always resist the urge and temptation to change their strategies for each and every different market cycle.
To succeed in trading you must 1) aim high, 2) control the risks, 3) be unafraid to keep uninvested reserves and 4) be patient.
Successful traders are intelligent, they understand human psychology, they practice pure objectivity, and they have natural quickness.
You must always trade with the actions of the market and not simply by how you might think the market should trade.
Knowledge through experience is one trait that separates successful stock market speculators from everyone else.
The stock market is more an art than a science and far more complex than most people understand.
Always sell when you start patting yourself on the back for being smarter than the market.

In reflecting upon these 15 fundamentals, ask yourself the following question: Among all of these fundamentals, which of these do you disagree with and/or do not reflect your personal experience so far? In doing so, I want you to consider that not only could you be wrong in that view, but that knowledge of the difference may help you to explore a new path to improving your performance.

I recently undertook this simple exercise with one of my members. In doing so, they disagreed adamantly about Loeb’s recommendation that “The more experienced and successful you become, the less you should diversify.” Then we followed that up by taking a closer examination of his portfolio and performance over the past couple of years. So, what did we find out by dong this? Long story short – this member’s performance was significantly hindered by having too much diversification. His portfolio, for example, held an average of over 30 stocks and ETFs, most of which were highly correlated with each other. This in turn not only increased his taxes and cost basis, but ultimately weighed heavily upon his performance. By being so diversified, he was putting himself in the hole and providing himself with a false sense of security which was preventing him from achieving the results he desired. Yet, when I initially asked him to review Loeb’s 15 fundamentals, this is the one he had the most trouble with because it directly challenges is belief and view of the importance of being diversified.

In sum, many times the paths to new ways of thinking and improvement will often be direct contrast to your own preconceived notions. No matter who we are, we all have those. Many of them unfortunately work against us, unless we really do take time to actually test and validate those beliefs with the bottom line facts. This is also why in my experience those traders who have an open mind at all times, who are always focused on learning new things especially when those things directly challenge their own beliefs and strategies, will often find the most success.

The Kirk Report

noreply@blogger.com (Admin) — Wed, 09 Mar 2011 13:22:26 PST

The Kirk Report

Lessons From Nicolas Darvas

Posted: 09 Mar 2011 10:03 AM PST

Nicolas Darvas has inspired traders for many generations. His book, “How I Made 2,000,000 in the Stock Market” is one that you’ll find on many recommended reading lists including my very own. While some have argued that much of Darvas’ success had to do with lucky timing, his books are still widely read and for good reason.

A lot of traders can identify easily with Darvas because he went through the process of learning how to trade much like most people do today as he first began by searching for the “secret” to making money in the market. And, just like all of us have found, after finding no success from trading on the stock tips of others including brokers and expensive newsletters, Darvas figured out that he ultimately had to develop a trading system on his own. He accomplished that feat by committing himself to years of study of the market and from learning from his own mistakes. His determination, perseverance, and constant self-evaluation offers an excellent model for all traders to follow.

In continuing a series of posts where I share my notes I’ve taken (and refer to from time to time) after reading the books and methods of others, here are some things you may find of interest about Nicolas Darvas and his approach:

Trading Lessons From Nicolas Darvas:

There are no good or bad stocks. There are only stocks that rise in price and stocks that decline in price, and that price is based on the laws of supply and demand in the marketplace
“You can never go broke taking a profit” is bad advice that will result in overtrading and cutting winners short. Selling winners and holding losers is to be avoided at all times
There is a “follow-the-leader” style in the market. You will find success by selecting the most active and strongest industry group and trading its top leader
The combination of price and increased volume is key to stock selection. Focus your time on new leaders emerging with a new market cycle
It is the anticipation of growth rather than the growth itself that leads to great profits in growth stocks. “You have to find out what the public wants and go along with it. You can’t fight the tape, or the public.”
One of the quickest ways to lose money in the market is to listen to others and all of their so-called expert opinions. To succeed, you must ignore all outside opinions and predictions. Follow your own strategy!
Losses are tuition on Wall Street. Learn from them.
You should expect to be wrong half of the time. Your goal is to lose as little as possible when you are. “I have no ego in the stock market. If I make a mistake I admit it immediately and get out fast. If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?”
Most of your big failures will come from three things: 1) when you abandon your rules, 2) you become overconfident, and 3) trade in despair when unsuccessful
The best speculators search only for the very best opportunities. To be truly successful, you must wait for the right opportunities to present themselves and this often means doing nothing for long periods of time
The market behaves the way it does due to participants behaving the way they do. No one knows what they will do until they actually do it
Long-term investors are the real gamblers in the market due to their eternal hope that losing stocks will come back in price
It is difficult to be profitable on the short side of the market versus the long side – trading in rising or bull markets will give you the best chance for success
Most, if not all stocks, will follow the general trend of the market
To train your emotions, write down the reasons for making every trade. When you lose, write down what you thought contributed to the loss. Then study and set new rules to avoid making those same mistakes
Concentrate your trades. At the peak of his success, Darvas would hold only 5 to 8 stocks at one time which was in contrast to his earlier days when he was overtrading and would hold up to 30 stocks at a time
Avoid fallen leaders. Overhead resistance will keep upside potential limited due to supply from previous buyers who had not cut short their losses. According to Darvas, the only sound reason for a stock is one that is rising in price. If that is not happening, then there is “no other reason worth considering.”
Darvas used his “box theory” to trade using boxes to time his entries (on breaking out to a new higher box) and exits (breaking below the current trading box).
For new trades, Darvas used “pilot buys” which basically were starter positions in stocks he liked. Only if the stock continued to move higher would he then pyramid and increase his position. He learned never to buy more of a losing position
He thought many unsuccessful investors made the mistake of looking at the same familiar names that might have worked well for them in the past instead of focusing on the next stock with the right elements for the new market cycle. “I am only in infant industries where earnings could double or triple. The biggest factor in stock prices is the lure of future earnings. The dream of the future is what excites people, not the reality.”
Perfection has no role in successful trading. No one can buy at the absolute lowest price and sell at the highest price. No time or effort should be devoted to that goal. “I never bought a stock at the low or sold one at the high in my life. I am satisfied to be along for most of the ride.”
Trade only when the environment is in your favor. Darvas’ strategy kept him out of poor and bear markets because he wouldn’t trade stocks that didn’t fit his requirements which were only found in raging bull markets
Be aggressive when warranted. Darvas believed in making aggressive trades when his system pointed to a great trade. In fact, sometimes 50% of his capital was devoted to just one stock
While his trading approach was very technical, after studying the market’s winners he understood the relevance of finding stocks also with good fundamentals. Namely, Darvas thought that earnings and the future estimate of increased earnings were very important
Be a student of the market. Darvas learned by reading more than 200 books about speculators and the market and devoted studying the market for many hours a day. In fact, Gerald Loeb’s books & approach served as key inspiration
No one can completely master the market. After millions of dollars and best selling books, Darvas was still learning and tweaking his system until he passed away

* This report was originally published by The Kirk Report on May 1, 2008.

The Kirk Report

noreply@blogger.com (Admin) — Thu, 24 Feb 2011 13:48:12 PST

The Kirk Report

Where Will You Meet Your Waterloo?

Posted: 24 Feb 2011 11:49 AM PST

Every week I receive a handful of emails from other traders who send me a copy of their strategy to evaluate. While I rarely if ever have the time truly required to go through each one and properly backtest it on my own (at least the way I would with any strategy I would use personally), I must admit it is always interesting to see what people come up with on their own. While not always the case, 95% of the strategies I see are derivatives of others I’ve noticed already although most come with a few tweak here and there. Frankly, it is rare now that I come across such an odd-ball strategy that I haven’t seen in some form somewhere before.

While I’m honored that others would think that highly enough of me to share their strategy, usually it is done for the one of the following three reasons: 1) a trader trying to show how smart they are especially if the strategy has been performing well (i.e. hey look at me and how smart I am!), 2) the trader is stuck and wants me to help them make the strategy more profitable and/or want some advice on how to do it (i.e. usually this follows if the strategy is no longer working as well as it has in the past or the backtesting was more impressive than the real performance) and 3) there has been something recently that has hurt the strategy’s performance and the trader is desperately seeking answers to understand why everything went wrong (i.e. the system is broke and I can’t fix it, please help me Kirk!).

Which brings up an important point – if you don’t know the weak points in your strategy, it isn’t because they don’t exist but rather you haven’t discovered them yet! In my experience, no strategy out there doesn’t have some sort of soft spot (or many) whether it be it doesn’t work in some markets, that some event could cause a drastic loss, or even user error. As Curtis Faith once wrote, “With experience, one realizes that there is no such thing as a perfect system.”

When I work closely with other traders on their strategies in the mentorship group, I often talk about the Battle Of Waterloo and how it relates to trading in general and specifically strategy development. If you don’t know the battle (which I recommend reading about if you have time), just listen to this once popular country song and you’ll get a sense to why I think this is so important.

While I’m no historian, I do think traders can learn a lot about trading through learning about important battles in history. The Battle Of Waterloo offers a great example as it offers many lessons for us to consider:

Make your planning and risk analysis commensurate with the size of your project. For major endeavors, contingency plans are critical.
Know when to cut your losses if necessary. Don't let your desire to succeed be the enemy of good judgment.
Be sure that the justification is clear for your project, and that your entire team is sold.
Don't become over-confident, especially after many successes. Remember the basic principles.
Never attempt an unpopular endeavor in isolation.
Don't make enemies. You are only as good as your allies.
Adopt leader style politics, not the Machiavellian style. Look for the win-win.

Many of these lessons apply to good trading, especially the ones about the importance of having contingency plans, knowing when to cut losses, having clear justifications for your trades, the importance of avoiding overconfidence and finally how important it is to attack from a strong position like having plenty of capital and cash reserves.

Needless to say, every trading strategy has their own weaknesses. So, what the most common weakness I’ve found? That’s easy – human error. That’s right, usually most strategies that have been backtested and proven to work continue to work well unless we do things to either deviate from the plan and/or we apply leverage to it rendering it extremely vulnerable. It is fairly often that I see traders come forward with a hot strategy they’ve used and are in the process of levering it up, creating havoc and exposing themselves to great risk. There is good reason for the expression – leverage always kills. In my experience, that has been true. Beyond that, many strategies are based on things that don’t account for the constantly evolving nature of the market.

In sum, every strategy you employ needs to also have a list of “warning signs” that will indicate whether you are facing a Waterloo-like defeat. You can rest assure those in charge of the quant trading systems have this in place already on Wall Street. From my experience knowing and working closely with others who do that for a living, they all have checklists every day that tell them whether the system is “operating within normal parameters.” When the performance falls outside of that, the quants know know to put the brakes on. Do you do the same thing with your own strategies? If so, then do you have a system in place to know when you should put your trading on hold?

While you can show me all kinds of stats on how good a system may be, but what I want to know is what will cause all of those performance figures not to hold up in the real world. Bottom line you must ask yourself what could happen potentially to cause the strategy not to work or cause you a significant loss? Sometimes that’s not possible to know especially when evaluating a new strategy, but just having some suspicions when working with a new strategy can often prove to be a true asset.

So, how do you learn its weaknesses? Backtesting can help, but what I call forward testing helps even more. In my opinion, nothing will replace the experience of watching the strategy day in a day out coupled with how it reacts to different market environments over a lengthy period of time. That will provide you with hints when there is real trouble ahead. Like most things, there’s nothing going to replace your experience with the system. The experience is also necessary to build the level of confidence you need to maintain and improve it as well and to reject temptation to abandon it when it doesn’t perform up to your expectations.

Remember, all traders sooner or later come to understand and appreciate that it is only a question of when, not if, they are going to be on the wrong side of the key trade. Strategies, even ones that work perfect on paper, will always fail at some point sooner or later on. The only question is how to utilize the strategy the best you can up until that point AND to be able to pull the emergency chute when it threatens your capital in a significant way.

So, next time you’re working a strategy that is making money hand over first, take time to ask yourself this simple question – Where will you meet your Waterloo? If you can always answer that question to some degree, chances are good you never will!

* This report was originally published for members on November 3, 2010 at the members’ only site.

This posting includes an audio/video/photo media file: Download Now

The Kirk Report

noreply@blogger.com (Admin) — Mon, 21 Feb 2011 13:25:52 PST

The Kirk Report

Don’t Be Like Me

Posted: 21 Feb 2011 07:15 AM PST

Everyone in this business will tell you how to be and what to do, but the bottom line is that you’ve got to always be yourself – flaws, emotions, stupidity, and all.

There’s a saying that the stock market is an expensive place to figure how who you really are but I completely disagree. Through the many years I’ve been trading, I have learned much more about myself and the way I am both good and bad than I think I would have any other way. And, for that I’m so very grateful.

It is with little doubt that my experience in the markets have in turn made me into a much better human being. For example, one who thinks before acting, one that appreciates the importance of looking at situations from different points of view, one that understands that success is never final, one that knows that you can do everything right but still be wrong, one that understands the influence that emotion has on decision-making, one that remembers that no matter what mistakes you and I make today – tomorrow we will have another opportunity to do better. I’ve learned a great deal more, but I think you get the point.

Speaking of which, a number of people have asked me recently that if train people to “be more like me” in my mentorship group. The truth is that I try my darndest to never do that. My goal with those who I personally mentor is to help them become who they really are and, by extension, to take full advantage of their own personality and skills whatever they may be and at whatever level they currently are. The primary problem, however, is that many of us really believe the key to success is to be more like others whether it be Warren Buffett, David Einhorn, George Soros, Doug Kass, Jim Chanos, Whitney Tilson, Jim Cramer, or whoever you admire and respect. As you know, one of the fastest growing businesses on the Internet right now is to enable you in new and exciting ways to trade and invest just like others. However, in my view, that will only take you so far in your personal journey. In the markets, sooner or later, you must find your own way!

Each of us have our own skills, strengths, weaknesses and personalities and matching those with a strategy you can use and develop over time is the closest key to your future success that I can help you with. Bottom line – don’t be like me or anyone else for that matter, but instead just be yourself. Use this time in your life to find ways to take full advantage of your own God-given talents and skills as you develop them. While it is ok and, in fact recommended, that you try to learn as much as you can from others (I know I have), at the same time you must also understand and come to really appreciate that the true key to success is to find your own path just like every trader and investor who you so admire right now has already done.

* This report was originally published by The Kirk Report on October 21, 2010 at the members’ only site.

The Kirk Report

noreply@blogger.com (Admin) — Wed, 26 Jan 2011 13:40:22 PST

The Kirk Report

12 Steps To Get Things Done

Posted: 26 Jan 2011 10:46 AM PST

This week I discovered this gem of a post called 12 steps to get things done. I’m a sucker for stuff like this, especially those produced from some of the better websites out there. However, I found this list particularly interesting and worthwhile to share as I think the same exact 12 steps outlined there are especially relevant to traders and investors who seek to improve their returns this year.

Here’s is that 12 step list and my own personal take on each…

Step 1. Don’t talk big. Big-talkers are notorious under do-ers, under-achievers and under-performers. They're also pains in the arse.

My View: There are really two types of traders and investors – those who quietly do their job and make money hand over fist in the markets and those who talk about it. It is a rare when you find someone who does both consistently. When you run into people who devote volumes of time and effort to show you how smart they are in the markets, run away. Also, it is true but unfortunate that so many investors and traders (especially the inexperienced and lazy among us) will always gravitate toward those blowhard “know-it-alls” who constantly make big, bold predictions and who are 100% confident in everything they say and do. These are the people really to be avoided at all costs as they are they haven’t figured out how dumb they really are yet and it is only a matter of time before the market shows them.

Step 2. Don't wait for things to work out. Idiots wait for things to work out. Rather than hoping things will happen, make them happen.

My View: The best way to make more money in the market is stop losing it. When a trade or investment goes awry, get out and move on. Only losers average down into losing positions hoping that they’ll break even “eventually.” More money has been lost by investors “trying to break even” sitting in bad investments more than any other thing. Remember, when (not if) you make mistakes, own up to them, take your medicine, and move on. There’s always a better trade just around the corner! Finally, if you’re not happy with your performance, no one is going to do the work for you. It is up to you to do what you need to do right now to reach your goals.

Step 3. Lose the bad attitude. Attitude is a choice. Better attitude equals better decisions, behaviors and outcomes.

My View: You can’t be a winner in the markets or in life if you don’t also have a winning attitude and surround yourself with those who offer the same. It is far too easy when the chips are down and our strategies are out of sync to start beating ourselves up and feel like a worthless moron. That comes with the territory. If it would be easy, everyone would be making loads of the money in the market and we know that isn’t true as most can’t even keep up with the S&P. Remember, trading and investing is not a precise science and a lot more luck is involved than many will tell you. So, in this business, when you fall down, you’ve got to dust yourself off and get back on the horse and, more importantly, keep plugging away. When you start thinking negative thoughts, and we all do, stop them immediately. You can’t consistently win in the markets if you can’t consistently foster and maintain a positive attitude in everything you do.

Step 4. Don't eat crap. Being unhealthy on a physical level means you won't function optimally on any level: mentally, emotionally, professionally or socially. Eat crap and you'll look, feel and function like crap!

My View: If you don’t take care of yourself, whatever you make in the market will be all for vain. It is true, when I exercise more and watch my diet, I not only feel better, I trade better. When I exercise more, my profits go up and there is such a tight correlation between the two that, if you don’t believe it, I double dare you to start tracking it and see what happens. As we all know, the markets can chew you up and spit you out routinely – the only way to be at your best is to be at both your top physical AND mental condition. One without the other is not going to get you where you want to be.

Step 5. Actually care about others. Being a self-centered idiot ain't a recipe for success.

My View: I’ve learned and improved far more by helping other trade and invest than any other thing. While this is a zero sum game, it is no secret that those who serve as mentors to others and help out whenever they can always find greater success in the markets. While trading and investing is a skill game, having loads of good karma on your side can never hurt the bottom line.

Step 6. Don't make life harder than it needs to be. Life's challenging enough without you complicating the simple. Suck it up, Princess.

My View: Trading and investing well is challenging and perseverance and tenancy are requirements if you plan to succeed. Moreover, most make this game far more challenging and complex than it needs to be. Remember, simple always works better than the complex. If you can’t describe why you are buying a stock to a 5-year old, then you need to reexamine your methods. Also, do whatever you can to focus your efforts on becoming an expert of one simple, but effective strategy. Do this and before long you won’t know what to do with all of the profits that flow your way.

Step 7. Do things early in the day. Being productive early puts you in a better place (mentally, emotionally and creatively) for the rest of the day.

My View: There’s a reason why I get up a 5AM every day and go to bed early. I know to be on top of the pack, I’ve got to get up and start the day running. Those traders who fall out of the bed 15 minutes prior to the opening bell are destined to seek short cuts that will sow the seeds of their future failure. Don’t let anyone convince you that you can trade successfully in just 5 minutes a day!

Step 8. Let go of your ill-conceived beliefs. It's time to lose those self-limiting, disempowering beliefs. They've run your life for long enough. You're good enough, talented enough and, yes, you deserve happiness.

My View: Many people don’t believe they have all of the skills and knowledge they need to be successful in the markets. This is simply not true! While much is to be learned and you have to have both skills and knowledge to develop and maintain a strategy that you understand and works for you, it always must start with a level of confidence and belief in yourself above all else. The secret to finding success in the markets rests really only within you and the knowledge and use of all of your strengths and weaknesses to your advantage.

Step 9. Bad things happen and life's not fair – deal with it. More often than not success or failure will be determined by the way you react to the situations, circumstances and events (good and bad, foreseen or not) of your world. Better reactions equal better results.

My View: You can do everything right and still be wrong in the market. This is why risk management and the reaction to wrong decisions is the most important thing. Remember, the market is never wrong. We all make mistakes, some of them really bad ones, but the truly great know how to limit the damage.

Step 10. Don't focus on (or obsess about) things you can't change. Wasting your time, talent and emotional energy on things that are beyond your control is a recipe for frustration, misery and stagnation. Invest your energy in the things you can control.

My View: How many traders and investors spend most of their time arguing with the market and trade their opinions rather than what they see? The answer is that most do and this is why so many struggle. Every day I receive emails from those who try to tell me how the market is corrupt, evil, and stacked against all of us yet I’ve always figured out a way to profit and have helped thousands of others do the same. As much as possible, I don’t waste precious time and energy on trying to control things beyond my control. Instead, I focus on building an edge and trading that edge. That has made all the difference. Finally, stop obsessing about your past success and failures. Learn the lessons you need and move on. Don’t let the past blind you to opportunities right in front of you today!

Step 11. Don't avoid things you fear. Putting your head in the sand just shows the world your arse. And none of us want that. Lasting change begins with awareness and acknowledgment. Step up and do what's necessary.

My View: Fear can be a powerful weapon in the hands of a skilled investor and trader. Not only in identifying and taking advantage of opportunities, but also being able to be aware and acknowledge our own fears so we can utilize those to our own benefit. Many have said that you should not “trade with emotion” but you are human and no matter how hard you try, with money on the line your emotion will be involved as well. The key is to use that emotion in ways that benefit you the most. Understanding yourself and your weaknesses is necessary to outperform over the long haul.

Step 12. Don't over-think things. Analysis paralysis is a painful, pointless and unnecessary condition. To think is good. To obsess is bad. Stop obsessing.

My View: There is indeed a fine line between “doing your homework” to “obsessing.” The key is to make sure your are doing what you need to do and no more than that. Many traders do everything they can to improve their edge and end up developing strategies that are simply impossible to maintain over the long-term. Meanwhile, those who do well, spend lots of time trying to reduce the complexity of their approaches so that the decision-making progress is one that can be both consistent and useful. Remember, more information and more analysis doesn’t mean more profits. There is a fine line between the two that you must discover.

The Kirk Report

noreply@blogger.com (Admin) — Wed, 19 Jan 2011 13:16:44 PST

The Kirk Report

Lessons From 2010

Posted: 19 Jan 2011 06:09 AM PST

At the end of every year, I ask members of The Kirk Report to offer their feedback not only about the site itself but also to share some personal perspectives. For example, in the annual membership survey I asked the following question:

“What would you say is the most important thing you've learned about investing and/or trading in 2010?”

Here are some of the more noteworthy responses I received:

~ On Risk Management ~

Trading management is just as important as stock selection.
Think about the risk versus reward before taking any position.
When you’re caught up in the moment take a step back and think.
Capital protection is always the top priority.
Cutting losses is the holy grail.
Don’t play chicken using mental stops. Set hard stops and manage the risk.
Avoid large losses always. Keep loses small and you can survive anything.
There will always be another great investment.
Don’t overpay or be afraid to sell.
No edge means no trade.
Sitting on your hands can often be the best trade.
Don’t participate in the market, just to participate. Make sure the conditions are favorable to your method of trading.
Only losers add to losers.
I used to be an all in and all out trader, but scaling methods have improved my performance.
The trick is to get on board and stay on board until the trade fails.
Limit the number of trades you make every day forces you to be choosy and place better stops.
When you are up the most is when you are most likely to break your rules.
When having trouble dealing with the market, reduce your position size and raise cash.
Proper position sizing is key to risk management.
There are no risk free trades or investments.
The stocks and sectors that are considered safe are usually anything but safe.
Without taking risk, there is no reward.

~ On Strategy ~

Keep it simple. Simple works.
Trade what you see not what you think.
Learn to think for yourself. Trust your gut.
A good trading system must fit both my strengths and time limitations.
Focus on things that help you make money in investing/trading; tune-out all the noise about day-to-day news & opinions.
Follow the price trends rather than the pundits.
Less is more. Learn one “bread and butter” strategy and trade the hell out of it.
Be calm, have a plan, and ride it out through the rough times.
Be flexible & sensitive to what the market is doing rather than trying to tell the market what to do.
The importance of not having and trading a biased opinion.
Execute the plan – don’t just “think” about it.
Trying to pick tops is a sucker’s game.
Price action is king, volumes, divergences, oscillators all come after.
I now consider various scenarios, not just one, and assign percentage probabilities which has made all the difference.
You must fight the feeling that you have a good idea of which way the market is headed.
Don’t overload on technical indicators. Price is the only thing that pays.
When you become an expert of one basic simple trade, results can be truly outstanding.
Let your setups come to you – do not chase. There will always be another day, another setup.
Stay in the course until evidence proves the other way around.
Don’t overtrade. It is the sitting that makes the difference.
Playing both the long and short side of the market is important than just sticking with a long strategy.
Your analysis must involve multiple time periods.
The more time spent at the keyboard, the luckier I get.
The importance of having a system and sticking to it especially when your emotions are working against you.
Inaction due to fear of the unknown is the worst thing one can do.
You only need to be correct on one or two themes per year and overweight them to have acceptable performance.
Employ a two-week watch system in place before adding any new position.
Using stock screens for idea generation is far more effective than listening to other opinions.
Buy good companies when their stocks are distressed due to perceptions of bad news.
Keep your universe of stocks to review small. Only work on a limited number of instruments until you have mastered your strategy.
Follow trends, not all investments follow a random walk.
Having a plan, even a flawed one, is key to survival.
Trading is like painting – all the hard work is in the prep if you want to do a good job.

~ On Understanding Yourself ~

Understanding yourself is as important as understanding the markets.
Stick with what you know and are good at and leave the rest.
There are many ways to trade, find what works for you.
I am not smarter than the market.
To succeed, you must be mentally strong.
Learning to letting profits run is has proven far more difficult than I realize.
The emotional part of trading can be a deal breaker.
To be honest, I am a terrible trader. But that’s is because I don’t work hard enough.
Patience is a virtue in lazy portfolio investing.

~ On Development ~

To be honest, I’ve learned just how much I don’t know.
It’s up to me and no one else to make it all happen.
There is no “silver bullet” with success in the stock market – just a lot of hard work and determination.
The results don’t come without the work.
It is not a hobby to trade, it is a job.
It is much harder to trade than I imagined it to be.
Early success is no guarantee of future success.
Lose the ego.
It is tough not to get discouraged.
Watching the market too much is detrimental to my performance.
You have to find your own niche and be good at it. Practice!
You have to be on top of your game all the time to trade well.
For good or for ill, the importance of making my own decisions.
Paper trading and building confidence can be a useful tool in development.
Tips are for waiters; make your own decisions based on facts not on others opinions.
There are a lot of people who are perceived as knowledgeable about the stock market, but actually don’t really understand what they are talking about.
The professional traders who seem to succeed all had good mentors. I don’t have one and I need one.
My emotions are my worst enemy. My discipline wanes because I get burnt out and lose my interest.
Like Socrates, I’m ignorant and finding it hard to progress beyond ignorance.
Constant practice ultimately increases development more than any other thing.

~ On The Markets ~

Anything can and will happen in the markets.
The stock market does not follow conventional wisdom.
Do not underestimate the risk appetite of the stock market investor.
Traders think quite differently than investors.
In the new normal, market moves often last much longer and are much stronger than most expect.
Predictions are absolutely meaningless, don’t waste your time or energy. It’s only about whether you are making or losing money. Trade like a robot.
The market is never wrong. My opinions however, often are.
The trend is your friend, but also can be your enemy. Know the difference.
There are continual opportunities in the market.
There is way too much information and very little good information.
Don’t fight the Fed.
The government now plays a much bigger role in the market than I thought they ever could.
As J.M. Keynes said “The market can be irrational longer than you can be solvent.”
The stock market is a casino and the it is controlled by the big traders and small traders can get killed.
The importance and influence of the algos on the market.
The value of seasonality as a factor in making investment and trading decisions.
Momentum is a powerful thing. Fight it at your own peril.

There are some very powerful lessons and I hope you enjoyed reviewing them!

The Kirk Report

noreply@blogger.com (Admin) — Mon, 03 Jan 2011 13:15:29 PST

The Kirk Report

Mark Minervini

Posted: 03 Jan 2011 11:46 AM PST

Establishing positive momentum in the new year is not to be underestimated. And, so I thought to help you and other traders start the new year off right, I would repost this special in-depth interview I had with market wizard Mark Minervini late last year. If you follow the advice provided here, I’m confident it will help you start off the new year right!

As with many traders I interview, Mark requires no introduction as he is one of the most highly-respected independent traders of our generation. His blog in recent years has instantly become one of the “must reads” out there as he often shares market commentary and analysis which shows why the respect so many have for Mark is so well-deserved. Moreover, his experience and past history of savvy market calls is legendary. It is with little doubt that we can all learn a lot from him!

We hope you enjoy and find this focus interview helpful in your own journey toward more success in the markets.

Kirk: Hi, Mark. First of all, thank you for taking the time to answer our questions. I speak for many members who have a great deal of respect for you and we sincerely welcome you to this interview series.

Mark Minervini: You do a great job, Charles, and I’m honored to be a part of it.

Kirk: Please tell us a little bit about how you got interested and started in trading.

Mark Minervini: I dropped out of school in the eighth grade in pursuit of a career as a drummer. From the money I made working as musician, I bought my first stock in 1983, which was a few hundred shares of Allis Chalmer. Shortly after, I read Richard Love’s book, Superperformance Stocks: An Investment Strategy for the Individual Investor Based on the 4-Year Political Cycle. Everything I’ve created with regard to my trading approach since stems from Love’s initial impression on me, specifically from his writings in chapter 7.

Kirk: What was one of the most important lessons you learned early on?

Mark Minervini: That no one was going to do it for me; no one was going to make me rich except me. I learned that you must take responsibility for your results in the market and in life if you want to be exceptional. Secondly, I learned that in order to do well in the market you must be consistent; consistency is what separates the pro form the amateur. In order to have consistent success, risk must be managed in relation to potential reward as standard operating procedure. You’re not going to make just one trade, rather hundreds or even thousands of trades; it’s all about how much you make on average versus how much you lose on average over time. Lastly, I realized that I simply had to get to the bottom of what actually worked in the marketplace and ignore all the opinions and theories.

Kirk: Was there anyone out there who helped you greatly during your initial learning curve? If so, what did you learn most from them?

Mark Minervini: My Mother and my Father. I learned it was ok to do what I love; to go after my dream. I also learned it was ok to be unconventional. I was given the room to be creative. My parents trusted me. I always knew I was supported emotionally. Financially, we were poor but my parents supported my dreams.

Kirk: Indeed, it is so important to have a strong support structure in place. In a nutshell how do you currently approach the market and what is your primary trading strategy?

Mark Minervini: I approach the market from a risk first approach. My trading strategy is called Specific Entry Point Analysis or SEPA. We look to enter trades at low risk entry points relative to potential reward. Primary focus is not to lose money. Secondary focus is not to lose money. And, the final focus is to make more on average than I lose.

Kirk: You remind me of Buffett who said he had only two rules: 1) Never lose money and 2) see rule number 1! What do you see as the primary benefits from employing a strategy that focuses on both fundamentals and technicals?

Mark Minervini: The benefits are having all the pertinent information that is consistent with big winning stocks. We know what to look for both fundamentally and technically. I have seen stocks bought on pure technicals and the guy buying the stock doesn’t even know that there was a cash offer or a proposed merger right at the price he paid. Refusing to look at fundamentals or any information that gives you an edge is usually because the individual just doesn’t know how to use the info, or has some bias based on personal opinion or tradition.

Kirk: Why is this kind of trading best for you and, more importantly, why do you think it works so well?

Mark Minervini: My strategy works well because it’s my strategy. I know the strengths and, more importantly, the weaknesses of what it is I do. It also works well because I allow it to work and stick with it even when it runs into difficult times. Nothing works well if you keep changing your approach. To be a master you must be a specialist, not a jack of all trades.

Kirk: What do you trade mostly? Equities, options, futures, ETFs, currencies, etc.?

Mark Minervini: Only equities.

Kirk: In an average week how many trades do you make? What is your average hold time and how many positions do you have open at any given time?

Mark Minervini: During an average year I may make 400-500 trades. About half of that turnover is a result of taking small losses, which I’m out of pretty quickly.

Kirk: What would you say are your primary strengths and weaknesses as a trader?

Mark Minervini: Discipline is my primary strength. And the willingness to admit when I’m wrong and move on. My weakness is I usually sell early and often leave money on the table. But I don’t really view that as a weakness, just something that could be improved upon. When you move in size you have to get out when the getting is good.

Kirk: In my experience it is often better to sell too early than too late Mark! How have you learned to mitigate your weaknesses and focus more on your strengths?

Mark Minervini: By not focusing too much on my strengths. If you’re good at buying and bad at selling I would focus on selling; if you improve your selling you will have a complete game. Focus on making your weaknesses strengths and then you will have no weaknesses. Exploit your strengths and improve your weaknesses.

Kirk: What have been some of the most challenging lessons you have learned?

Mark Minervini: That you can’t be everything. You must commit to a strategy and sacrifice other strategies. The problem with the market is its like playing poker however; you always get to see the next cards even though the hand is over. You always see what would have happened. This is very difficult to deal with for many people. To be successful, you have to understand that trading is NOT about picking highs and lows, it’s about making money.

Kirk: Very good. What are some of the key rules that you consider before selecting any potential trading opportunity?

Mark Minervini: How much am I risking is the very first concern. Also, does the stock meet all the necessary criteria? If the risk is acceptable and all the entry criteria are met, I enter the trade.

Kirk: What would you say is your average win : loss ratio for your trades?

Mark Minervini: I average 2 to 1.

Kirk: How has your overall performance been recently, as well as over the past few years?

Mark Minervini: It’s been about the same as always. I’m a consistent 2:1 trader.

Kirk: What would you say are your favorite kinds of technical and fundamental set-ups?

Mark Minervini: The ideal set-up is a stock emerging from a constructive consolidation with strong accelerating earnings and sales.

Kirk: Can you give us a recent example of a set-up you found to be very attractive and worked well in this market?

Mark Minervini: CML. Bought it on 11/24. Sold it on 12/7 for a quick profit.

Kirk: Have you noticed any trading set-ups more prone to failure than they have been in the past?

Mark Minervini: No. Not much has changed. Contrary to what many believe, it’s not different this time. LOL

Kirk: To help us understand your trading approach, can you talk about a recent successful trade from start to finish?

Mark Minervini: LULU. Supported by excellent fundamentals, the stock emerged from a double bottom pattern that formed from 4/15 – 11/04. I bought the stock on 11/05 the day the market topped just before a pullback of about 5% in the major averages. The stock was held through that market pullback because it acted normal and held above our stop. This gave me the conviction to add to the position as it emerged through its next buy point in November. I sold the stock (most likely too early) on 12/09 when they reported earnings up about +50% from the initial purchase from about a month earlier.

Kirk: Now please tell us about a recent unsuccessful trade.

Mark Minervini: Shorted GMCR; shorted the rally in October and November after the big break on SEC news. Stock rallied and stopped us out

Kirk: One of the things I most appreciate about you is how much you stress proper risk management. If we can, let’s talk a little bit about position sizing. Can you provide an example of a recent trade and explain your method for determining the size relative to your own trading portfolio?

Mark Minervini: I want to own as much as I can but generally no more than 25% of my portfolio (as liquidity permits). You are not going to make huge returns being too diversified. However, I only risk what I can get out of safely based on liquidity.

Kirk: That’s interesting. I think many would be surprised at the idea of having any position anywhere near 25% of an entire portfolio. Besides over diversification and liquidity concerns, what common mistakes do you think many traders make concerning position sizing?

Mark Minervini: They don’t know what an optimal position size should be based on their own risk/reward and risk tolerance. For instance, if you’re a 2:1 trader, your optimal position size is 25%.

Kirk: Ok. I think I understand what you mean, but please explain this position sizing formula more in detail so others can perhaps apply it in their own trading. Can you offer another example?

Mark Minervini: Ok. First, it’s important to understand that you are not going to achieve huge returns consistently being overly diversified or by relying on diversification for protection. You will only get a smoothing effect. When you own a bunch of stocks you end up with two problems: the first being that you just can’t watch and know all you need to know about each of them. The second problem is that you will have a difficult time getting fully invested quickly when opportunity presents itself and more importantly, getting liquid if you need to raise cash in a hurry. In addition, the math just doesn’t support it. Depending on the size and risk tolerance of your portfolio you should typically have between 4 or 8 stocks and for large portfolios maybe up to as many as 10 or 12 stocks. This would provide sufficient diversification but not too much. The Optimal-f formula can act as a starting place for you to understand optimal position sizing based on expectation. If Ken Heebner of CGM Funds can move around billions of dollars in just twenty names and still manage to beat the market, then a personal portfolio can surely manage sufficiently with 4-5 or 10-12 stocks. If you lose 5-6% on average and even if your position size is at 25% exposure, you’re still only be risking about 1.25% of your capital per trade. Of course, if you don’t have an edge, then you will lose no matter what your position sizing is.

Kirk: Good, that’s helpful. So, do you use and set stops, Mark? If so, what’s your stop loss method?

Mark Minervini: I always know where I’m going to get out of a trade before I get in. I aim to lose no more than 5-6% on average over time on my losers.

Kirk: Do you ever average down into a losing trade?

Mark Minervini: There’s a reason Paul Tudor Jones had a sign posted on his wall that read “Losers average losers,” and that reason is because it’s true. I almost always only add to a position if it proves itself and then I may add to my position at a higher price, not lower.

Kirk: Do you always scale up and into winning positions? If so, how do you know when to increase a position size relative to your overall portfolio?

Mark Minervini: Yes. I generally move money into the better performing names at subsequent pivot points or set-ups.

Kirk: All good traders dedicate a lot of time and effort to improvement and reducing mistakes. How has your trading method evolved and improved over the years?

Mark Minervini: It just becomes more and more crystallized because I continue to focus on the same timeless principles, which allows me to become more and more of a specialist. The power of a narrow focus is amazing. The key is to be a real pro at something. Know all you can about a style or a tactic. Then you can build on that foundation. Traders give up too easily and jump around too much when things get difficult. How good do you think Kobe Bryant would be if while he was developing his skills growing up every time he had a really tough game he changed to a different sport or played a different position?

Kirk: I couldn’t agree with you more Mark. I see this problem among many. Can you provide an example of something you thought was true when trading early in your career and now believe is just completely wrong?

Mark Minervini: Yeah, everything. But I learned very quickly sound principles. It just took me many years to master the application.

Kirk: Why do you think most traders fail?

Mark Minervini: Here are 6 reasons:

Poor selection criteria; usually based on personal opinion, theory or tips and bad advice
They don’t stick to and commit to an approach; style drift
Don’t cut losses (#1 mistake made by virtually all investors)
Don’t know the truth about their trading – they fail to conduct in-depth post analysis
Treat trading as a hobby not a business
Want too much too fast; learning a skill takes time

Kirk: Please describe a typical trading day for you. How do you organize and dedicate your time?

Mark Minervini: Most of my work is done the night before. I already know what I’m going to trade before the open. I watch the market all day long, never leaving my desk for more than a few minutes during trading hours.

Kirk: How much time and attention do you pay to others’ opinions about the market and/or stocks you are trading?

Mark Minervini: Zero. I avoid outside opinions like the plague!

Kirk: Are there any tricks of the trade that you use to help maintain a consistent successful approach over a long period of time?

Mark Minervini: Yeah, long hours, hard work, a sound approach and discipline. There are no tricks or big secrets. Again, is there a secret to having a good basketball shot? It starts with a good coach, proper practice, plenty of hard work, discipline and sacrifice.

Kirk: Amen. However, most traders I know have a set of rules that they have learned from past mistakes. What are a few of yours that you think most traders would benefit from?

Mark Minervini: Hard work alone won’t cut if you don’t have a sound approach and if you’re not doing the right things. You must be facing west if you're looking for a sun set. Approach each trade from risk first; ask how much can I lose. Don’t risk more than you can expect to gain on average. Know the truth about your trading; study your results carefully. Never average down. Always cut your losses; keep your losses small. These are fundamental rules that should never be compromised.

Kirk: I suspect like all good traders you are working on improving your performance in some manner. Can you share what you’re specifically working on right now?

Mark Minervini: Sticking to the rules. Always making sure we stick to the rules. We have a great approach, I don’t like to get too tricky and over complicate something that requires a straight forward approach.

Kirk: You’ve been trading for some time now. What would you say are the biggest changes in the markets and trading in general you’ve seen during your career, both good and bad?

Mark Minervini: The order handling rule change in 1997 has changed the way stocks move short-term because Market Makers don’t really keep inventory anymore. It’s a topic that would require a lengthy discussion; maybe we could talk about it another time. Other than that, not much has changed except more information moves faster than before.

Kirk: What advice would you give a person just now beginning to trade the markets?

Mark Minervini: Find a good mentor. Commit to a strategy. Cut your losses. Tune out the media. Take full responsibility for your results.

Kirk: What do you think are the greatest misconceptions beginning traders have about trading the markets and about trading systems?

Mark Minervini: Way too many to mention. Just about everything a beginner thinks is a misconception.

Kirk: A number of people who read my website desire to trade for a living and I receive a lot of questions concerning capital requirements needed to start and how to make the transition to trade full-time. Do you have any words of wisdom or rules of thumb to share along these lines?

Mark Minervini: I started with a very small sum of money and turned it into a fortune. Capital is not the challenge. Mastering yourself is the challenge. Discipline is the challenge. Persistence is the challenge.

Kirk: Do you think trading for a living is getting more difficult or easier for the average individual investor? Why?

Mark Minervini: Much easier. Tools for pros and amateurs are virtually identical. The pro has no edge. The individual has the advantage. No real liquidity concerns for the small trader versus the big fund manager. It’s a fantastic time to be a stock trader!

Kirk: When all is said and done, in your experience, what is the best way to learn how to trade?

Mark Minervini: Trade. As Ralph Waldo Emerson said: “Do the thing and you shall have the power.” And then conduct post analysis. Learn to be objective. You could try and find a mentor. However, the chances of getting great advice are slim at best. Trading is just like any other profession, there are only a handful of really outstanding practitioners.

Kirk: Do you have any books, websites, etc. that you highly recommend beyond your own website?

Mark Minervini: The Kirk Report. Why is there anything else? LOL!!!

Kirk: You are too kind Mark. Although I know both of us share a love for the markets and trading, what are your long-term career plans and future for your website?

Mark Minervini: I honestly don’t know for sure. My long-term plans are too stay healthy and be a good father to my daughter. This past year I started a pilot training program. Also, we now offer my research to the individual investor not just exclusively to the institution anymore. It feels good to help others achieve their goals. I think I may continue to develop that. Why hog all the good trades for myself? LOL!

Kirk: What are some of your personal passions beyond the market?

Mark Minervini: I’ve been a drummer since I was 6 years old and I continue to play. I play tennis, train boxing and lift weights to stay in shape, and I play an occasional round of golf.

Kirk: Finally, if you had only one piece of advice to share with all traders, what would it be?

Mark Minervini: Believe in yourself and never give up. Persistence is more important than knowledge. Make an unconditional commitment to trading and you will not fail.

Kirk: Thank you so much Mark. I really enjoyed this interview and I’m sure others will find it helpful.

* For other in-depth interviews (and much more) you will find helpful, please consider becoming a member. Have a great 2011!

The Kirk Report

noreply@blogger.com (Admin) — Sat, 18 Dec 2010 13:34:24 PST

The Kirk Report

A Christmas Wish

Posted: 18 Dec 2010 06:44 AM PST

As I’ve shared for many years…

I will return from both holiday break and my trading sabbatical on January 3rd. Best wishes for a Merry Christmas and a happy start to the new year!

The Kirk Report

noreply@blogger.com (Admin) — Tue, 30 Nov 2010 13:24:24 PST

The Kirk Report

7 Websites I Visit Most Often

Posted: 30 Nov 2010 10:58 AM PST

I was recently asked to reveal which websites I visit the most often. Although I had some idea which were my favorites, after reviewing my browser logs more carefully it became absolutely clear which sites rank the highest. Based on that tracking, here are the websites I use in order of popularity:

Bespoke: insightful research
Sentimentrader: excellent research and commentary
Quantifiable Edges: helpful research and historical studies
IBD: daily news and custom stock screener
Abnormal Returns: excellent link aggregation and filter
Seeking Alpha: commentary, news, transcripts
Briefing: searchable news via ticker

There are many others to include, but these are by far the seven sites I visit most frequently. At least that’s what the stats currently show. If you are what you read, then this gives you a pretty good idea of the information flow I chew through most frequently and also find the most helpful.

Although I don’t have hard data to confirm this view as I only started keeping track recently, I suspect the only change in this list this year has been the removal of Dr. Brett Steenbarger’s blog which remains an excellent and must-read resource for every trader and investor to this day. However, because he is no longer providing updates to it, I do not visit it several times a day as I have in the past. As most of us will agree, he is very much missed!

Also, another trend I noticed in reviewing my browser logs is that like many of you I’m using StockTwits more and more. In fact, it wouldn’t surprise me in the least to see that site among the top visited websites next year as I continue tracking how I utilize my online research time. I also suspect in a year or two, they’ll be the most powerful and influential website for investors and traders worldwide.

Speaking of which, if you’re not keeping tabs on how you utilize your online time, I think you may find it helpful to do so. Frankly, if Facebook is anywhere near the top of your “most visited sites” every day, let’s just say you’re probably not using your online research time the way you should!

The Kirk Report

noreply@blogger.com (Admin) — Tue, 16 Nov 2010 13:22:57 PST

The Kirk Report

The 22 Rules Of Trading

Posted: 16 Nov 2010 09:57 AM PST

I was looking over some old posts at the old website this morning and rediscovered this little gem offering the 22 Rules Of Trading according to John Mauldin:

Never, under any circumstance add to a losing position! Nothing more need be said. To do otherwise will eventually and absolutely lead to ruin!

Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.

Capital comes in two varieties: mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.

The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is “low.” Nor can we know what price is “high.” Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed “cheap” many times along the way.

In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.

Markets can remain illogical longer than you or I can remain solvent. Illogic often reigns and markets are enormously inefficient despite what the academics believe.

Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds… they shall carry us higher than shall lesser ones.

Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect “gaps” in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.

Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In “good times,” even errors are profitable; in “bad times” even the most well researched trades go awry. This is the nature of trading; accept it.

To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market’s technicals. When we do, then, and only then, can we or should we, trade.

Respect “outside reversals” after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more “weekly” and “monthly,” reversals.

Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.

Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen… just as we are about to give up hope that they shall not.

An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.

Establish initial positions on strength in bull markets and on weakness in bear markets. The first “addition” should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.

Bear markets are more violent than are bull markets and so also are their retracements.

Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are “right” only 30% of the time, as long as our losses are small and our profits are large.

The market is the sum total of the wisdom and the ignorance of all of those who deal in it and we dare not argue with the market’s wisdom. If we learn nothing more than this we’ve learned much indeed.

Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.

The hard trade is the right trade: If it is easy to sell, don’t; and if it is easy to buy, don’t. Do the trade that is hard to do and that which the crowd finds objectionable.

There is never one cockroach!

All rules are meant to be broken: The trick is knowing when and how infrequently this rule may be invoked!

Many of these are especially timely to remember as we enter the final stretch of 2010.

The Kirk Report

noreply@blogger.com (Admin) — Wed, 10 Nov 2010 13:25:42 PST

The Kirk Report

Do You Need A Trading Sabbatical?
Are You A Bull Or A Bear?
Mike Bellafiore
Visualize Success
Life’s Not Fair – Get Over It!
Q&A With Howard Lindzon
Lessons & Rules
Trading Wisdom of William Eckhardt
Six Rules
The Investor Sentiment Cycle

Do You Need A Trading Sabbatical?

Posted: 08 Nov 2010 08:03 AM PST

Here are the top 10 signs you might need a trading sabbatical…

You catch yourself talking to ticker symbols
You are diagnosed with Trader’s Elbow
Any time you hear a bell ring your mouse finger begins twitching
You seriously contemplate adding more screens to your 6-screen trading workstation
You think hooking yourself up to an IV treatment is a good way to “multi-task” while trading
Fat finger trades have become a daily routine because your fingers have really become fat
You get out of bed in the middle of the night for updates on overseas currency and futures markets
Your Rip Van Winkle beard keeps getting caught in the keyboard
You just received an award from your broker for the most trades ever made by a live human being
You just paid the phone bill in gold-adjusted dollars

In all honesty, most of us need to take a break once in a while. The great thing about doing this for a living is that most of us who trade full-time on our own can take time off to work on other things and get away from the markets for awhile. Constant focus and dedication to trading at a very high-level can only be maintained so long as you do take much-needed breaks along the way to avoid burnout, overtrading, and achieve some much-needed balance.

As some of you already know, starting today I’m officially starting my first trading sabbatical (in over seven years) as I wrapped up a successful year last week. While I’ll keep existing positions in place (at least until they get stopped out) and keep up with my daily responsibilities here at The Kirk Report (i.e. premarket, after-hours reports, weekly interviews, mentoring, etc. will all continue like normal) I have decided to put my trading on hold for the rest of the year. The one primary exception will be Thanksgiving week where, like I’ve done every single year for the past 12 years, I’ll donate 100% of that week’s trading profits to charity.

Not spending in upwards of +50 hours every week dedicated solely to my trading will allow me to do some other things I’ve really been looking forward to including all of the following…

Final work and preparation of the new members’ only website
Complete research and work on the new screen machine to debut in 2011
Write a chapter of a book on trading and the markets
Meet with lawyers, accountants for tax prep and other future projects
Figure out ways to improve two very different trading systems
Clean out and organize computer files, bookmarks, office clutter, etc.
Sketch out ideas and thoughts for a new video tutorial series for next year
Learn how to use video editing software for my weekly chart shows
Prepare and review the annual membership survey
Do a couple of media interviews I’ve put on hold for several months
Lose 20 pounds through more exercise, new diet regimen
Read and review 11 books on trading and investing that have been sent to me for comments and reviews

Don’t worry, I’m also scheduling in some much need time for rest, travel and relaxation especially around the upcoming holiday weeks. But, if I spend my time wisely, I’ll have these items crossed of my list and be ready to “rock and roll” on January 3rd.

* The top 10 list was made in cooperation and with helpful assistance from Joshua Brown whose wit and intellect constantly make me smile.

Are You A Bull Or A Bear?

Posted: 28 Oct 2010 01:06 PM PDT

Casual acquaintances who come to learn know I trade for a living (something I rarely volunteer without being asked) will always ask whether I’m a bullish or bearish on the market or economy. My reply often irritates them when I say “I’m neither one – I’m just an opportunist.”

What I mean by that is that I go out of my way to avoid placing myself into a neat and tidy category that can influence my analysis of the markets and the stocks I trade. Although I’m far from perfect and sometimes let my opinions cloud my judgment (I am human after all), I do really try to do everything I can to look for opportunities on both sides of the market.

Many investors and also traders try to fit themselves into one neat category based on their opinions or of others who’ve they have come to respect. Even worse, those views are frequently tainted by how their portfolio is currently positioned (people want to be right after all) which can be both dangerous and quite unprofitable.

Believe it or not, some of the most profitable trades I’ve taken have been ones that run contrary to my personal views.

Case in point, I know several traders who are struggling now because they are very bearish about the market. While in principle I agree many of their views, I cannot let those views cloud both my analysis and trading. While I’m fairly certain there will be a time when their views will be proven correct, in this business timing is everything. Opinions after all, don’t pay the bills – only profitable trades do!

As you’ll soon learn if you haven’t already, there is no difference between being “early” and “wrong” in this market. Likewise, it pays to remember there were lots of hedge funds that went broke prior to March of 2000 because they shorted all of the Internet and tech stocks. These guys were proven to be right on the money much later on, but in reality they never were able to take full advantage of it because they lost so much money before the bear returned.

Remember this – in trading it isn’t about who is right or wrong. Instead it is all about who can make money and take advantage of the most opportunities in the present. Opinions are terrific things, but in most cases, you would be wise to set them aside and trade the market you see rather than the market you think you should or want to see.

* This report was originally published by The Kirk Report on April 6, 2004.

Mike Bellafiore

Posted: 22 Oct 2010 09:03 AM PDT

Mike Bellafiore at SMB Training has become one of my favorite traders to watch. His unique insight to the markets and perspective on successfully trading is one you will not find anywhere else. In fact, Mike’s One Good Trade was by far my favorite book of 2010.

Since our live interview last October, many of you have requested a more in-depth, focused interview. It is a tremendous pleasure to offer one for you today. We hope you find it helpful on your journey toward more success in the markets!

Q&A With Mike Bellafiore

Kirk: Hi Bella. First off, thank you so much for taking the time for this interview. It is an honor to interview you once again and a privilege that you will share your perspectives with my members.

Mike Bellafiore: Thank you Charles. Our traders are fan favorites of The Kirk Report.

Kirk: For those who may not know you yet, please start today by providing a brief introduction of yourself and your firm SMB.

Mike Bellafiore: I am Mike Bellafiore, co-founder of SMB Capital, a proprietary trading firm that sits in downtown Manhattan, and SMB Training, an educational trader training company. Also I am the author of One Good Trade: Inside the Highly Competitive World of Proprietary Trading, which has been called “the next trading classic.” I have traded professionally for over 12 years.

Kirk: How did you first get started in trading and interested in the markets?

Mike Bellafiore: I am not one of those who was interested in trading since 5. Actually I wanted to pitch for the NY Yankees. But in college I learned that was not a career option I needed to consider anymore.

Long story short, I was at a dinner party in NYC with my best friend from home, Steve Spencer (now partner), and his roommate from Wharton, while I was in law school. The two of them cornered me after two many imported beers, talking a first year take of $180k plus and a really fun job as a trader. It was a very convincing appeal (or maybe it was the imported beers?).

Kirk: What would you say is one of the most important lessons you learned early on?

Mike Bellafiore: In the late 90s and not to be glib……each lunch at your trading desk. The best traders are grinders. Didn’t Gordon Gecko in “Wall Street” say lunch is for sissies? Well trading is for grinders not two hour lunches, trips to the mall, and a midday siesta.

Kirk: What were the most difficult lessons for you to learn?

Mike Bellafiore: I still remember the 36k rip in CMRC. After having started to study technical analysis, reading a bunch of books and amateurishly concluding I had learned technical analysis – I learned quickly that I had no idea what the heck I was talking about when it came to technical analysis. Reading books and learning theories was one thing – developing skill another.

Kirk: So very true! Was there anyone out there who helped you greatly during this time? If so, what did you learn most from them?

Mike Bellafiore: I learned from one of the top 50 greatest day traders of all time (if such a list exists). I would ask questions when he had time (if he had time?), which was almost never. I learned mostly by being in a competitive environment where everyone wanted to be the best, gain a nickname like “Iceman” and be recognized as a top trader during our monthly blow out parties.

Kirk: Who is the person you most admire in the trading arena?

Mike Bellafiore: Dr. Steenbarger. No one has given more to the trading community without ever expecting anything back. His blogs are a treasure that all traders must devour. Presently I am not talking to Paul Tudor Jones.

Kirk: I know it has been a big year for you and your firm. Can you tell us what you have been up to since our last interview?

Mike Bellafiore: We are building an FX training program, an advanced technical analysis training program and an options training program. We are teaming with Trade-Ideas to offer a trading tool, SMB Radar, that should be on every serious trader’s desk.

Kirk: What are your firm’s plans for the future and how are you improving what you offer?

Mike Bellafiore: In the future we will offer a training program for the new trader. Presently we are the first stop for those most serious about being an elite professional equity trader. But through partnerships, tweaking our training, and some hard work, we will soon offer world class training for new and developing traders for all products.

Kirk: Why did you decide to start a prop desk instead of just trading for a living?

Mike Bellafiore: A much bigger challenge: to give everyone who wants to become a professional trader the training to achieve their goal. The market had changed substantially since we began and there was a need to create a training program that gave new and developing traders the best chance to succeed.

Kirk: If you could change one thing about your trading career what would it be?

Mike Bellafiore: I would have started SMB four years earlier. The education we share on SMB Blog and our training has positively influenced so many.

Kirk: What would you say is the biggest difference between your training program and others out there right now?

Mike Bellafiore: We treat our traders like elite athletes. There are four elements to become great at anything:

Acquiring domain knowledge
Motivation or sustained energy
Critical feedback
Purposeful practice (what we call simulation)

Most training is heavy on domain knowledge and lacks daily mentoring and the structure and tools to purposely practice. This is insufficient.

Kirk: What is the your biggest pet peeve about trader training today?

Mike Bellafiore: Again, an overemphasis on domain knowledge. Most training consists of some guru in a video or written blog or lecture as Franchise from One Good Trade would complain “waxing poetic” about some simple trading set up that makes sense to them. They talk at their students about a simple charting pattern. This is a nice first step. But this is not training. That is talking at someone. Teach, motivate, critique, and make them practice.

Kirk: There are very good recommendations for anyone involved in investor education. In fact, hearing you say that clearly suggests that I need to emphasize the importance of critical reviews and structured practice, or at least show others how to do this on their own if they don’t do something like this already.

So, when interviewing prospective traders to join your firm, what are some of your favorite interview questions you like to ask?

Mike Bellafiore: I’m not really allowed to interview anyone anymore. Seriously I have been benched. The firm view is that I am too tough on candidates. But if they would still let me I would ask the following: 1) Do you have a trading account and 2) What are your favorite trading blogs? I should add what do you think of The Kirk Report now that I think about it. If I receive a blank stare then they are out. Traders must possess intrinsic motivation to become great and if they do not have a demonstrable passion for the markets they probably should find other work.

Kirk: When you examine the track record of a prospective employee at your firm, what are you really looking for as an indication that they will be successful?

Mike Bellafiore: Something that took them a long time to become great at with little initial reward, a history of competitiveness, and low neuroticism.

Kirk: That’s a very interesting combination. I can understand why you look for these thing things. I must ask, then, who is the best trader you have ever trained and why were they so successful?

Mike Bellafiore: GMan presently. He was recently named one of the Top Three Traders Under 30. But, I suspect that the best trader I have ever trained I might learn about in the future as some find their own path outside of our firm, building from the foundation they developed with SMB.

Kirk: Among the people you’ve successfully trained, what is a common problem you see most frequently?

Mike Bellafiore: Trading on tilt. The more actively you trade the more likely for a trader to struggle with their emotions. We teach our guys vivid imagery exercises, which we learned from Dr. Steenbarger, to offer a different response than just frustration to that which sets them off.

Kirk: I can see why that is such a big issue. In fact, I’m always frustrated by those who recommend traders “turn off their emotion” when you and I both know that when your money is on the line, emotion is always part of the equation.

I was recently asked by one of my younger members who is just starting college what courses they should take to help them prepare them for a career in trading. If you were asked the same question, what you recommend?

Mike Bellafiore: Whatever you find most interesting! We become best at that which melds our passion with our talents.

Kirk: Interesting response. I’m curious to know – if your son or daughter just graduated from college would you encourage them to become a trader? Why or why not?

Mike Bellafiore: My dad told me when I was young to find something I enjoyed and stick with that. I would offer the same advice.

Kirk: If someone wants to learn how to trade for a living, what steps do you recommend they take?

Mike Bellafiore: As we read more and more about elite performance it has become very clear that elite training is essential for success. For example in the awesome book Bounce we learn there is little evidence of anyone reaching a high level of achievement without world-class coaching.

Kirk: I couldn’t agree with this more. For example, my personal experience in mentoring others suggests there is no other best way to achieve high performance. However, beyond world-class coaching which is out of the reach of many, in your experience is there any real way to shorten the long and challenging learning curve that all traders must successfully navigate?

Mike Bellafiore: Yes. Yes, Yes. And this is supported by the modern science of elite performance. Purposeful practice, what we call turning one trading day into ten, will speed your learning curve. At SMB we have developed a proprietary practice trading simulator, called Secret Project X. Our traders can trade specific set ups like Flag Patterns or Support Plays unlimitedly. New traders perform poorly not because they are not smart but because they haven’t developed their trading skills. It takes ten thousand hours of purposeful practice to master anything Malcolm Gladwell shared in Outliers.

If you are trying to get better at breakout trades you might sit all day and trade just one. Traders need a system to simulate their trading so they can turn that one day of experience into ten. We demand that our traders do the following each day to turn one day of trading experience into ten:

Keep a detailed trading journal
Talk trading with the desk
Think about their trades after the close
Watch video tape of their trading
Watch video tape of their trading with critical feedback from the partners
Perform visualization exercises
Talk with their mentor one-on-one about their trades
Practice on our simulator

Kirk: Why do you think most traders fail?

Mike Bellafiore: Traders fail because they do not develop the skills necessary to succeed. I wrote a whole chapter about this in One Good Trade including some great anecdotes about why some have failed.

Kirk: I’m often asked how traders should find a good mentor. Do you have any suggestions?

Mike Bellafiore: You need critical feedback to reach your potential in any performance field. A good mentor first is someone who cares, then is patient and finally can really teach. This is not necessarily the best trader but the best teacher (I wrote an SFO article on this important distinction). There are significantly fewer good mentors than good traders in the trading universe. Reach out to like-minded traders on StockTwits or in the blogosphere. Barry Ritholtz, from The Big Picture, has written that the trading community is very generous with sharing their wisdom. I have found this to be spot on.

Kirk: One of the things I’ve talked about previously is the importance for a trader to find and develop a strategy that best suits their skills, interests, and personality. Would you agree with that recommendation?

Mike Bellafiore: Yes. Find the plays that make the most sense to you and trade more of them with more size. A great exercise is to find a trade that made sense to you and made a chop. Go back and replay that trade a few times. Brand that trade in your head so the next time you can add some size and crush it.

Kirk: There are many ways to trade, but all traders tend to find certain methods easier than others. While not forcing you to make an over generalization, what trading methods do you think are easier than others for people to learn and become successful with?

Mike Bellafiore: Learning to trade off the order flow or Reading the Tape is the easiest way to start as a trader. Learning to trade off of held bids and offers, and levels developed by intraday volume can be understood quickly.

Kirk: Very interesting, Mike. Are there trading methods you think tend to be especially difficult and should be avoided especially for new traders?

Mike Bellafiore: Fading, taking a position counter to the majority of market players, is not a great strategy for most new traders to first learn. It’s too hard for them. We encourage our traders to follow the trend of a stock at the start.

Kirk: That’s great advice. As I mentioned in the introduction, your book “One Good Trade” is by far my favorite this year. I know it also has been received quite well by others with excellent reviews at Amazon among other places. Why do you think the book has been so popular and well-received?

Mike Bellafiore: Thank you Charles! And I am going to keep bugging you about writing a book.

I think the book has been successful primarily because we took the time to write a book that is jam packed with trading nuggets AND highly enjoyable to read. Look, we have read all the trading books and I am painfully aware of how hard many are to read. My goal was to write a book that was lasting, filled with important trading principles always wrapped inside real-life trading anecdotes, and also a page-turner. Fortunatley, this is also how the book has been received.

Kirk: Among all of the unique insight provided in your book, what do you think was the single most important thing you wanted to convey about trading successfully?

Mike Bellafiore: Make One Good Trade and then One Good Trade and then One Good Trade. At Duke Coach K screams whether his team is up or down by 30, “Next Play.” I could try that at my trading desk but I would receive weird stares aback from my guys. So we say, “One Good Trade” and then “One Good Trade” and then “One Good Trade”.

Kirk: Thinking back now after some time has passed, is there anything you would have changed about the book or added to it if you could do it all over again?

Mike Bellafiore: Nah. I have another four books in me so I will get to anything I missed. I spent about 15 months writing One Good Trade. I gave it everything I had. Frankly, One Good Trade came out so much better than I ever thought it could.

Kirk: Many traders who are struggling seek out The Kirk Report for help. So, with your experience, I’d like to ask you a question regarding how I should help others in this way. For example, when a struggling trader who has been successful in the past runs into a “cold streak,” what recommendations do you think I should provide to help them to get back on the right track?

Mike Bellafiore: First, The Kirk Report is a great resource for traders to seek out help. So very well done by those who find you.

There is a great passage from One Good Trade about getting out of a trading slump. Seriously anyone who has had a good run in the market can keep going forward. And that is very important to share with them. Specifically, we tell our guys to slow the game down. Only trade your A set ups. Trade them with less size. Put up a positive number. And repeat this process for three days. After the third day they never remember they were ever in a slump.

Kirk: Excellent! In our live interview last October you spoke briefly about how, for your firm, it is very much a “group effort” to trade. Unfortunately, those of us in the trenches who work alone do not have that same luxury. So, what suggestions and recommendations do you have for traders who trade on their own to incorporate some group and collaborative support?

Mike Bellafiore: Develop an online trading community. Find your like-minded traders on StockTwits or the blogosphere, set up a Skype call with them during market hours, Gchat them, etc. On our desk we have the advantage of fifty pairs of eyes as opposed to one. I have access to fifty great ideas as opposed to just mine. Also you could contact Roy Davis, Director of SMB Training, rdavis@smbcap.com, and ask about how you can become a member of SMB’s online trading community.

Kirk: A lot of traders tell me that they struggle with information overload. I’m curious to know your opinion of this and what suggestions, if any, you can offer to help those who seem to experience information paralysis.

Mike Bellafiore: Information overload is just code for a lack of skill development. An elite tennis player can tell you where a serve will be hit before his opponent serves. He is picking up subtle cues from his opponent that allows him to calculate where the ball is going. This is the same with trading. Often new traders say they are confused trying to follow the tape and the charts. They just do not know what to look at and haven’t developed the skill to quickly break down the information. This is called chunking. When they learn how to do this there will be no information overload, just info that helps them make excellent risk/reward decisions.

Kirk: I know your firm really focuses on monitoring trading metrics to determine key patterns for both trade identification as well as to improve trading performance overall. So, what information do you think every trader needs to have in their trading journal?

Mike Bellafiore: We have developed an extensive trading journal. It is long, detailed, and takes a half hour at a minimum to fill out each day. So I will not answer your question since including every aspect would bore your audience or get me in trouble with my partners for giving away too much proprietary information. But I will share that every day you should find the plays that worked best for you. Write down as many details as you can possibly remember. Brand the play in your head. Run through the trade again and find ways you would trade it better with more size. Also GMan developed the SMB Chop Tracker which breaks down our performance daily.

Kirk: I think what you have said here is good enough to go on, Mike. Thank you!

In last year’s interview and early in this one, you said that you teach visualization techniques to ensure that mental hurdles are cleared. Can you talk about this a little bit further and perhaps provide a teaching example?

Mike Bellafiore: Sure. Let’s say you have trouble hitting stocks that strike your exit price. And you hold and hold and hold a loser. This is a very common trading flaw that can be corrected through visualization exercises.

Find a quiet place, and breathe deeply in and out for two minutes. When your mind is still, replay in as much detail as possible a trade where you failed to hit out of the stock. Bring in the sounds around your during this trade, what you see, and how you feel. Now see yourself hitting the stock. Breathe deeply again in and out. Replay this scenario. Spend fifteen minutes a day seeing yourself hitting out of stocks that have touched your exit price for a few months. This will help you build the mental skill to automatically hit out of this loser.

Kirk: One of the things I like most about your trading is that you focus on situations that have an excellent risk-reward ratio. In other words, what I know about how you trade is that you are looking for situations that offer a “downside one, upside five” kind of setup. In other words, you know statistically the trade is going to work six or seven times out of ten and you wait for those setups to occur. How does a trader learn how to identify stocks with good risk/reward
ratios?

Mike Bellafiore: This is very difficult if not impossible for a beginning trader. What a solid training program will do is introduce set ups that offer this potential risk/reward. Then the trading student works to make these set ups their own. And build their trading skill so that the risk/reward to them is really one to five. After the Open I march our new guys into our training room and recap set ups that were worth their attention and offered excellent risk/reward opportunities. And we talk through these trades. And questions are asked to me and at them by me. And so they learn.

Kirk: One of the most difficult things for experienced traders to recognize is when it is time to abandon a strategy they have used successfully in the past but is no longer working. Can you offer any recommendation on how to identify when the time is right to move on?

Mike Bellafiore: This requires good mentorship. Steve started calling the bottom of the market in 2009. Day after day he would say during our AM Meeting, “the market is turning.” And then when HFTs hit we quickly started moving towards Trades2Hold and eliminated most of our scalp trades as you could see from our SMB Blog posts. It takes a great deal of trading experience to see what plays will work best when the market changes.

Kirk: Good traders always are looking for ways to improve and I’m sure that you do as well. What have you been working on lately in this same regard?

Mike Bellafiore: Three-day trades. I am holding positions started after a stock had fresh news and trends well intraday on the first day. LDK above 10.80, CHK and SPY above 115.15 are recent examples.

Kirk: How has your trading approach changed and improved over the years?

Mike Bellafiore: I am trading on a longer time frame. This allows me the opportunity to trade with more size and be in more positions. Essentially I have been focusing on stocks with fresh news, letting them trend after the 10am hour, with a clear path for that stock’s long term technicals and unencumbered by the overall market.

Kirk: In an age when high frequency trading and computer-driven programs are supposedly “in charge,” I think it is interesting to see that you have lengthened your time frames which is also something I’m seeing among many successful traders of late.

Can you share some of your personal trading rules?

Mike Bellafiore: Here you go…

Never double down on a losing position.
Always hit a stock when it hits your exit trigger.
Put on 30 percent of your intraday risk for you’re A+ set ups.
First start with a Stock In Play.
Don’t exit stocks that are working until there is a reason to do so.

Kirk: We recently learned through a study that many young people are shying away from the stock market and that most investors have been quite fearful following this year’s infamous flash crash. So, what words of wisdom if any would you provide to these folks?

Mike Bellafiore: We do not see that. Our inboxes are at all time highs for interest in our firm. Three SMB members are needed to respond to all the interest. The upside to becoming a great trader is so amazing that interest in trading will never dissipate. That’s like saying it’s harder to become a rock star or play SS for the NY Yankees. So many are always gonna want to play.

Kirk: How are you and your firm adjusting to programmed high-frequency trading? Is this something individual investors should
fear?

Mike Bellafiore: I wrote a long article about this in SFO. HFTs cause more stops to be hit. They mask the true lack of liquidity in the markets. They will carve up active scalpers. We have been trading on a longer time frame and have chosen not to compete with them on most momentum and scalp trades.

Kirk: Are there any tactics that individual traders can use to trade better in an environment ruled by Wall Street machines?

Mike Bellafiore: Expand your trading time frame. Lay off the one minute trades and settle into five and fifteen and thirty minute plays. We call them Trades2Hold.

Kirk: Finally, what is one specific thing that all developing traders could do to improve their results for the rest of this year?

Mike Bellafiore: Follow some real pros daily like @alphatrends @afraidtotrade @weeklyta @tickerville @weeklyta @thekirkreport @stevenplace and so many others in the online trading community.

Kirk: Thank you Mike! Again, those who haven’t read One Good Trade or who don’t follow the SMB blog should do so at their earliest opportunity.

Visualize Success

Posted: 21 Oct 2010 11:16 AM PDT

“I made a picture in my mind of who I wanted to be, and then I lived into that picture.” – Arnold Schwarzenegger

Every person who has tried or read about body building, has probably already heard that quote. Some of the most successful people in the world became that way because they were able to visualize their success and were not afraid of doing hard work to get there. They knew that they could achieve their goals if they set their mind to it.

Unfortunately, investors tend to be the self-defeating type – they search for easy answers, easy stock picks, and they don’t visualize success in a way that makes their trading and investing truly rewarding. They are also quick to blame others or search for the easy road. That’s why you have hundreds of very expensive investment newsletters and advisories, thousands of mutual funds, and trading systems that are sold to investors even though over the long term none of them manage to beat the major market averages.

The lesson that Arnold offers is an important one – you have to visualize success and do the hard work it takes to get there. There are no compromises or short-cuts to that destination. This is especially true when investing as well as anything you try to achieve in life.

* This report was originally published by The Kirk Report on November 17, 2003.

Life’s Not Fair – Get Over It!

Posted: 13 Oct 2010 07:58 AM PDT

They say you learn everything you really need to know in life back in Kindergarten and in many ways that is so true. However, as adults we often forget some basic lessons that can serve us quite well in our careers, especially as traders and investors.

For me, I remember as a little guy that life wasn’t fair. After all, there were people who were better looking, much smarter, had far less strict parents and had much nicer and many more toys than I did as a child. However, I soon learned that if I did good things and was a good person, I would be rewarded and that what inequities existed, didn’t really matter!

I think this lesson is one that many traders need to relearn and remember. Take for example this email I received in my inbox this morning….

“While I greatly respect your technical trading skills, I think it would beneficial to you to realize the government is manipulating the markets. To deny this fact is pointless. They have wanted the DOW above 10,000 since March 2009. They manage news flow via Leesman on CNBC and use buy programs via JPM, MS and GS. I have been trading stocks for more than 10 years and I know the difference in a free market and a manipulated one. I realize you do not like to mix these thoughts with your trading but reading your comments on the web site, I feel you are in denial. I feel an occasional comment on the subject is needed.” – George

I have one simple question – how does having me talk endlessly about how “unfair” or “manipulated” the markets are make more money for you? Those who know me know that I am a doer, not a whiner. My #1 job as a trader is to profit, no matter what – not to sit here complaining to the cows come home how unfair or not I think the market is to the average individual investor!

Second, it is sad but true, in my experience those who complain the most are also those who tend to underperform the most. All of us unfortunately and far too frequently look for others to blame for our mistakes and losses and frankly right now there’s no better excuse than to blame widespread market manipulation. However, at the end of the day, how does that make you more money or, even more importantly, put you on the right track to improve yourself in the future?

Let me tell you a secret – the market has ALWAYS been manipulated to some extent AND always will. You can either choose to play and find ways to profit from the market or just go home and do other things with your money. Those who make money in this market don’t have time or energy to complain about how the markets are unfair unless they’re selling services and advice that pray on the fears of others. In my humble opinion, we have too much of that already and I’m not going to be part of that group!

Frankly, if you’re wasting more than one single second on such negative thoughts regarding market manipulation, you’re cheating yourself and your financial future. Such thoughts are nothing but a huge, time-sucking energy drain that you don’t need in your life! Part of being a good trader and investor is not letting such things get to you. Instead, let the herd worry about how unfair the markets are and go back to work!

In fact, the very next time you waste time and energy about how unfair things are, try to remember this excellent quote by Albert Ellis:

“The best years of your life are the ones in which you decide your problems are your own. You don't blame them on your mother, the ecology, or the President. You realize that you control your own destiny.”

I couldn’t have said it any better than this!

Finally, last Sunday I watched the 60 Minutes segment on HFT and a friend asked me what I thought. In particular he asked me if I thought I could still make money trading in such an environment with the Wall Street quants and math wizards taking control. My reply? All I know is that I am doing pretty well (up +54% right now on the year) and that eventually these quants are going to blow each other to Kingdom Come. As I told him, my plan now is to profit as much as possible while they are in control and then profit as much as I can when they eventually blow themselves up.

That’s the way I look at things! While others focus on unfairness and manipulation and being angry and upset about it, I channel that energy and focus on finding and exploiting opportunities. Which approach do you think is better?

Q&A With Howard Lindzon

Posted: 08 Oct 2010 11:06 AM PDT

Unless you’ve been living on a different planet for the past decade, this month’s guest for our interview series requires very little introduction!

As a hedge fund manager, co-founder and CEO of StockTwits, and other various ventures, Howard Lindzon has become a major mover and shaker in today’s investment community. From the very beginning, his blog has been a “must read” resource and I’m excited to have Howard in for this casual, but interesting interview. We hope you enjoy it and find it helpful!

Q&A With Howard Lindzon

Kirk: Hello Howard! It is so nice to have this special opportunity to interview a person with both your experience and unique insight for my interview series. Thank you for taking the time!

Howard Lindzon: This is my pleasure. Always a win-win.

Kirk: Let’s start at the very beginning. When and how did your interest in the market begin?

Howard Lindzon: My interest started when I bought some Clearly Canadian stock on the Vancouver Stock Exchange. I was young and just listened to a broker. I lost money and got upset. I learned early that the business was all about dealing with losses and your emotions.

Kirk: How did you begin to learn about the market and investing?

Howard Lindzon: In 1987 after my undergraduate degree I took a job in the back office at a small brokerage in Toronto called Davidson Partners. I was in order entry. Brokers would fill out tickets and drop them in a box for me to be filled. Wow that seems archaic. Two months into my job, the market crashed. I saw people lose everything and was ground floor of a panic. Way too much responsibility for me!

Kirk: What was one of the most important lessons you learned early on?

Howard Lindzon: I learned that losses come often. My first boss in the brokerage business preached discipline and a focus on a long-term plan were key. I learned that microcaps were something to avoid.

Kirk: Thinking back what was the most instrumental in your development toward becoming more successful in the market?

Howard Lindzon: I don’t think I have ever been successful yet in the market. My partners in my hedge fund have been extremely patient over 12 years as I have definitely outperformed the indexes, but underachieved based on my expectations. If success means survival and doing something I love then I guess I am a success. I have only had one fantastic year in my career but the Nasdaq trounced me (1999). I do feel that I am slowly now getting better and more focused on my strengths. I have struggled finding my style and doing less over the years.

Kirk: Doing what you love is so important Howard. Many people are in this game seeking fortune, but forget how important it is to love being involved in the markets win or lose. What would you say are your primary strengths and weaknesses as an investor?

Howard Lindzon: My strength is conviction, my weakness is conviction. I have had a business implode on me so knowing big failure has given me great perspective. I am an emotional person so have had to learn to do less. I believe you can outwork everyone to get an edge but don’t need inside information to be successful. I am open minded but know that patterns exist and they repeat.

Kirk: How have you learned to mitigate your weaknesses and focus on your strengths?

Howard Lindzon: I do LESS in the markets. I have learned to watch and enjoy the markets, but invest more from positions of strength. I think the investing and stock market lifestyle are an amazing and knowing what I want to do has helped me focus on a plan. My strength is my network that I have built over 12 years as a hedge fund manager and investor. I have been very fortunate to benefit from the internet explosion during the meat of my investing years. Finding mentors has NEVER been easier. I use the term ‘Social Leverage’ for this phenomenon.

Kirk: What have been some of the most challenging lessons you have learned?

Howard Lindzon: In 2002, I was a partner in a broker-dealer that I was left to wind down. My one partner was stealing and banned from the industry for stealing from the firm account and my other partner blew himself up with leverage in a monumental way. I have had to make some very tough business calls in my life and they all came in 2002. I would not wish the phone calls on anyone.

Kirk: What doesn’t kill you, makes you stronger. Going back to your own approach, how do you evaluate a potential investment opportunity and what steps do you take to determine its forward potential?

Howard Lindzon: Great question. First off I believe that you should pay as little (valuation) as you can for illiquid investments and not worry about valuations or P/E on your liquid investments. Valuation only matters when you can’t sell. I don’t think anyone can successfully determine forward potential. If they could, markets would be way more efficient. Markets are efficient only occasionally so having a defined strategy is all that matters. I do believe that my best trades have started as an investment. I am known as an ‘early seller’ but I like the moniker. I just don’t like being an early buyer!

Kirk: How has your approach toward the markets changed and improved over the years?

Howard Lindzon: I used to trade and hire traders. Daily performance mattered. Now 10-year performance matters to me. I mean, I survived ten years with pretty much my original book of business, despite making every mistake in the book. Daily performance anxiety is the bain of the whole financial industry. To think it will ever go away though is ridiculous. The world is shrinking and the markets will get more volatile.

Kirk: Very good point Howard. This is something I’ve talked about as well that performance anxiety, self-imposed or not, can wreak utter havoc and force emotionally-based analysis and trades.

How would you describe your personal philosophy toward the market?

Howard Lindzon: I mentioned earlier that the markets are ‘opportunity machines’. That is my philosophy. All investors have to do is stay in the game. Do ANYTHING well for 10 years and you will be a success. PERIOD. How great is that? I wish I had that perspective in 1998 when I started my hedge fund. I would be way further ahead. I also can’t believe how much time you can spend AWAY from your screens and be successful as a trader and investor. In a nutshell ‘Less is More.’

Kirk: Do you utilize any ETFs or index funds in your approach? Why or why not?

Howard Lindzon: Another great question. I prefer not to use indexes or ETF’s. If I am investing in an area I know nothing about (Brazil, China, Biotech, Commodities), ETF’s are a godsend but have learned from experience that the marketers have taken control of the ETF space and you better mistrust first. Leveraged ETF’s are like any leverage product, a tool, not something to build a strategy around. I think all financial leverage products are unnecessary, but what do I know.

Kirk: Please tell us a little about what you’re doing right now professionally. You seem to have your hand in a lot of different pots.

Howard Lindzon: Basically I have three pots professionally. I am an entrepreneur in the financial web space (Stocktwits.com currently and Wallstrip.com in the past), an investor in early stage consumer businesses (formally through Social Leverage LLC) and a hedge fund manager (Lindzon Capital Partners since 1998). Most of my time is now spent as CEO of Stocktwits.com which my hedge fund is a large shareholder. I love my jobs and feel lucky to have created them. It’s a miracle if you know me.

Kirk: Do you think entrepreneurs make good investors? Why or why not?

Howard Lindzon: Investors and traders ARE entrepreneurs! I think we get no respect. There is WAAAAAY too much mystery and bullshit in the financial world. That IS THE OPPORTUNITY.

You, me, the blogosphere and hopefully Stocktwits can tear down the walls. Why should there be no smiles in finance? Jon Stewart built an incredible brand around the most ridiculous group of yutz’s (politicians) and we all can build smiles and honesty into finance. The markets and low cost brokerages are the greatest freedom we have ever been afforded and we are screwing it up. It is a tragedy that we can’t let happen!

Back to your question. Entrepreneurs are the best investors because we gain experience. We need massive tax cuts to make more traders/investors and everyone will benefit. It is a trade you can learn in your teens. Investing/Entrepreneuring should be taught in junior high and there will be venture capital funds focused at the high school level within 3 years. I have never been more optimistic and scared at the same time. Don’t worry – it’s probably just my age.

Kirk: I, for one, congratulate you on what you’ve done for everyone Howard. StockTwits has become so popular and successful for good reason and it is clear that you’ve got a winner there. On a more personal basis, what does your daily routine look like? Can you take us through a typical day for you and how you manage your time?

Howard Lindzon: I wake at 4-5 am pst. The routine of a hedge fund manager and a slave to east coast time are just too ingrained. The mornings are my favorite time of day. I live in Coronado, California now so it is very quiet. I spent 20 years in the desert (Phoenix) and there is no better place for mornings. I return email and send email mostly in the AM PST and late PM PST. I now spend most of my market hours reading, making sales calls and writing. I love that the markets close at 1 pm PST. After the kids go to bed I usually work for 2-3 more hours and than take an Ambien. I am a slave to the pharmaceuticals in the PM but rarely own their shares.

Travel is the difficult part of my job and I spend at least a week a month on the road doing sales calls and business development. Face to face work with customers is underrated and, if you are willing, can afford and have an understanding family, you must do it to have any edge. Travel throws off my routine so I have learned over time to chill and not pressure myself with schedules on the road.

Kirk: What role do you serve at the hedge fund?

Howard Lindzon: Today, I communicate quarterly with my limited partners formally, but they can read my blog and tweets to see what I (we) are up to. Transparency is the NEW way to manage money. I believe it so I live it. If I managed many billions I am sure I would have a different philosophy and honestly don’t care to have the dilemma. I make EVERY investment. If I am right I get the credit and if I am wrong it is my fault.

Kirk: Where did you get the idea of StockTwits originally?

Howard Lindzon: In 2007, I had passed on a Twitter investment (what a putz) and declared on my blog that tweeting about stocks made more sense. That is yet unproven? My co-founder Soren responded to my blog post and wanted to build something so I said “you build and I will raise the money.” I believe Soren came up with the idea of tagging tickers with $ and I that $$ at the end of market related tweets would make sense. This would give intent, context and structure to the messages. Away we went!

Kirk: What is your favorite feature in StockTwits?

Howard Lindzon: I love that I can follow certain tickers and the people that I like as they talk about the tickers. I love that I can filter in that way and have the ‘ALL’ stream to give me a feel for the ticker, something I coined as ‘The Human Ticker.’

But, I guess if I had to pick my favorite feature is our ‘House Rules’ which has become important to us. We believe that the message board model and the ‘open’ communication models as they pertain to stocks and markets was manageable and people will behave and share.

Kirk: Who are your “favorite” follows and why?

Howard Lindzon: I have no FAVE five because I believe the ‘ALL’ Stream (stocktwits.com) is the perfect follow. I get a real smart sense of the mood of the market and that’s all I really need. I am a momentum and trend investor so I lean towards big thinkers and humor – mostly venture capitalists, angel investors and traders are on my follow list. The people that share interesting links that speed up my day are the key and should be every beginners focus when they sign up for Stocktwits.com. We have created many suggested streams and the ‘Most Liked’ stream gets better every day.

Kirk: How do you recommend both investors and traders use StockTwits?

Howard Lindzon: Traders should follow the ‘All Stream’ and our suggested stream of traders and technicians to get started. I think beginners should just sign up and be quiet for a few days and watch. Maybe share some insightful and fun market links and introduce themselves publicly to people they find interesting. We call them ‘shoutouts’. Eavesdropping is done by 80-90 percent of the total audience so if you don’t want to interact it is normal. Investors have an amazing free blog network at their disposal.

Our ‘Premium’ subscription sites run by thoughtful traders/investors is an inexpensive way to get mentors and day to day attention. We are launching a ‘Data’ store in October that will allow investors/traders to buy and load actionable ideas ‘a la carte’ as separate streams. Apple opened the floodgates with their iTunes store to unbundle media. We will try hard to do the same around data.

I also believe that the microblog is the most efficient vehicle ever to build a voice. Use our platform to build your voice and flesh out ideas.

Kirk: Without letting the proverbial cat out of the bag, what are some things you and your team are working on to improve StockTwits?

Howard Lindzon: Mobile and HTML5 are the future it seems so hopefully Apple has approved our iPhone app by the time the interview runs. We have two ‘Android’ apps under rapid development and many more for their more open and wider distributed platform. As soon as the killer iPad app gets traction, we will fast follow with partnerships and our own versions. We don’t have the capital to make big bets.

I would love to have access to $100 million of capital right now to go faster in web and mobile finance. If you promise to give it to me, I will share my plan.

Kirk: If I had $100 million laying around, I’d think about it Howard! So, looking ahead, as a self-proclaimed trend follower, what are some big picture trends you think we should be watching closely for potential investment opportunities?

Howard Lindzon: Personalization is here to stay. Curation as well. Mobile is the big fat trend. My smartest, most connected friends can’t all be wrong. They are betting big money and have been right before. I think localization is the best investment we can all make. Small business is back and so is ‘exporting culture’. The world likes both smoking and American culture. Biotech, Agriculture and Drugs bore me and I am too impatient and old to understand them so despite them being maybe the biggest trends, I will invest peripherally or through ETF’s. The simplest, most underatted trend is freedom from a tiny bit of wealth. The BRIC’s and Emerging markets have gotten a taste and they like it. They will now want to live longer.

Kirk: Are there any companies you are especially interested in right now?

Howard Lindzon: Everyone has their favorites and their hopefuls. I think Intuit $INTU is perfectly positioned to make a new amazing run and so is Rackspace $RAX. I have been long both from much lower prices. Obviously, Apple and Amazon have been very good to me but don’t own much of either lately. On these public companies that I own, strong and healthy markets are needed. I pay up for liquidity as I mentioned earlier.

On the private side I believe web video is inning one and so is real – time sharing so my investments in Betaworks (indirectly Twitter), Bitly, Stocktwits, Tubemogul, Assistly and Buddy Media are who I root for.

I love the consumer web meets inventory so I also have a healthy interest in rooting for Ticketfly.com and Limos.com.

I recently made a large investment in Forex by putting together a syndicate for Etoro.com.

Kirk: Given your unique position in the investment community, what are some of your key perspectives about the state of the U.S. economy now?

Howard Lindzon: We are in a super super super bull market for start-ups. Like $CMGI when it started and Internet Capital group, there are massive runs ahead. It just won’t be broad and like the last one and you won’t be able to invest in anything and have the markets bail you out.

Funny, but in 2008, the $VIX was at 90 and the once in a lifetime panic was in full motion. Venture Capitalists were writing death knells. I was investing. I was speaking at a conference in Toronto and showing charts of the $VIX and $SPY and saying it was NEVER a better time to start a business. I can’t find the post but I know Jevon was there and will vouch for the speech and slides. I was talking my book and had been heavily investing since 2005, but it so far looks like I might be right.

It turns out, only Wall Street died. Sure bonuses are back, but as Andy Kessler accurately describes: “There are too many traders, bankers and salesmen to support the new level of business. Thanks to Dodd-Frank, the shrinking of finance will continue.”

The only thing that will kill angel investing in the foreseeable future is the government. I have to say it’s a ginormous risk. Idiots are in charge and idiots do the wrong things at the wrong time. That said, there will never be enough optimistic angels looking to roll up their sleeves and put money to work. Most, if not all of these angels could give a rat’s ass about Wall Street, derivatives, mortgages and stocks – maybe even taxes. It is getting super competitive and crowded, but it will evolve and spread. Groupon is in Chiitown!

Personally, harnessing this momentum is where I see the opportunity going forward but as always, I am fleshing out my thesis and flying by the seat of my pants. If I practiced just what I preached, I would be retired and just tweeting goofy stuff. But, bottom line, there is just too much optimistic and patient angel money wanting to get put to work. It won’t end well, but it is likely just the middle innings of this run. There are deals and exits by the minute and although top lines and bottom lines are pretty hard to grow, the 2008 depression made the bonanza ahead happen for start-ups and angels.

The super smart money is snickering and moved on, but take a look at the price action in momentum stocks like $BIDU, $NFLX and $AMZN (hundreds more) and tell me that a bazillion acquisitions using high stock prices and cash won’t continue. It will, it should and we should be supporting it, not trying to break it down and overthink it.

Kirk: Looking ahead what are some things that would make you both more or less optimistic?

Howard Lindzon: I would be more optimistic if I could see an end to the job dilemma and I believed we were trending to smaller government, not bigger. I would be insanely optimistic if all investment banks were forced to go private, Barney Frank were imprisoned for being a complete putz (new laws that make sense) and someone from Goldman Sachs admitted to defrauding the American pensioners. Just a token Goldman imprisonment would also help. I would be more optimistic if CNBC were replaced with Hogan’s Heroes, Welcome Back Kotter and WKRP in Cincinatti reruns, not for me, but for people that think they have to watch. Take away the choice. Despite my belief that none of these will happen, Apple, Google, Netflix, Stocktwits, WordPress, Facebook and Twitter make me pretty optimistic.

Little surprises me or disappoints me anymore. Random hate chips away at my confidence sometimes.

Kirk: With your crystal ball out, how do you think the markets will fare over the next six to twelve months?

Howard Lindzon: I think Dow 20,000 is in the cards – maybe Dow 5,000 as well. I honestly have no idea. If you want me to make a prediction, in 12 months we will be lower. It is September 26th and momentum stocks are ripping and I have had a great year, but I don’t see the real profits out there for America and our balance sheets at the household level suck. I have been trying to lead by example since 2005, by actively writing about a smaller footprint and conservative living. ‘Small is the New Big’ and ‘Too Small to Fail’ are two themes I love and live by.

Kirk: Given your unique experience with the markets, why do you think so many people have trouble matching and beating the market consistently?

Howard Lindzon: Define beating? I think everyone is measuring their performance over too short a timeline. It’s not going to change though and that’s my advantage of being old and open. I have built trust so one bad year or even two won’t kill me (knocking on wood right now). I truly measure myself differently so I guess that helps. I remember in Caddyshack when Chevy Chase was asked how he measured himself against other golfers and he replied – ‘my height!’

Investing truly is a marathon. There are a few legends but I doubt most could live with the risk those few have taken.

I don’t think their has been a big enough support group for investors until Stocktwits so hopefully we can all build on that. If you are honest with yourself and your clients when selling yourself and financial products, expectations are more easily set. From that point, consistent communication is the key.

Kirk: What would you say to those who are just starting to learn about the markets and investing their own money? What advice would you give to others who are just starting to learn about the markets?

Howard Lindzon: I am not so big on practice accounts. Maybe because I never used one! I would read every book you can on trend and momentum investing. Read books from successful investors. I am an awful trader, but do think every investor should try and trade and therefore learn. The tools for education are abundant and I will use this point to plug Stocktwits as a fantastic place to find your voice and mentors. I would open an account at a brokerage like Schwab or Fidelity, focus at first on extremely low costs and turnover and no more than three stocks at a time. I would make sure to cut losses at 5-10 percent maximum. Get used to losing money. There is NO RUSH. The markets are opportunity machines!

Kirk: What mistakes do you see other investors make and what are some things they can do to avoid them?

Howard Lindzon: Every mistake starts small. It’s that simple. We all remember our wins and that great feeling AND BLOCK OUT OUR LOSSES. WE HIDE THEM. They fester in our accounts and we avoid looking at them. Another big mistake is letting profits become losses. To avoid them you need to take responsibility when your money is at stake. You need to set goals and you need to garden/prune your accounts. Investors need to let winners ride as well. Investors press losses and don’t pyramid into winners. I don’t!

Kirk: Finally, if you had one piece of advice to share with all investors and traders what would it be?

Howard Lindzon: There is only one piece of advice that matters – prune your portfolio and cut losses. You need to manage your losses. If you can find a great mentor or two, make that a first priority before you start trading/investing.

Kirk: Thank you Howard. We appreciate all that you have and continue to do for the investment community! If you are ever in my neck of the woods and can spare a few hours – golf is on me!

Howard Lindzon: This was fun and helpful for me too so thank you!

Lessons & Rules

Posted: 06 Oct 2010 09:51 AM PDT

I’ll start this report off with a little testimonial that arrived in my inbox this morning…

“I’m currently on track to have my best year ever (up +71% year-to-date) after struggling for over ten years to learn this trading game. Your daily insight, wisdom, and resources you share coupled with practice have made a world of difference for me. My only regret is that I wish I became a member years ago when I first visited your website!

Beyond my sincere gratitude of which I know you receive plenty by others who follow you, the other reason why I am writing is to also let you know how valuable it has been to write down some of the lessons and rules you’ve shared from others previously. In fact, two of my favorites “9 Business Lessons” and “30 Trading Rules” were quite helpful to me this year. Although I don’t think you need the suggestion, if you’re looking for something to write about you may want to focus an entire report on one or both as I found these particularly helpful as I created my own personal rules from both that I review at the start of each and every day. Thank you.” – David H.

Both articles this member mentioned was previously shared in my “three to read” section which I provide in the daily newsletter which I send out to members. Here are excerpts from both in case you missed them:

Nine Business Lessons From Celebrities

If you pay attention, you can find inspiration and lessons that you can apply to your business everywhere you look…

Lance Armstrong: Be disciplined. No business will succeed without a lot of hard work and discipline. Commit to it. Stick with it. Eventually, you'll reach your destination.
Paula Deen: Be yourself (and be bold about it). You will naturally succeed if you build a base of followers who are naturally attracted to your personality. Don't worry about being liked by everybody. Just let your own unique personality shine through.
Mr. Rogers: Be positive. I can't imagine making it in business without a whole lot of optimism.
Ellen Degeneres: Have fun. The daily grind, even when you work for yourself, can be dull at times. Doing something you love, surrounding yourself with clients and connections that energize you, and taking time to appreciate the good things in life make it all worthwhile, and who doesn't enjoy a good laugh every once in a while?
Bill Cosby: Keep learning. I used to be so intimidated by what I didn't know. But I've come to realize that such a list is endless, so I just continue to work at it, and I learn more and more each day about how to build a successful business.
Carol Burnett: Be creative. Sometimes you have to improvise. You figure it out, and you come to enjoy the journey.
Oprah: Build a platform. To succeed in business, you have to have a group of people who believe in you, who want to hear what you have to say, and who want to support you in everything you do.
Jim Carrey & Steve Carell: Don’t take it all so seriously. You're going to mess up, and you will look silly on occasion. Learn to be OK with that.
Maya Angelou: Be resilient. Things will not always be easy, but if you refuse to give up and keep bouncing back, they manage to work themselves out.

30 Trading Rules From Tyler Bollhorn

Make it a habit to reread those trading rules lists every now and then. You want those important concepts to become deeply ingrained. Today's timeless wisdom is from Tyler Bollhorn…

Buying a weak stock is like betting on a slow horse. It is retarded.
Stocks are only cheap if they are going higher after you buy them.
Never trust a person more than the market. People lie, the market does not.
Controlling losers is a must; let your winners run out of control.
Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
Emotional traders want to give the disciplined their money.
Trends have counter trends to shake the weak hands out of the market.
The market is usually efficient and can not be beat. Exploit inefficiencies.
To beat the market, you must have an edge.
Being wrong is a necessary part of trading profitably. Admit when you are wrong.
If you do what everyone is doing you will be average, so goes the definition.
Information is only valuable if no one knows about it.
Lower your risk till you sleep like a baby.
There is always a reason why stocks go up or down, we usually only learn the reason when it is too late.
Trades that make a lot of intellectual sense are likely to be losers.
You do not have to be right more than you are wrong to make money in the market.
Don't worry about the trades that you miss, there will always be another.
Fear is more powerful than greed and so down trends are sharper than up trends.
Analyze the people, not the stock.
Trading is a dictators game; you can not trade by committee.
The best traders are the ones who do not care about the money.
Do not think you are smarter than the market, you are not.
For most traders, profits are short term loans from the market.
The stock market can not be predicted, we can only play the probabilities.
The farther price is from a linear trend, the more likely it is to correct.
Learn from your losses, you paid for them.
The market is cruel, it gives the test first and the lesson afterward.
Trading is simple but it is not easy.
The easiest time to make money is when there is a trend.

Have you found rules like this to be an inspiration in your trading? If so, let me know your favorites and I’ll share them with others if I haven’t already done so!

Trading Wisdom of William Eckhardt

Posted: 30 Sep 2010 10:09 AM PDT

Recently I had the pleasure to read an in-depth interview with legendary commodities and futures trader William Eckhardt. William is perhaps best known for the big bet he lost with Richard Dennis of Turtles fame in which he argued that successful trading cannot be taught.

In that old interview, William shared the following observations that are helpful for all of us to remember…

“If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose.” – William Eckhardt
“It’s much easier to learn what you should do in trading than to do it. Good systems tend to violate normal human tendencies.” – William Eckhardt
“One common adage on this subject that is completely wrongheaded is: you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.” – William Eckhardt
“The people who survive avoid snowball scenarios in which bad trades cause them to become emotionally destabilized and make more bad trades. They are also able to feel the pain of losing. If you don’t feel the pain of a loss, then you’re in the same position as those unfortunate people who have no pain sensors. If they leave their hand on a hot stove, it will burn off. There is no way to survive in the world without pain. Similarly, in the markets, if the losses don’t hurt, your financial survival is tenuous.” – William Eckhardt
“I know of a few multimillionaires who started trading with inherited wealth. In each case, they lost it all because they didn’t feel the pain when they were losing. In those formative first few years of trading, they felt they could afford to lose. You’re much better off going into the market on a shoestring, feeling that you can’t afford to lose. I’d rather bet on somebody starting out with a few thousand dollars than on somebody who came in with millions.” – William Eckhardt
“In many ways, large profits are even more insidious than large losses in terms of emotional destabilization. I think it’s important not to be emotionally attached to large profits. I’ve certainly made some of my worst trades after long periods of winning. When you’re on a big winning streak, there’s a temptation to think that you’re doing something special, which will allow you to continue to propel yourself upward. You start to think that you can afford to make shoddy decisions. You can imagine what happens next. As a general rule, losses make you strong and profits make you weak.” – William Eckhardt
“If you’re playing for emotional satisfaction, you’re bound to lose, because what feels good is often the wrong thing to do. Richard Dennis used to say, somewhat facetiously, “If it feels good, don’t do it.” In fact, one rule we taught the Turtles was: When all the criteria are in balance, do the thing you least want to do. You have to decide early on whether you’re playing for the fun or for the success. Whether you measure it in money or in some other way, to win at trading you have to be playing for the success.” – William Eckhardt
“Trading is also highly addictive. When behavioral psychologists have compared the relative addictiveness of various reinforcement schedules, they found that intermittent reinforcement – positive and negative dispensed randomly (for example, the rat doesn’t know whether it will get pleasure or pain when it hits the bar) – is the most addictive alternative of all, more addictive than positive reinforcement only. Intermittent reinforcement describes the experience of the compulsive gambler as well as the future trader. The difference is that, just perhaps, the trader can make money.” However, as with most affective aspects of trading, its addictiveness constantly threatens ruin. Addictiveness is the reason why so many players who make fortunes leave the game broke.” – William Eckhardt
“Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Focus instead on those things you want least to happen and on what your response will be.” – William Eckhardt

If you don’t think these principles are true, you haven’t been trading very long. Print these out and refer to them often!

* This report was originally published by The Kirk Report on February 21, 2008.

Six Rules

Posted: 23 Sep 2010 10:12 AM PDT

Michael Steinhardt is considered one of the most successful hedge fund managers. One dollar invested with Steinhardt Partners LP, his flagship hedge fund, at its launch in 1967 would have been worth $481 when Steinhardt retired in 1995.

I’ve been reading about Mr. Steinhardt and recently came across a speech in which he provided six rules in order to become a successful hedge fund manager. Since I think the same apply to all investors, not just those who run hedge funds, I decided to provide them for you as well. They include the following:

Make all your mistakes early in life. He says the more tough lessons you learn early on, the fewer errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you bad stocks.
Always make your living doing something you enjoy. This way, you devote your full intensity to it which is required for success over the long-term.
Be intellectually competitive. This involves doing constant research on subjects that make you money. The trick, he says, in plowing through such data is to be able to sense a major change coming in a situation before anyone else.
Make good decisions even with incomplete information. In the real world, he argues, investors never have all the data they need before they put their money at risk. You will never have all the information you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.
Always trust your intuition. For him, intuition is more than just a hunch. He says intuition resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. In fact, over time your own trading experience will help develop your intuition so that major pitfalls can be avoided.
Don’t make small investments. You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

* This report was originally published by The Kirk Report on June 2, 2004.

The Investor Sentiment Cycle

Posted: 16 Sep 2010 03:51 PM PDT

A number of smart people seem to think that we are at another crucial crossroads for the market. To help acquire and share some perspective on this point, I sent out a private poll yesterday asking over 100 top professionals I know to share their views on where they think we are in this current investor sentiment cycle and why.

Of those who dared to offer take the poll and go on record (most I asked never responded), 63% thought the cycle had already bottomed out while 37% see further downside to go in this cycle.

How did I figure that out? When you look at the overall votes, the most popular response was that we are currently in the hope phase as 26% of those who I polled offered that as their view. This was followed closely by 21% who said we are in the depression phase, followed by 16% who think we are in the optimism phase. If these people are correct, as a combined group 63% of them think we’ve already bottomed out and are headed higher at least in terms of this current sentiment cycle. Please note where each of the three areas of the cycle – hope, depression & optimism – fall within the cycle. After each phase, the market moved higher.

In reviewing the minority votes (i.e. the other 37%), the good news if one can be had here is virtually no one thinks we are anywhere near the top of the market. Instead, the most popular response was that 21% think we are in the denial phase, 12% think we are in the fear phase, and 4% in the desperation phase. Also, note where each of these three fit within the cycle. Following each of those phases, the market moved subsequently lower. But, overall this still consisted as the minority view.

The bottom line, most think the market has bottomed out, as least in terms of this investor sentiment cycle, but reasonable doubts do remain. To provide addition food for thought, here are some of the more noteworthy perspectives offered in support of their particular viewpoint:

Hope

“As much naysaying as we are hearing in the media and in the blogosphere, we are still holding above Dow 10,000 – efforts to drive equities below the current trading range have been met with vicious snapback rallies. People are not excited per se, but they are hoping that a reason to be excited will come along soon.” – Joshua Brown, The Reformed Broker

“The market has recovered from the big shock last year, however sentiments in recent months have become very bearish with talk of crash and double dip recession. In recent month growth stocks are doing well and IPO’s have been rallying. This tends to be sign of impending rally in next few months. At this stage the range is likely to breakout to upside in late October.” – Pradeep Bonde, StockBee

“I believe we are in the ‘hope’ stage simply because there are two main camps, 1) some believe we will break higher and above major resistance and 2) some are short anticipating a repeat of early August. The end of August low resembles the March 2009 low because it was a non-capitulatory bottom. As long as we maintain a flag and do not have a breakaway gap down, then the market should be fine. Objectively, we are still in the large neutral range, but I am cautiously bullish here.” – John Lee, Charts Gone Wild

“Somewhere depression and hope. There continues to be a mixed message from economic data and price action which leaves investors hopeful but with an underlying sense of pessimism from the jobs situation.” – Brian Shannon, AlphaTrends

“The S&P is down around 20% over the past 3 years. Mean reversion says it will probably outperform its long-term average over the next 3 years by a large margin. Too bad real life isn’t as simple as that!” – Less Antman, Simply Rich

Depression

“This is 1982 all over again. There was no hope due to high interest rates and then they started dropping interest rates. Today there is no hope because of jobs and once there is any sign of job growth, the market will begin to soar as it did in 1982.” – Larry Connors, Trading Markets

“Sentiment reflects reality, so we hit bottom post-Lehman. The depression and capitulation came in March, 2009. The slow and halting economic recovery will be accompanied by improved sentiment — a process including feedback.” – Jeff Miller, Dash Of Insight

“Hard to look back on Fall 08 as anything other than capitulation, followed by a glimmer of hope as 2009 went on. While that puts us beyond the trough, I see more of a public “apathy” than hope…a period of global innovation and startups that the public misses while they stare at mixed US growth reports.” - Derek Hernquist, Integrative Capital

“We provide investment research and money management services to more 1,000 investors and it feels like we are somewhere between Depression & Hope. Overall investor sentiment still seems very negative and even long term investors appear to be fearful of losses and are suspect of the economic and market recovery.” – Justin Carbonneau, Validea

“The global financial crisis and VIX spikes into the 80s were so vivid and memorable – and so thoroughly discussed in the media – that they continue to cast a shadow over investor sentiment and decision-making, even though arguably most of the risks associated with a VIX of 80 have since passed. Disaster imprinting refers to a phenomenon in which the threats of financial and psychological disaster were so severe that they continue to leave a permanent or semi-permanent scar in one's psyche. Another way to describe disaster imprinting might be to liken it to a low level financial post-traumatic stress disorder.” – Bill Luby, Vix & More

Optimism

“We’ve just emerged from a bear market, so what’s not to like? After the recent run-up, we’ll go sideways for a year and then move to new highs but a sustained economic recovery will take time. Investors are looking for an excuse to push this market upward.” – Thomas Bulkowski, The Pattern Site

“The period between optimism and fear is now incredibly short. I see it as either flat line between optimism and fear completely bypassing market euphoria and depression. Look to the real clues of the economy from businesses rather than CNBC.” – Jae Jun, Old Schol Value

“The bulls see a higher low and potential breakout from resistance. The bears see waning volume going into said resistance. Consider the economy and we have two parties optimistic about their chances of being correct.” – Darren Miller, Attitrade

Denial

“Elevated equity call volume and heavy NASDAQ volume relative to NYSE volume suggest small investors are trying to maintain a positive outlook in the hopes that 2010 marks a consolidation phase rather than a topping phase. Smart money indicators (TICKscore, Last Hour, Market Vane) suggest otherwise.” – Rennie Yang, Market Tells

“The recent rally is smoke and mirrors in the market right now due to the fact that investors don't know what the government is going to do next. The economy and the market appears to be artificially propped up without making a new high. No one knows how future government policies will affect decisions that are made now based on our unsustainable debt and obligations.” – Chris Perruna, ChrisPerruna.com

“One more sell-off in the tank but this shouldn’t undercut the March 2009 low. I would give the sentiment cycle a 2-year window with the ‘Despondency’ phase kicking in for Q1 2011. However, cyclical bull market in play which should keep a modest bullish trend intact for the next 2-3 years.” – Declan Fallon, Zignals

Fear

“The long term uptrend since March 2009 reached a top in April 2010. Since then there is a reaction and I think there is fear now that price will not reach that previous top. Basically that will confirm a finished up moving Elliott B-correction wave and a downward C-wave coming soon with much lower prices.” – Sylvain Vervoort, Stocata

“The volume tells me a vast majority of the trading public is not in the markets, and not trading. Many have come to believe the game is rigged against them by the big computers. There is a lot of uncertainty and zero trust. Will that change – sure someday. Reminds me a good deal of 1974.” – Bill Zimmer, The Prudent Trader

“I can’t really place investor sentiment on this continuum. I would say that July 2007 was euphoria, March 2009 was despondency and April 2010 was optimism. However, the last five months have backslid and are more like “stagnation/uncertainty.” – Greg Feirman, Top Gun Financial Planning

So, where do I stand here in this? Interestingly enough, I’m with the majority on this one – the hope phase. From what I’ve seen and everything I know about this investor sentiment cycle, that indicates at least for me the most likely among all of the choices here. The problem, as you know, is that investor sentiment does seem to change by the day as the markets and investors right along with them have become so short-term focused. In fact, one could easily argue that by just looking at the markets since the beginning of August, we’ve gone through the entire cycle in just a number of weeks!

Finally, I must take a moment to offer my sincere appreciation for everyone who took precious time and to offer their personal replies to this unusual, and unexpected poll. Most who I contacted were not willing to go on record, which also is interesting and offers a clue to how much uncertainty there really is out there at the moment. In due time, the road ahead will become far more clear, and as always our #1 job is to make sure to profit no matter which way we go next.

The Kirk Report

noreply@blogger.com (Admin) — Mon, 08 Nov 2010 13:08:49 PST

The Kirk Report

Do You Need A Trading Sabbatical?

Posted:

Here are the top 10 signs you might need a trading sabbatical… You catch yourself talking to ticker symbols You are diagnosed with Trader’s Elbow Any time you hear a bell ring your mouse finger begins twitching You seriously contemplate adding more screens to your 6-screen trading workstation You think hooking yourself up to an [...]

The Kirk Report

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The Kirk Report

Are You A Bull Or A Bear?

Posted:

Casual acquaintances who come to learn know I trade for a living (something I rarely volunteer without being asked) will always ask whether I’m a bullish or bearish on the market or economy. My reply often irritates them when I say “I’m neither one – I’m just an opportunist.” What I mean by that is [...]

The Kirk Report

noreply@blogger.com (Admin) — Fri, 22 Oct 2010 13:14:14 PDT

The Kirk Report

Mike Bellafiore

Posted:

Mike Bellafiore at SMB Training has become one of my favorite traders to watch. His unique insight to the markets and perspective on successfully trading is one you will not find anywhere else. In fact, Mike’s One Good Trade was by far my favorite book of 2010. Since our live interview last October, many of [...]

The Kirk Report

noreply@blogger.com (Admin) — Thu, 21 Oct 2010 13:23:42 PDT

The Kirk Report

Visualize Success

Posted:

“I made a picture in my mind of who I wanted to be, and then I lived into that picture.” – Arnold Schwarzenegger Every person who has tried or read about body building, has probably already heard that quote. Some of the most successful people in the world became that way because they were able [...]