Monday, January 11, 2010

The Kirk Report

The Kirk Report


Lessons From 2009

Posted: 11 Jan 2010 09:28 AM PST

In finishing up our series of posts that look backward to gain perspective and inspiration for the new year, let's take time to review how members responded to the following question in the year-end survey:

"What would you say is the most important thing you've learned about investing and/or trading in 2009?

Of those I received, here are some of my favorites:

  • Trade what you see, not what you want to see

  • Prices will do what they do, and it's our job as traders not to predict anything - but to react accordingly

  • No one's opinion counts. The market will do what it will do. Just follow price and don't worry what any one has to say.

  • It's important to not have one's opinion about the market get in the way of maximizing returns. Follow the trend!

  • My personal views on the economy should not influence my trading decisions

  • I learned not to be swayed by others, but to trade my own view

  • If everyone is worried about the same thing, it is most likely already priced into the stock/market it concerns

  • Don't listen to the news. The market doesn't care what you or anyone else thinks

  • How many times will we come to the end of the world as we know it before we realize it's not the end of the world as we know it?

  • Time spent on research, work and effort in preparation while the market is closed is much more valuable than time spent watching the market while it is open

  • It's important to know when to ignore the "noise" of fundamental data that does not support the prevailing trend

  • The ability to filter out all the information that's constantly coming at me yet not relevant to the trades I'm considering or currently participating in

  • How my feelings can distort my analysis and impel me to make mistimed purchases

  • Markets have and continue to outsmart some of the brightest minds in the business. Do not try to outsmart the market, just try to be on its right side

  • The market is always right

  • The most important thing I learned was that you had to trust yourself and had to think for yourself

  • Turn off the external influencers - analysts and pundits claiming to know tops, bottoms, and directions

  • Thinking is more important than knowing

  • It takes a lot of time, effort and planning to be consistently profitable. It is very easy to say "let me follow the market", but very difficult to curb my opinions of what the market should do while trading

  • Consider a number of scenarios in my head, but then concentrate on charts with NO net bias

  • I finally realized and accepted that trading is a probability game

  • Trading without a carefully constructed plan is sheer folly

  • Markets are not casinos where you throw a quarter and expect luckily to get rich, trading is a business and as a business you need to have a plan and follow it religiously

  • Failure to plan is planning to fail

  • Stick to your trading plan - know your rules and follow them

  • Successful systems can break down and watch out when they do

  • The importance of maintaining a positive "can do" attitude in the face of fear

  • To be true to yourself and not trade with other peoples methods

  • That I have to discover my own methods

  • Pick an approach with an edge and religiously stick to it. It is the disciplined approach that leads to success

  • The importance of doing you own homework and developing your own plan

  • I learned to put much less emphasis on Wall Street sell side analysts

  • Nothing seems to beat finding a good strategy, testing the heck out of it, and riding it as long as possible

  • There's no holy grail or perfect system. If you haven't discovered your flaws, you will when it can hurt you the most!

  • Test new ideas and strategies before implementing them with real money. Once they are tested in real time, start small and only add capital to successful strategies. My worst losses last year were all on "exciting" strategy ideas that were implemented before adequate testing

  • Importance of building a watch list and waiting for the correct trade setup to show in the stocks in the watch list

  • Money management is the most important factor in success

  • One word - stops!

  • Cut losses and admit defeat when appropriate

  • Know my plan before making any trade and where I'm going to exit if wrong

  • How useful it can be to use ATR stops to limit losses

  • Trade execution and risk management are far more important to success than finding the best stocks/etfs

  • Risk and reward must be evaluated before every trade

  • Lost opportunities are easier to make up than lost capital

  • For every trade, you must have a plan B

  • Trading ETFs versus stocks is the correct approach for under capitalized portfolios

  • I learned a lot about lazy portfolio construction and simple timing models to boost risk-adjusted returns

  • Don't fight the Fed!

  • Markets can be irrational longer than you can remain solvent

  • Markets are rarely, if ever, rational or logical. Emotion, perception and liquidity rules

  • Be greedy when others are fearful

  • To think more like a market maker

  • Buy the dips in uptrending markets

  • Gut wrenching times are often most profitable times to invest

  • That "waiting for a pullback" when a market is going up is like "waiting for a better time to sell" when a market is going down. And that legging into a small position can still produce significant gains in an up market

  • Success comes with patience

  • Buying pullbacks on uptrending stocks worked better than chasing breakouts

  • Forced trades are usually loser trades

  • Don't force a trade that doesn't have the right risk/reward

  • Gains that accumulate over time can be taken away in a moment

  • When in doubt, knock it out

  • Revenge trading is a great way to lose lots of money

  • One needs to be ready to take advantage of low risk/high reward setups quickly when they present themselves. This requires having a plan, closely monitoring, and being able to make decisions quickly

  • Capital preservation always trumps capital accumulation

  • To protect investment principle and reduce risk

  • Keep losses as small as possible by using ATR

  • If you don't control fear, you'll miss opportunities

  • If you trade, pay much less attention to macroeconomics

  • Be open-minded and flexible!

  • Resist the urge to get too cautious just because markets are strong

  • When investing in a theme, eliminate the non-performing positions and increase the investment in those that are. Get out when the theme seems to be falling out of favor

  • You can't win, if you don't play (and the reverse). But learning to back off when appropriate is critical

  • To trade successfully, you must be comfortable taking risks

  • Good trading is all about risk management

  • The importance of being aggressive enough when conditions warrant

  • Understanding that there are different cycles in the market

  • You must be adaptive in order to be successful as a trader

  • Hit singles instead of swinging for the fences

  • It is better to enter a number of small positions than going "all in" at one time

  • Proper position sizing can make the difference between profits and losses

  • Trading less makes me more money

  • The art of perseverance

  • It is very important when trading to find what catalyst is coming and when, what the expectations are for the catalyst, and what the results of the catalyst are as soon as possible

  • Learn to trade both sides of the tape. Be able to comfortably go short as much as you go long

  • How much profits can be acquired by limiting entries to oversold situations

  • That fundamental ratios like "wide discount to book value" can help spot great opportunities

  • How useful stock screening can be to limit focus on only the best opportunities

  • Stock screens over time move in and out of favor

  • Trade using fundamentals, technicals & sentiment - tracking only one gives you an incomplete picture

  • How helpful it is to use correlation among various markets as an indicator

  • Stochastics/RSI can be useful to spot timely entry points which offer attractive risk/reward setups

  • Learning to draw and use trading channels (pitchforks) has been very helpful

  • Reversion to mean can be as strong a force as the moon's effect on the tide

  • I've learned about not using too many indicators - keep it simple as possible

  • The more ways traders can put the wind behind their backs -- with fundamentals, with momentum and sentiment, with good entries - the likelier they are to see trades that succeed or at least fail less tragically

  • Too often I trade just to trade. I need to wait for the right setup

  • I learned not to get sucked up in the day-to-day churn of news, opinions, etc.

  • Counter my tendencies to be a more aggressive trader than is wise

  • I learned that I am my worst enemy when it comes to trading

  • To reduce the amount of capital I risk on each trade

  • Asset allocation is more important than individual stock picks

  • Luck and randomness plays a larger role in outcomes than previously thought

  • To separate trading biases from longer term investing goals. Sometimes you really do need to "set it and forget it."

  • You must find what you like to trade the most, ie stocks, FX, futures, etc. and which time frame best describes your trading style and accommodates your life style

  • Learning how to play poker has helped me become a better trader

  • How important it is to keep a trading journal

  • Don't be lazy about record keeping

  • The more time and dedication I put the more successful I am

  • Knowing a little about a lot doesn't seem to help much when comes to trading

  • The market is controlled by few to the disadvantage of many

  • A distracted trader is a losing trader

  • I am not as good as I thought

  • I've learned that it's so much harder to walk the walk. I know what I should do...but I don't do it. On the other hand I've at long last learned not to beat myself up over failings and neglect my good points

  • That I'm really bad at selling and knowing when to sell stocks

  • I have a tendency to cut off my winners and give my losers time to "play out." Too often I let trades become investments and I'm much better at resisting that costly tendency

  • I am not ready to trade for myself. I would not hire myself to manage my own assets right now and need more mentoring and practice. This is an ego blow to myself, but I have to put my ego aside

  • It seems to get more difficult with the more I know

  • If a person is interested in making money from the stock market, they must not only look at the market when ever they feel like it, a part time trader, or making trading just a hobby. Because they would have missed part of the action that happened in March 2009, and would have missed out on great opportunities.

  • Learning never stops. The more you learn the better investor/trader you become

There's a lot of wisdom in these lessons. I would recommend picking a few of these to write down and remember as we challenge ourselves in 2010.

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