Last year I provided the following non-English interview for Trading Journal. While I turn down most interview invitations due to time restraints and lack of desire, this interview interested me primarily because it would introduce The Kirk Report to overseas traders.
While much of what I discuss in this short interview is old news to many of you, there may be a few things you still might find of interest.
1. When and why have you decided that you want to be a trader?
Like most loves in life, trading for a living picked me as much as I picked it for a career choice.
After getting married, my wife asked me what we should do to save for our future. Since we were both clueless regarding our options, she asked me to dedicate some time one weekend to figuring it out. At the time I was working as a private investor for a law firm while saving money to go to law school and our plan was for me to eventually become a lawyer. And, although I did several years later graduate from law school, my desire to trade for a living also flourished during that same time.
What was a very part-time hobby became a full-time passion. So, when I later graduated from law school back in 1999, I turned down several offers to join law firms so I could trade full time. The promise I made to my wife is that I would give it try for two years and, if I wasn’t successful, then I would be a lawyer. From then on, we’ve never looked back.
2. How long did it take you to become a profitable trader?
I was profitable right from the start. However, it wasn’t due to my skills, knowledge or so-called innate talent, but rather we were in a strong bull market at the time. As the saying goes, bulls markets make everyone look smart and that was certainly true in my case. It wasn’t really until market troubles after the turn of the century and I had attracted quite a large following online who learned of my track record that I learned that this game wasn’t so easy!
3. What is the most important part in your trading philosophy? We know that most people concentrate on systems.
By far, proper risk management is the most important part for me. I know that no matter what I do, many trades I make will not work out. Not because they weren’t correct or I was stupid, but that so many things outside of my control can go very wrong. So, when a trade moves against me, I focus on losing as little as possible and then move on to the next one.
4. How much initial capital you recommend to start trading full time?
There can be exceptions to this rule, but as a minimum you need $100,000 and no liabilities (i.e. debt of any kind). If you have debt, then you’ll need much more capital than this as all of us must do everything possible to position ourselves from a position of strength toward the market, not one of desperation, need or weakness. The more firepower you can muster (i.e. ready cash) the better. Many traders fail because they simply don’t have enough capital to start with and engage in emotionally driven trading as a result. Even for a professional with lots of experience, most of us can’t “trade for the mortgage” so you must avoid that at all costs. I also highly recommend for those thinking about trading for a living that they put aside at least one year of savings so they can live on that separate from their trading capital.
5. How do you handle risk?
Before every trade I make, I have a plan for that trade. In that plan I know where I will exit if the position moves against me and where I will take profits. I never add to losing positions and my focus is always on “lose small when wrong” which is quite often. Many times, I use position sizing to scale into winning positions – i.e. add more money to the positions that prove themselves to be successful which is the exact opposite of what most people do. Also, part of good risk management is to focus only on trades which offer the “least amount of downside risk versus potential for upside reward.” This calculation is based upon many things but simply looks for situations where my technical analysis suggests that the downside is very small but the potential for upside is tremendous. If I can’t find an opportunity like that, I simply don’t trade and I often go through relatively long periods of inactivity because I simply don’t like the market conditions and the setups that I discover.
6. If you could give just one advice to improve somebody’s performance, what would it be?
You must stop thinking that the market is logical or should act in a reasonable manner. Most of the analysis and headlines you’ll read make the faulty assumption that the market is logical when instead it driven primary by perception, emotions and liquidity which have nothing to do with reason or logic. This drives very smart people crazy and, in my experience, it is often the smart people who try to trade in order to prove to themselves and others how very smart they are. There is no logic or reason in the marketplace and the sooner you stop thinking in that way the better off you will be.
7. What are 3 major reasons people lose money in the markets?
No plan. No experience. No risk management.
8. Do you think everyone can be a successful trader? Is this a matter of time, persistence, and hard work, or you need to have inborn talents?
Yes, everyone can learn how to be successful, but not everyone has the stomach for it. Trading is very difficult and it takes years to learn well. Everything that comes naturally to you, including your instincts and emotions, will work against you when trading. I also think you must properly define what “success” actually means. For me, trading successfully simply means that the time, effort, pain, and money that I dedicate to trading is equal to or less than the rewards gained either financially or emotionally from it. Make no mistake, this is a very challenging way to make a living and most fail because their expectations are not realistic. If you’re looking for easy money, as many unfortunately do when trading, the market is exactly the worst place to look for it.
9. What do you think about indicators?
I’ve never found and, have stopped looking for, an indicator that works consistently well in all markets and/or doesn’t have major flaws. The best indicator I suppose of all is price action and the patterns that develop from it. If you focus on those two things, you’ll do quite well in my experience as long as you also implement and abide by a consistent stop loss system. Most traders unfortunately use indicators to justify their bias or make a position feel more comfortable to them, which is exactly how not to use them if at all. Indicators can often be skewed to show you anything you want or expect to see in a trade and that’s a big problem many traders have to fight against.
10. What is the best advice somebody gave you about trading?
That’s an easy one – you can be wrong more than half the time and still make millions in trading. When starting out I thought I had to be perfect in every trade I made but that was a mistake. When my first mentor told me that I could be wrong most of the time and still earn a great living trading, I didn’t believe it until he actually shared his tax returns with me showing years where he made millions even though around 70% of he trades he made were wrong and losing positions. His goal was to keep losers small (which he did quite well and which I try to do as well) and then really pressed on winning positions (adding to them and being very aggressive when correct). Most people do the exact opposite and that lesson has shaped my approach considerably.
11. Can technical analysis predict the future, and if no, what is use of it?
Charts can only tell you what has already happened in the past, but they still have tremendous value as patterns do frequently repeat. In addition, they provide a good assessment of where the overall trend is and, as a trader, you always want to try to trade with the trend especially when that trend is present in multiple time frames.
12. What is your Achilles heel in trading?
As I’ve grown older and have collected through the years many emotional battle scars from trading, I have to constantly fight against being too risk adverse. It was much easier in the early days when I didn’t have a fortune built through two decades of strenuous trading as I had nothing really to lose. But, now I have much at risk and others who count on me which causes me to be far less aggressive than I know I should be in certain situations. In recent years I’ve been working on this by significantly reducing my available trading capital and putting that money in other places so I can feel more at ease at being very aggressive when the conditions are ideal.