Better Trades Interviews: Bill Kraft

Joe Taylor
Updated: January 14, 2009

What is some general background information you feel would be of interest to our readers?

After retiring from the law practice, I had invested the bulk of my liquid assets in the photo business. Though our store was named the "best of the best" each year, the biggest paycheck I remember taking was only $200. When I turned to trading, failure wasn't an option so I absolutely had to take it seriously, which I did.

How long have you been trading?

I have been a full time trader for about 10 years now. Of course, throughout the many years of my adult life, I had bought stocks, usually watched them go down and then sold them for a loss. In the late 1990's I figured out that if I wanted to make money in trading I better get some education and that made all the difference.

How did you get involved in trading?

After leaving the law practice and finding that the photo business was not what I had hoped and anticipated, I began a search for something interesting and, hopefully, lucrative. That search led me to trading after I attended a free seminar and had done some reading. As time wore on, I took classes from some wonderful teachers. Their guidance and my studies added depth and steadily increased my involvement in trading.

What is the most enjoyable part about trading the markets?

That's an easy one. I have complete control of my own time and I can do it when I want and where I want. We now have homes in Colorado, Arizona, and Hawaii and I can trade at all of them. My longest commute is about 40 feet from a bedroom to an office in my home.

What is the least enjoyable part about trading the markets?

Trading is my passion and I can't say there is any part I don't enjoy.

What do you see as the biggest changes in trading from when you started?

Speed and the ability to trade online without the intervention of a phone call to a broker. When I began, I was using end of day quotes. Real time quotes were available but were quite costly to obtain. Initially my computer was connected through a slow phone line. Now I have real time quotes and DSL.

Do you see these changes as beneficial or more of a hindrance when it comes to trading?

I see the changes as beneficial but I should caution that I have seen many traders including people who have come to me for coaching have the belief that the faster the time frame the more likely we are to have success. I don't agree with that because I believe that people tend to rely more on emotions when they are trying to trade quickly in fast time frames. I am a believer that the best trading decisions are made out of the heat of battle when the trader can apply discipline to his method.

Traditionally stock/options trading is seen as an arena for men...do you think that's changing?

Gradually, it seems more women are becoming interested in trading but the ratio of my coaching students is still about 8 or 10 men to 1 woman. I would expect that to increase over time since so much wealth is in the hands of widows whose husbands have predeceased them. Additionally women have been able to obtain higher education more easily than in the past and are now in the majority on many college campuses. The traditional roles have changed in modern times and with that I would expect a continuing increase in the percentage of female traders.

Do you think women have any special advantage when it comes to trading that men do not have?

Though women are often accused of being more emotional, my own observations lead me to conclude that they may well be able to set and follow trading rules better than men. They seem to have a stronger ability to discipline trades than many men I have observed.

What time frames do you enjoy trading?

I consider myself to be a swing trader since historically most of my trades seem to fall in the two week to six week range. I want to emphasize, though, that I try to let the stock movement take me out of a position rather than me try to determine how long a trade will be. Premature exits often translate into cutting profits and that is something we just don't want to do.

What are your favorite instruments to trade (stocks, options, futures, Forex, etc.)

I am primarily a stock and option trader though I sometimes take futures positions as well.

Do you have a favorite strategy?

I try to let the market dictate what strategy to use. I guess if I had to say my favorite strategy is probably selling naked puts, but that strategy is reserved for a bullish stock in a bullish sector in a bullish market. I also frequently play spreads, both debit and credit, and what I use depends on what I see the markets are doing at any given time.

Any trading secrets you are willing to share?

Yes. It probably isn't what most people might guess. There is no holy grail of trading so the secret is to know yourself. Formulate a plan that fits you. Make sure it includes an exit strategy and that you have the exit strategy in place before you ever enter a trade. Set up a plan to manage your trading money and use reward to risk potentials to your advantage. I discuss these elements in detail in "Trade Your Way to Wealth," and I am convinced they are more critical than any particular strategy.

What would you recommend to someone just starting out in the trading arena? How should they get started, where should they focus their energies etc.?

Learn before you throw money into the fray. Read, attend seminars, watch DVDs, talk to successful traders. All too often, impatience controls and folks start trading before they have a clue about what they are doing. Paper trade what you learn before putting money at risk. Paper trading definitely isn't the same as trading real money because the same emotions aren't present but it does help learn a strategy inside out before putting cash at risk.

you think trading is something people could do full time to make a living?

Some can. I do. However, for many it really isn't a viable option. They may not like it for one thing. For another, they may not have enough cash to start right away. Unfortunately, what I have seen over the years is that most who have interest initially in full time trading are unwilling to do what it takes --go through the study and learning-- necessary to become a good trader. Successful trading may be simple, but it definitely isn't easy and it always involves risk. Many people are just uncomfortable with the risk and are unwilling to learn how to limit or remove the risk.

How big of a trading account would you recommend to someone to start with if they wanted to do this full time?

That depends, again, on the individual and their circumstances. I would estimate that a person should have enough liquid capital to live for at least 2 years plus $50,000 to $100,000 to trade. In my own case, I started with about $50,000 and I had a modest income flowing in from the sale of my photo business.

Which of your books is the most popular?

"Trade Your Way to Wealth" is the only one that has been released so far and it has done well. I would guess "Smart Investors Money Machine" will do as well or maybe better because I am better known now and the second book was written for a wider audience to include investors and neophytes as well as those interested in trading.

Why do you think that this book is so popular?

From readers to whom I have spoken, I think much of the popularity stems from three things: 1. it is easy to read and understand 2. it simplifies a subject that many people fear (trading) and 3. it emphasizes risk awareness and shows how to reduce and, in some cases, even eliminate risk.

Is there a book you would recommend to a beginner to start with? Or do you recommend a particular order for reading your books?

I think "Trade Your Way to Wealth" is a good starter as is Doug Sutton's "Beginning Investors Bible."

What books have inspired you in your trading career.

Robert Kiyosaki's "Rich Dad, Poor Dad,"Doug Sutton's "Beginning Investors Bible," Dr. Alexander Elder's "Trading for a Living" and Darlene Nelson's "Stock Split Secrets" were all important to my evolution as a trade.

Where do you see the future of trading heading?

I learned long ago that predicting is an impossible proposition. My guess is that successful trading will continue to be an activity conducted by a relatively small minority and that people motivated by greed but without knowledge and training will always come into the markets looking for the quick kill and most of them will leave through fear or when their money has been captured.

Any advise on trading the recent volatility?

I trade a lot of volatility myself. Just like the old adage of buy low, sell high, a volatility trader sells high implied volatility as it appears to turn over and buys low implied volatility as it appears to turn up.

Any advise on trading the current Bear market?

The trend is your friend. As long as the trend is in place, don't place (m)any bets in the opposite direction.

Do you see a bottom near here? If not, when?

As I indicated earlier, I believe predicting is futile. Not to be a smart a__, what I think has absolutely no bearing on what the market will do. I don't know whether we have seen a bottom or whether there will be another leg or more down. News is always in the future and there just isn't any predicting the future so I just try to take what it looks like a market will give and keep following the position with my exit strategy. That way at least I should get out with little damage when I am wrong on the direction.

Any parting words or advice you would like to share?

Understand yourself and your personal risk tolerances. Learn to take what the market will give and try not to force positions. Impatience like fear and greed are the enemies of all of us traders so do your best to avoid them in your trading. The secret is learning how.

~ Bill Kraft