Charles Kirk is the widely-read blogger who writes The Kirk Report. In August of 2009, he conducted a lengthy interview with me, which he has kindly permitted me to republish here. I think this interview does a good job answering a lot of questions about my trading style. Enjoy!
Friday, August 21, 2009 at 8:22 AM
People read trading blogs for all sorts of reasons. Some do it to learn something new, others do it to find new trading ideas and many do it simply for entertainment. For me, Tim Knight’s Slope of Hope has been a great source of interesting perspectives as well as pure enjoyment.
Tim is an interesting fellow and his blog is worthwhile. He has been actively trading since 1987 and uses technical analysis as a key part of his approach. However, you can expect to see much more than charts there. In fact, every time you visit his blog you can count on Tim saying or sharing something that is likely to amuse you and/or at least get you thinking about something. His perspectives are always fresh, witty, and clearly different than the typical “we’re always in a bull market” garbage found within the mainstream financial press. That’s why Tim’s blog has always been among the blogs I read and one of the main reasons why I’ve invited Tim to participate in this month’s Q&A.
Tim’s “Slope of Hope” is one of those must-read blogs for anyone interested in the market.
We sincerely hope you find this Q&A both enjoyable and helpful.
Q&A with Tim Knight
Kirk: Hi Tim. Thank you for taking the time away from your daily trading routine 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 Q&A series!
Tim Knight: Thanks, Kirk. It’s just about impossible to look at a list of top trading blogs and not see the Kirk Report, so it’s really an honor for me to be mentioned on your site.
Kirk: For those who don’t know you, please tell us a little about your professional and educational background.
Tim Knight: My educational background is nothing glorious – I was eager to get into the world of work, so I got my four year degree in two and a half years from Santa Clara University, which is a Jesuit college in California (and the state’s first higher education institution). My experience with computers, though, began long before that – I got serious about computers back in 1980, and I wrote my first book about them – The World Connection – when I was 16 years old. I went on to write twenty different books about computers, which allowed me to pay for my own college education and living expenses, and I had a brief stint with “real” jobs at Apple Computer and Montgomery Securities.
The first trade I ever placed was on Black Monday in 1987; perhaps that experience etched bearishness into my head permanently. I traded casually for years, but I didn’t get really serious about it until 1992 when I founded Prophet, which is where I’ve been ever since.
Kirk: How did you get interested in trading?
Tim Knight: This may seem like a random reference, but it’s not. When I was a young boy growing up in Louisiana, where it rains a lot, I would always get mesmerized at the beads of water bobbing up and down the side of the car’s window. Since the car was in motion, the water droplets would jiggle up and down, clinging to the window, and watching the random movement of the water fascinated me.
Maybe that’s why I was predisposed to technical analysis. I like to see relationships of time and motion, and I find the ability to predict the future to be empowering. I fail at those predictions part of the time, obviously, but I am on a constant quest to improve my skills as a trader, one of the most important being to draw probabilistic conclusions from a given chart.
Kirk: How would you describe your style of trading?
Tim Knight: I guess the words I’d use to describe my trading would be “technical analysis-based”, “swing”, and “broadly directional.” I use charts pretty much exclusively as the basis of my rationale on any given position, and I’m looking for broad moves either up or down. I don’t get fancy with my positions – – just straight-up equity plays or options.
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?
Tim Knight: It really depends on the week, but I’d say a weekly range would be anywhere from a couple dozen trades to maybe a hundred. The number of positions I have open at any one time can range from as few as eighty to as many as a couple hundred.
Kirk: That’s pretty active, Tim. I’d go crazy trying to manage a portfolio of more than a dozen stocks! What would you say is your average win/loss ratio for your trades?
Tim Knight: That’s something I’ve never really tracked, since I’m much more interested in my equity curve. I’ve got plenty of losers, believe me, but I go out of my way to keep them on the small side.
Kirk: How has your overall performance been recently, as well as the past few years?
Tim Knight: I’ve been doing pretty well, but so far 2008 was my standout year. At the end of 2008, my personal account was up something like +180%, and my 401k, which is self-directed, was up about +438%.
Kirk: No doubt your bearish perspectives helped generate those recent returns! Tell us a little about your initial learning process and anything significant you learned within the first year or two of trading.
Tim Knight: My learning process was a lot longer than a year or two – I’ve been at this twenty years, and I’m still learning! I think the most important thing I’ve learned is this – – the synopsis of what it takes to be a good trader can easily fit on one page, if not one paragraph. But actually executing those principles consistently is something which runs completely against basic human nature, so it is a tremendous challenge for most people to actually adhere to those principles. The paradox of trading is that what feels right is usually the wrong decision.
Kirk: Indeed, this is something we’ve learned from others like William Eckhardt who said that “if you’re playing for emotional satisfaction, you’re bound to lose, because what feels good is often the wrong thing to do.” So, where do you think most traders go wrong in the first couple of years?
Tim Knight: All the “classic” mistakes one hears about – – off the top of my head, I’d say averaging down, not having stops, over-committing to a particular position. At its core, however, the biggest mistake is that people take the most important rule of trading – Cut Losses Short and Let Winners Run – and do exactly the opposite. Taking profits quickly (because it feels good) and letting losers run (because it is hard to admit defeat) is how most people operate, and it’s understandable, given the way human beings tick.
Kirk: After the initial learning curve, what do you think marked the next stage of your progress of becoming a successful trader?
Tim Knight: The real sea change for me came when I started blogging. After I sold Prophet, my wife thought people might find it interesting to read what I had to say about the market. Since I didn’t have an audience, I thought it would be a waste of time, but I finally started doing a post a day. The blog grew really slowly, at first just read by friends and family. But I made a real habit of it, and the pressure of being “on stage” with my trading made me a much more astute trader. I had to think hard about what I was doing, because I don’t get my jollies out of looking foolish, and I wanted to write things and do things which made sense in the long run.
Kirk: So, in a way, the blog held you accountable for your ideas and analysis much like many find through trading journals.
Since you began trading in 1987, do you feel like you have perfected your system?
Tim Knight: I don’t have a system, and even if I thought I did, I’d never claim to have perfected it. The markets are ever-changing, just like anything else. An amazing campaign manager from 1968 might find himself completely lost in today’s political world, and a superb mutual fund manager from 1975 might be a colossal failure today. To me, the entire act of trading is a constant examination of the relationship between (1) you and (2) the market. That may sound simple, but to my way of thinking it’s just as complex and challenging as any deeply personal relationship.
Kirk: Over the past few years, what would you say is the most significant lesson you’ve learned about yourself and trading?
Tim Knight: Speaking for myself, I’d say the biggest lesson – or, more accurately, challenge – is fighting my bearish tendencies. I’m sure the “permabulls” had a devil of a time in 2000-2002 and mid 2007-early 2009, but by the same token, we bearish types had it really rough in all the other years. I’ve worked really hard to open my eyes up to both bullish and bearish opportunities, going so far as to add a feature in ProphetCharts which literally flips it upside down so people with “bear on the brain” like me can view charts more objectively.
Kirk: That’s very interesting, Tim. I have often recommended others to flip the chart upside down to discover any bias (see this post back in 2004). Frankly, I’m surprised that more charting software doesn’t enable this feature. So, good for you for recognizing the importance of understanding yourself in relation to your analysis of the charts.
Also, I have to tell you that I really love it when traders like you have provided their trading rules especially when they are concise and to the point as you have done:
So, here’s my first question – how do you set your stops?
Tim Knight: A lot of people ask me this, and my answer – it depends on the chart – is surely very unsatisfying. But it really does depend on the chart, and I am very specific about where I place stops; I’ve never used trailing stops or anything else automatic like that.
Let’s take Comtech (CMTL), for example. It has a very clear line of resistance at $35.10; there is a gap down at that point, and above it is a very well-formed topping pattern.
The whole purpose of a stop is, once crossed, to tell me that my analysis is wrong; in other words, it tells me that the rationale I used to get into a given position is no longer valid, and thus the trade should no longer be held. It’s as simple as that.
Kirk: Fair enough, Tim. You’ve also said that “partial exits are preferable to outright closes.” Can you take us through a trade you’ve made recently in order to show how a partial exit was the best approach?
Tim Knight: I can’t think of a recent one which springs to mind, but I’ll give you a very simplistic hypothetical. Let’s say you bought 1,000 shares of a stock at $5, and you’re fortunate enough to see if move up to $10. You aren’t certain if it’s going to go any higher, so you sell half your position, 500 shares, and recapture your entire initial investment. You are now in a very powerful place, psychologically, because all of your risk capital has been eliminated: in other words, you can let the position trade more freely (in spite of your uncertainty of its direction) without being concerned about taking any kind of hit on the position; added to which, it’s virtually impossible the stock will find its way down to $0, so you are virtually guaranteed a profit. The point is that if the stock eventually gets up to $25, you’ve got a wonderful profit without having had to second-guess the position on the way up.
Kirk: As the saying goes – when in doubt, sell half – because if it keeps going up, you still are right because you have a position on. Likewise, if the stock goes down at least you sold some.
So, do you believe in scaling into a new trading position? Why or why not?
Tim Knight: Scaling into a position makes sense for a couple of reasons: first, it reduces your risk. If you are wrong, then the loss you take is going to be more modest, and if you are right, then “averaging up” into a winning trade is just as smart as “averaging down” a losing trade is dumb. And second, I think it’s rare that a person enters a trade at exactly the perfect time, so scaling into it allows some forgiveness (and less stress) as the position hopefully starts to move in your direction.
Kirk: Do you ever average down into a losing trade?
Tim Knight: I really try to avoid this, and I’m pretty good about it, mainly because my stops do the work for me. I never use a “mental stop” – my stop prices are real, and if something is not going my way, I’ll simply be taken out.
Kirk: As outlined by your trading rules, your trend analysis is both simple and straightforward – i.e. the trend of the market is defined by the 13-week EWA and 52-week EWA of the $SPX. Based on the relative position of the 13-week EWA, the market is either Up-Trending (13-week EWA above the 52-week) or Down-Trending, and no more than 20% of the value of all your positions may be positioned against that trend at any one time. Where can traders track the EWA online based on this simple trend system?
Tim Knight: Well, it probably comes as no surprise that I use ProphetCharts, and I use that product more than any computer product I’ve ever touched. There are, of course, other good sites on the Internet, and quite a few folks on my blog use StockCharts.com, which is a site I’ve always respected.
Kirk: I like that you’ve placed a restriction that says that 20% of your positions must not be positioned against the trend. How did you arrive at that number and why do you think that’s important?
Tim Knight: It isn’t a number derived from any scientific method; it just seemed right to not be 100% in one particular direction. During bear markets, some extraordinary stocks push higher, and during bull markets, some stocks are prone to falling. So I came up with that 80/20 split to give myself some latitude to “hedge” a portfolio instead of being utterly bullish or bearish.
Kirk: To be clear, do you think that it is a good idea to always have 20% of your assets positioned against the prevailing trend? Why or why not?
Tim Knight: I suppose there are a couple of good reasons. One of them is that I believe in any given market, there are opportunities in both directions, and it keeps you sharper as a trader to be able to play positions both ways. Secondly, let’s face it, all trends eventually end, and being able to capture a portion of a trend change will help soften the blow to your other positions. In other words, if you’re 80% long and 20% short, and the market starts to turn down in earnest, the 20% shorts are going to be a helpful save (and a good signal) for the losing longs.
Kirk: Another rule says that positions should be regularly updated for the sake of updated stops. How you recommend traders do this?
Tim Knight: It’s a lot of work, but it doesn’t have to be a daily exercise. I typically do a “clean sweep” of all my stops whenever the indexes have moved in my direction some meaningful amount. For instance, if I have a bunch of short positions, and the Dow 30 has moved down, say, 500 points since I entered them, then it’s high time I get in there and review those charts, one by one, and tighten up those stops. This allows me to at least lock in some partial profits if I’m stopped out, and it lets me sleep easier at night knowing that I’m not going to expose myself to, in this case, a subsequent 700 point rise in the Dow and see all those profits turn into losses.
Kirk: You also have a rule against trading within the first 30 minutes of the trading day. Are there any other times you try to avoid and when are you typically most active?
Tim Knight: The first 30 minutes are the only “hands off” time for me. Sometimes people ask if I permit my stops to do their work during that half hour; absolutely! The point is for me not to be trading, but by all means my stops have to be there doing their job.
These days, the last 90 minutes of the trading day have become their own alternate universe, although that may change at some point. But the “end of day run-up” has become almost a cliché in this market. I also tend to back off during Fed days (FOMC announcements), since the markets typically go completely spastic after the Fed announcement, and it takes at least an hour for them to figure out which direction they want to go.
Kirk: Emotions are a large component of trading. Your rule is first to “be aware” of your emotions and the importance of keeping fear and hubris in control in order to have a “carefree and fearless” state of mind. This is easier said than done. In your view, how do traders learn the level of emotional control to trade well?
Tim Knight: The area of emotional control is something I think a person can only partly handle, because some of us are simply more emotional than others. Making money can be euphoric, and losing money can be devastating, and swaying between those two feelings can be very challenging for most individuals. My own “self-improvement course” in this area is to read good books on the topic. I really like Trading In the Zone, and I’m currently readingEnhancing Trading Performance by Dr. Brett Steenbarger.
Kirk: Your last rule speaks of position sizing and that it must “be consistent among instrument types irrespective of anticipated opportunity.” Can you provide an example of a recent trade and explain your method for determining the size relative to your own trading portfolio?
Tim Knight: Well, I really try to keep things simple. Given my current portfolio size, I try to keep individual equity positions at $10,000, options positions at $5,000, and ETF positions at anywhere from $100,000 to $250,000, depending on how strongly I feel about its potential direction. That’s probably about the least sophisticated portfolio management system on the planet, but it at least assures me that no single equity’s surprise move is going to severely affect my overall portfolio.
Kirk: What mistakes do you think most traders make concerning position sizing?
Tim Knight: Probably looking for home runs – – maybe they put all their eggs into one basket. To be honest, I don’t really have exposure to the portfolios of others, so this is just speculation on my part.
Kirk: As you’ve said, creating rules is great, but it isn’t easy to follow them. In your experience, which is the most difficult rule to follow and why?
Tim Knight: The most difficult rule to follow is to let your profits run. That one, for me, has been atrociously difficult. I can’t tell you how many times I’ve taken a profit, patted myself on the back, and watched the same position continue to move dramatically higher (or lower, in the case of shorts).
Kirk:Are there any techniques that you are using to let winners run?
Tim Knight: The core technique I use for letting my winners run is to keep my stop prices fresh. Assuming a position is moving in my direction, I will periodically ratchet the stop price up (or down, as the case may be) to a technically-significant level so that I can at least preserve a portion of my profits if things move against me. This has been for me the only reliable way to fight the urge to take all my profits. I have found this to be much easier on bearish positions than bullish ones, since it is sometimes hard to accept the possibility that something on the long side can move up hundreds – or even thousands – of percent.
Kirk: Now that we’ve talked about your trading rules, what are some of the key rules or factors that you consider before selecting any potential trading opportunity?
Tim Knight: I really want the risk/reward to be in my favor, so the most important thing to me is that the stop price is relatively close and the potential profit is relatively far away (in other words, the potential profit dwarfs the potential loss, because I like operating from the assumption that the trade will probably go wrong). One really great position can make up for a lot of trading “sins” in the past.
Kirk: Please explain the process of how you go about finding your trades. Can you take us through a relatively new trade of yours from the very beginning starting with how you discovered the idea to the first position through the final sell?
Tim Knight: It’s all about organization. I’m a pretty organized person by nature, and I’m pretty manic when it comes to my watch lists. In ProphetCharts, I’ve got a series of watch lists set up, and stocks move from place to place depending on my disposition toward each of them.
First, I’ve got my “Core List”, which is the general holding bin for stocks. If something looks like it’s starting to “gel” as a good short opportunity, I’ll move it to a watch list I call Bear Pen, and if it’s starting to look good on the long side, it goes into the Bull Pen. That way, I can really focus on those two holding pens.
If and when an item in those pens actually looks ready to trade, I’ll move it to either Candidate Longs or Candidate Shorts, and once the trade is actually in place, the symbol will move to whatever portfolio is appropriate (I manage several personal portfolios). So my watch lists are in a constant migratory state.
As for actually looking for trading ideas, I follow about 800 stocks, and that gives me all the ideas I need. I virtually never do a scan or use any of the other services on the web to smoke out trading ideas, simply because I’ve already got a very good universe of tradable instruments that I already follow.
Kirk: What would you say are your favorite kinds of technical setups?
Tim Knight: The classic head and shoulders – both normal and inverted – is probably my favorite. It’s pretty easy to identify, has a good risk/reward ratio, and it has worked out well for me historically. I also like upside breakouts with strong volume for bullish positions, for obvious reasons.
Kirk: Have you noticed any setups more prone to failure than they have been in the past? Are there any patterns you tend to shy away from based on personal experience?
Tim Knight: I’m starting to notice that trendline retracements can be somewhat dicey. This chart of Brigham Exploration (BEXP)for instance, had a very clean retracement to its trendline, stopping just beneath it. But the next day, it just kept going – – so it’s pretty evident that these lines in the sand can be breached.
Kirk: In recent years, have you discovered any new patterns that have been helping you achieve more success?
Tim Knight: It isn’t a pattern, per se, but there’s a service called Retracement Levels that was created by a regular reader on my blog which I like quite a lot. These are simply horizontal levels on various markets which represent meaningful support and resistance levels. During the insanity of autumn 2008, I found them to be indispensible, particularly since the market was so volatile.
Kirk: I know you utilize Fibonacci in your analysis. In your experience, what is the strength and weakness from this type of analysis?
Tim Knight: The principle weakness is they have to be applied correctly, and that takes a certain amount of experience and an “eye” for the chart. Of the four Fibonacci studies in ProphetCharts – retracements, fan lines, arcs, and time series – I’ve found retracements to be by far the most useful. Fans work from time to time, but frankly I hardly ever have found utility from the other two.
Kirk: In your book, Chart Your Way To Profits, you talk about essential indicators like moving averages, Bollinger bands, the parabolic stop and reversal (PSAR), and moving average convergence divergence (MACD). Among all of these methods, which are your favorites and why?
Tim Knight: Some people may find this surprising, but I don’t use any of them. It’s not because I’ve tried them and they don’t work; it’s simply that my style of charting is quite vanilla, and I haven’t found the use of derived information to be helpful for me personally.
Kirk: Very interesting. So, do you use different time frames in your technical analysis? If so, what time frames do you like to use and why?
Tim Knight: I’m pretty consistent these days using a ten year daily chart. That might seem like a lot, but it captures the past two bear markets and the big bull run in between. I like to keep an eye on the 10 day minute bar chart for indexes during the trading day, but otherwise the ten year daily is my reference.
Kirk: All good traders dedicate a lot of time and effort to improvement and to reducing mistakes. How has your trading method evolved and improved over the years?
Tim Knight: I think my organization skills and my psychological discipline have improved the most. If anything, I’ve simplified my method and approach.
Kirk: Can you provide an example of something you thought was true when trading early in your career and now believe is just dead wrong?
Tim Knight: I used to think individual stocks could have minds of their own and act independently of the market, but I now know that a huge part of what any stock does depends on what the market as a whole is doing. There are always exceptions – – I remember that, for whatever reason, Krispy Kreme’s stock did fantastically well during the bursting of the tech bubble – – but on the whole it’s really, really tough to fight the general trend.
Kirk: How much time and attention do you pay attention to others’ opinions about the market and/or stocks you are trading?
Tim Knight: I’m not especially interested in other opinions about individual stocks, but there are a few places I respect for opinions on the market in general. I enjoy Elliott Wave International’s publications, particularly their Short-Term Update, and of course I draw a lot of knowledge and perspective from the comments section of Slope, since there are tens of thousands of readers on a regular basis.
Kirk: I know you’ve said you like to do “hand-chart analysis.” In fact, you shared a very interesting chart some time ago about the future of the market. What can traders accomplish by charting stocks and the markets in this manner and, by the way, how did you create that chart?
Tim Knight: I created the chart by comparing the 1937-1941 market to our own market, since I felt it was the closest historical “template”. So far, it’s proved remarkably prescient, but we’ll have to see how the next few years pan out. I have hardly ever done something like this before, but I felt inspired on that particular day about the future direction of the market. I only wish I had paid closer attention to my own work, since I missed a good chunk of the run-up from March through August of 2009, even though my own chart totally nailed it.
Kirk: It is human nature to think the markets must conform to our view of reality, but as we’ve both seen, the market is not rational but emotional. Over the years and, especially recently, I’ve witnessed many traders suffer performance anxiety because of their negative views about the economy and the skepticism over the bailouts and from just fighting the short-term trends. In your view, how do traders learn to seperate their opinions and bias and still profit from the market while having a large amount of skepticism? I’m asking this question of you particularly because I think this is one of your strengths.
Tim Knight: I’m appreciative that you think it’s one of my strengths, although my bias about what’s been going on with all the government bailouts is tough for me to shake. My point of view, the more tunnel-vision you can have with respect to the charts, the better. If you can focus on your own analysis – – in my case, purely charts – – and filter out all the other noise, it’s bound to help. And I never, ever flick on the television to hear what the financial news networks are talking about.
Kirk: Please describe a typical trading day for you. How do you organize and dedicate your time?
Tim Knight: I live on the West Coast, so my day starts early. I am usually up at about 5:30 or 6 a.m. to catch up on emails, check out the overnight markets, and look at comments on my blog. I’ll typical do a quick post before the market opens. The first half hour of the day, I’m simply watching what’s going on and going through my key watch lists. Once the first half hour is done, I’m usually ready to execute some ideas.
I spend the trading day doing blog posts, answering emails, working on new product features, and managing trades. I like to do an end-of-day wrap-up after the markets have closed, and then I’ll catch up on other work in general. The 6:30 a.m. to 1:00 p.m. time block is precious to me, because that’s when I’m really focused on trading and writing.
Kirk: Can you give us some idea of what tools you use to monitor the markets (i.e. your trading platform, software, websites, etc?)
Tim Knight: It’s actually very simple. I’ve got two computers – a high-end Dell laptop and a Mac PowerBook. Each of them drives two monitors, my favorite of which is my honkin’ big 30 inch Apple monitor whose sole purpose in life is to show me the S&P e-mini future bob along. I am very loyal to Prophet’s own products, so I use MarketMatrix to track my portfolios and ProphetCharts – of course! – to make my trading decisions and keep my watch lists in order.
Kirk: 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?
Tim Knight: Recently the biggest change has been the huge influence of the government and investment banks in trying to turn the economy around. The government has never, at least in my lifetime, intervened so radically in the markets, and that has caused a lot of methods and systems that used to work very reliably to be set aside as useless until this whole thing blows over and we can all return to a semblance of normalcy.
Kirk: Do you think it is easier or more challenging to trade for a living now than in the past?
Tim Knight: I think it’s somewhat easier, but only because there is such a better selection of trading vehicles. Traders have an amazing set of tools to work with in the form of all the new ETFs that have come out, in addition to the e-mini futures, and the product selection just keeps getting better. It wasn’t long ago that the biggest innovation around were the inverse mutual funds which set their prices just twice a day, and you had to place the order something like 30 minutes in advance.
Kirk: What kind of advice would you give a person just now beginning in trading the markets?
Tim Knight: I would spend a lot of time hanging out in a quality online community. Slope of Hope comes to mind, naturally, but there are plenty of other good blogs and forums out there where people can either lurk and learn or actually get in there and participate. A couple of kindred blogs are EvilSpeculator and xTrends. Learning from peers is absolutely crucial, and continuing the learning once you start trading is even more important.
Kirk: A number of people who read my website desire to trade for a living. Like you, 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?
Tim Knight: I’m sorry, I really don’t. Some people have taken small sums and made fortunes, and some people have done just the opposite. It’s like the old joke – “How do you make a small fortune trading commodities? Start with a large one.” So I don’t know of any magic number, and there certainly isn’t any dollar figure that will guarantee you are immune to being badly damaged if you don’t trade well.
Kirk: What are the things you like best about the trading business?
Tim Knight: The fact that I and I alone am responsible for the results. To some people, that might be a negative, since it’s always more comforting to say that such-and-so caused a bad thing to happen to you. But to be able to look in the mirror and know that you are the only person who is going to create a result, whether for good or bad, can be very empowering.
Kirk: What are the downsides to trading for a living?
Tim Knight: The uncertainty – – you have absolutely no control of the market, and even though it’s very easy for a person to say “just trade what you see”, that advice is about as useful as telling a newly married couple, “don’t ever have a fight.” People and markets are complex creatures, and things aren’t always going to go as you plan.
Kirk: How does a person know it is the right time and the right decision for them to trade for a living?
Tim Knight: I think most of us would agree that it’s important to have the basics in place for core living expenses. You don’t want to be trading the children’s tuition or the family grocery money. No matter how unlikely you may think it is, you have to be in a position to lose 100% of your trading capital and not have it affect your lifestyle. Otherwise, the pressure will simply screw up your mindset.
How long a person trades before getting really serious about it depends on the person’s innate ability, and I do think that varies widely. Just as some people are born to be musicians, I think some people were born to be traders. I was not a “born” trader, so it’s taken me many, many years. But there are surely 21 year olds out there who are ready to trade for a living, and I’m sure there are 70 year old people with 50 years of trading experience that still should just keep it as an amusing hobby and nothing more.
Kirk: Because of your website I’m sure you are privileged to know a lot of different kinds of traders. Where do you see traders missing the boat?
Tim Knight: I think the biggest boat missed is underestimating just how far a market or an individual security can go. There seems to be nothing more common than someone buying a stock at $5, selling it at $7, congratulating themselves on a terrific profit, and then seeing the stock go up to $30 (or, for a bear, similar figures in the opposite direction). I am quite guilty of this myself – I bought the stock Avis Budget Group (CAR) on March 2nd for 42 cents, got stopped out the next day for a tiny loss, and then watched the stock move up to over $10 in just a few months. Now that was a big boat to miss!
Kirk: Likewise, what are some qualities you frequently find among the most successful traders you know?
Tim Knight: I’d say “even-handedness.” There’s a regular reader on my site, Brinkley, who has a knack for having a very impartial view of the market, no matter what it’s doing. I really admire that, and I think a lot of my readers look up to her for the same quality which is pretty difficult to find among traders.
Kirk: Thinking back, what was most instrumental in your development into becoming a successful trader?
Tim Knight: There’s no doubt that writing Slope of Hope has been the biggest development for me, simply because I have to not only answer to myself but also to the several tens of thousands of people who read my work. It has made me a much more careful, thoughtful, and logical trader.
Kirk: When all is said and done, in your experience what is the best way to learn how to trade?
Tim Knight: I have long been a “learning by doing” sort of person. The tricky thing about doing this with trading is that you’re dealing with actual money. Some people are big believers in paper trading, but I’m afraid that’s just not the same. I suppose it helps a person acquaint themselves with the actual mechanics of placing orders, watching charts, and placing stops – all of which are healthy – but I don’t think one really starts learning how to be a trader until they are actually trading with their own dollars and cents.
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?
Tim Knight: At the risk of sounding repetitious, my personal challenge is to balance the bear in with me with some bull. I’m afraid I enjoy bear markets way too much for my own good, particularly since they move so quickly, which tends to agree with my impatient nature. But the fact is that bull markets are more common and longer-lasting than bear markets, and I won’t be a consistently successful trader unless I can be as good a bull as I am a bear. That’s my ongoing goal.
Kirk: At this point of your career, who do you look up to for inspiration and guidance?
Tim Knight: I don’t have a particular mentor or role model, so books about traders and trading are my stand-in. I enjoy books about trading psychology, successful traders, and interesting charting techniques. I’m in the final throes of getting my Chartered Market Technician certification, so that is exposing me to a lot of required reading that I normally might not have discovered.
Kirk: Although I know both of us share of love for the markets and trading, what are your long-term career plans and future for your website?
Tim Knight: My overriding principle in anything I do is that work should never actually seem like work. Doing what you love seems like a common truism these days, but I have lived that credo for my entire life. The popularity of my blog has opened up some new opportunities that I’m going to be exploring very soon, but one thing I’m pretty certain about is that I’m going to keep writing Slope of Hope as long as my readers will continue to put up with me.
Kirk: Finally, if you had one piece of advice to share with all investors and traders, what would it be?
Tim Knight: Be patient! Learning how to trade profitably and consistently isn’t something you do after attending a weekend seminar. It can be a lifelong journey of self-discovery and self-improvement. Give yourself time, and keep your risk capital sensible so that you don’t hurt yourself in the process. Good luck!
Kirk: Thank you for all of the perspectives about how you trade. We look forward to reading your blog updates. Trade well!