In this month’s Traders Talk we’re chatting with Karson Keith, a principal at TE and someone many of you have trained with. Surely all of you have listened to Preston rave about KK and refer to him as his right-hand man on a frequent basis.
No doubt you’ve heard the story—he is a trading phenom…a bit of a wunderkind that started extremely young and found success before he was old enough to drive. You’d expect that such success would breed arrogance hard to tolerate or learn from; yet talking with Karson for just a short period leaves you with an altogether different impression. He is refreshing in his passion for the market and in his desire and enthusiasm to help others—especially when it comes to small traders because that’s where he came from.
Karson is candid enough to admit that his success was due to luck starting out, but smart enough to have learned his lessons and leveraged his trading approach into serious returns that few can boast—all during the post-Y2K period that has seen the broad indices go nowhere.
In this first of a two-part interview, Karson shares some about his trading background, as well as insight regarding his straightforward philosophy on how to make money in the market.
TEI: When did you begin to realize you could do this successfully and would want to make this your life’s work?
KK: I actually started trading with my father when I was 12 going on 13 years old. He was a day trader. We traded the E-minis, which were brand new at the time. We traded together and had to call up on the phone. There was none of this online stuff—forget that. You would call up on the phone and tell your broker what you wanted to do.
Long story short, I got pretty good at it. My dad opened up an entity that I could trade under and I made a ton of money. At the time I was just 16 years old and grew an account to like $85,000 in a couple of weeks. I bought a nice BMW M3. Keep in mind this is a 16 year old kid, so you can imagine how arrogant I was. That was my first taste. That was the turning point for me. I realized that, Holy Cow, you can really make a lot of money doing this… Basically I just got lucky though. With that kind of arrogance you can get into trouble… I lost it all and learned my lessons very young. I’m glad I learned those lessons. I knew then it was for me. I guess you can say that from the time I was 13 years old I just knew that this is what I wanted to do.
TEI: What was the hardest or most important lesson for you to learn back then?
KK: The lesson I learned back then was the market is always right—not you.
TEI: Yeah, that never changes.
KK: Well, what happened was the NASDAQ bubble burst. That’s really when I got stung… Instead of me stepping back saying we’re going to collapse here, I still traded like I would normally trade. It was obviously silly, but it’s a lesson learned. Make no mistake, I was not a highly-specialized, highly-skilled trader back then. It’s what I call pure luck, but I made a lot of money doing it.
TEI: I’ve known many traders over the years and everybody had at least a pretty good scare. Most have blown up one, two, three or more accounts on their way to getting successful.
KK: That’s the only account I ever blew up and it will be the last. Certainly now there is no way that would happen…lesson learned!
TEI: When it comes to trading, ultimately you’ve got to gain experience running real trades—getting trades under your belt and learning lessons. Would you agree?
KK: There’s two ways to learn. You learn from looking at this guy—he knows what he’s doing…whether it’s a book or training or whatever it might be, and you trulyunderstand what he’s talking about. Or you learn the hard way. So everyone learns their own way, but there’s the easy way to do it. I’ve tried to save people from making the same mistakes.
TEI: Early on did you utilize multiple strategies and trading instruments or did you primarily stick to one approach?
KK: Early on it was mostly day trading. The E-minis long and short…pretty straight forward. My trading really evolved as I got older—I mean like 17. I learned about options and realized, wow, there’s a much smarter way to trade. You could really take advantage of things like time decay and you could hedge different positions. So, that’s when I really started getting into the more structured stuff.
TEI: You mentioned listening and learning from others. Is there someone that you fashioned your trading after or learned from?
KK: I have to give 100 percent credit to Preston James. He definitely was the eye-opener to the world of what you can do with options. Before that I think I’d fallen into the same boat as everyone else… just getting a good, general knowledge of what options are and all the glossary terms. But that doesn’t make you any money or do any good for you…but hey, at least you’re like a dictionary for option terms—whoop-dee-doo. I would have to say that Preston was absolutely the one that tipped me toward what you can actually do with these things.
TEI: How long ago was that approximately?
KK: Maybe eight, ten years ago. A long, long time ago in a galaxy far, far away. [laughs]
TEI: You have pretty much focused on options ever since, is that correct?
KK: Pretty much, yes. I do some minor day trading, but even most of my day trades are around option positions.
TEI: When you started, did you spent a lot of time learning technical analysis or did you spend more time on the fundamental side, learning about PEs and similar metrics? Where do you place emphasis now?
KK: When I first started I was really heavy into technical analysis because of the day trading with my father. With day trading that’s what you’re looking at…real-time trying to make decisions. Then I kind of read the 3-inch thick manual on options. It didn’t take me very long, thanks to Preston, to conclude that a lot of that is a bunch of mumbo jumbo. The bottom line is what can you go out there and make money with…that’s what matters.
If I’m looking at the PE ratio and every other investor in the whole world is looking at the same thing as me, do I have any edge whatsoever? No, I don’t have any edge at all. So I learned fairly young that it’s not about analyzing stock and companies as much as it is how I can make money exploiting things that options present. There is certain fundamental analysis that you can factor in, such as whether a company is going to fall off a cliff in the next six days while I’m in this trade. If the answer is no, then great, that’s about all I need to know.
TEI: What about being aware of upcoming earnings and things of that sort?
KK: Of course earnings are a fantastic opportunity. Anything that causes movement, then there’s money to be made….even in a boring market there’s money to be made. But looking at a PE ratio…you’re crazy if you think that you’re looking at that PE ratio and see something that no one else sees. It’s all the same information. Maybe that worked before, but the speed at which information is passed now—there’s no way. ..there’s nothing there.
TEI: Looking at the technical side, would you say that same factor has negated the advantage of most indicators?
KK: Absolutely. If there’s an indicator that you’ve heard of before, I promise you it doesn’t work. Bollinger Bands or any of these moving averages and other things… if you’ve heard of it before or if it’s built into your platform, it doesn’t work. I promise, promise, promise it’s been beat to death.
TEI: What’s your advice to newbs coming into the business in terms of, hey, focus on this, learn this?
KK: First I say here’s what making money right now. As I’m talking to you now, I’m doing extremely well with long butterflies. This sounds insane because the VIX is down the toilet and you’re grossly undercompensated right now for risk. So, a position like a long butterfly that benefits from time decay seems insane. But look at my track record—it’s fantastic.
To go back to your question, I usually start with what’s making money. First things first, somebody who is making money is a hundred times more interested and more committed than somebody who’s not. It’s very simple to jump from one program to another, saying “I’m not making any money yet.” You kind of lose your enthusiasm. But if all the sudden you see a little bit of positive action in your account…wow, wait a second— this is it! I need to pay more attention to what he’s doing because this really works and my account is filling up. I try to be that guy for as many people as possible. So I usually focus on one strategy with new traders— whatever happens to be working at the time. I’ll tell them to learn this inside and out…this one strategy. It’ll take you all of two weeks to really get it down pat, then go make money and then we’ll branch out from there.
TEI: To what would you most attribute your success?
KK: First of all I think the biggest factor for me was passion. This is what I was born to do. There’s absolutely no question, I’ve always been very passionate about it. But that passion is short-lived if you don’t have an open mind. You really have to keep your eyes and ears open for what is working—what you can make money with. You can’t have an opinion and say “I’m right no matter what.” That’s very dangerous. For example, say seven to eight months ago, if you told me that I was going to make the majority of my gains now from long butterflies, I would have said you’re crazy. I would have given you a list of a dozen reasons why a long butterfly is a bad idea…Yet they’ve paid off tremendously, it’s unbelievable.
So, passion being number one, but you have to learn to stay out of your own way and be willing to do it on your own and able to recognize something when it’s good. You don’t have to be some trading genius or destined to be some great trader. You just need to keep an open mind and be realistic. Don’t have such a strong opinion that you can’t be wrong. Other than that, what can I say…follow me, the Stock Wiz Kid, and I’ll lead you in the right direction—I promise.
TEI: What would you offer on cash management strategy?
KK: Most of my trades are statistical advantage trades. You take every single one of the trades and they’ll make more money than they lose when all is said and done. You use the same amount of capital on each one and there are very basic rules. It sounds so simple, but it can really make a huge difference in the end.
TEI: You mentioned the Stock Wiz Kid service. What made you decide to start SWK and can you briefly describe it for those that might not be familiar?
KK: We have a lot of small account traders out there, which was me when I got going. There’s lots of different ideas to trade for the guy who has a lot of money, but I kind of look out for the small guy, because I have a soft spot since I was a small guy. So that’s what drove me to start Stock Wiz Kid…it seemed like there was a big hole that needed to be filled for people who didn’t have a lot of money but who were generally interested in trading and actually pulling money out of the market.
TEI: What is the focus of the service?
KK: The priority of this service is absolutely to help traders with structured positions on options—to help a small account grow into a big account. Naturally you can do it in a bigger account as well, but I almost never put trading ideas out there that require a very large amount of capital to do so.
TEI: When did you launch the service?
KK: We’re going on two years…We did one big promotion to launch Stock Wiz Kid almost two years ago and one minor one after that, but that’s been it. I think we have somewhere in the neighborhood of 80 percent of those members who signed up still with me.
TEI: You limit the window for subscription membership— it’s closed for a good part of the year. Why do you do that?
KK: Well, it’s really simple. When I have a new audience, I speak very differently than I do to guys that have been with me for a while who know my train of thought. They know what I’m talking about when I say short butterfly, long butterfly. Whatever the position might be, I know that they’re up to speed. So I like to open it for brief periods of time to get new guys in. I can go into a little bit more detail, along with the training that’s available, to really help them get up to speed fast.
TEI: That really caters to that new person starting out so they don’t feel lost coming in.
TEI: What’s your track record with the service?
KK: I am actually having an audited track record put together now, but the unaudited version for the year is up something like 350 percent…something ridiculous like that. These are all low-risk, low-margin requirement trades. Now I know that sounds ridiculous, but it’s true.
TEI: You have a pretty active community. How does that benefit subscribers?
KK: I have a bunch of guys who—I don’t know how else to say it—but they love me…it’s really easy for someone to grow fond of somebody else when they make them a ton of money. So, there are a bunch of guys who feel like they owe me one. They’re very active on the site and they like to help out other people. It kind of takes a burden off of me. I get on the site almost daily to answer questions and address anything that people aren’t clear on. Most of the time these guys who’ve been with me a while have already answered the questions for me, which is very helpful. So it’s a very helpful, active community. There’s a lot of conversation between members, as well as between the members and myself.
TEI: How would you characterize the training you provide in SWK?
KK: Precise training. Basically there’s a lot of bad information out there—information that is useless. Guys trying to sound smart when really they are just reading from a textbook. You can find an option book that is three-inches thick and read the whole thing and then say, “Now what?” So all of my training is geared toward a guy who just wants to know what’s needed to make money—how things work and what to be watching for. You’re not going to find a bunch of Greek definitions on my site. That doesn’t mean I don’t talk about Greeks, but only when they matter to the position. I’m very to the point, very direct. So there’s lots of training on there that is exactly that…straight to the point—here’s why I like this trade, here’s what’s working in my favor, here’s what’s working against me and here’s what I want to have happened.
TEI: Does the service consist of both video and live content?
KK: All of the training is video-based. Some of it is actually live trading that’s been recorded for replay. It’s very digestible—I try to put it in as simple terms as possible.
TEI: Is the service more geared for day traders, less-active traders or both?
KK: I would say anywhere in-between. Most of my structured positions tend to be for two or three days and a lot of times over the weekend, but it really just depends on the market. I do have a little bit of a day trading aspect if there’s something’s happening, such as earnings reports or things like that, where we’ll be in and out within a 24-hour window. It kind of spans the whole gamut, but I would say I don’t cater to the really long-term investor. That’s just not my style. I just feel I can make more money in the shorter term.
TEI: How does someone interested find out more about the service?
KK: Since it’s closed the best way to find out about it is to call customer service.
TEI: Hindsight always offers a good perspective. What would you do if you were just starting now, but armed with your level of experience and education?
KK: Well, I would pay a lot of attention to two guys— Karson Keith and Jeff Augen. [laugh] The major thing is we’re coming up on this fiscal cliff. Jeff and I have been talking about it forever. We want to be able to trade the collapse. That would be a major thing I’d want to focus on. Other than that, I would focus on these long butterflies. They require very low capital, with solid returns…they’ve done very well for us. That would be my focus right out of the gate. Then I would like to pick up day trading as I got more versed with the indicators.
TEI: Well, you’ve offered some great stuff and we’ve covered a lot of ground. Anything you’d like to add as we close?
KK: I want to make one thing very clear. I am a trader! I make my money from trading and I educate people. There are a lot of guys out there who are not traders at all…so-called educators. I know a few personally and they leave a bad taste in my mouth because they don’t actually trade on their own. That makes a big difference. There’s a big difference between a lot of guys out there and Jeff Augen, Preston and myself. We’re real traders, so you’re talking about thousands of trades a year…
Karson’s interest in trading began at a very young age. By the age of thirteen he began trading and managing his father’s money. Today, his passion for trading has attracted a following of like-minded income traders seeking his help in taking their trading to the next level. Karson specializes in cutting-edge options strategies, volatile markets and small trading accounts. He not only has single-handedly grown several small accounts into large portfolio-margin accounts within just a few months, but has helped countless people achieve the same results. A natural teacher, Karson has a unique ability to take complex strategies and break them down into simple, actionable formats. This makes the exclusive benefits of highly skilled, profitable trading not only accessible to traders at all levels, but possible for even the beginner to succeed!