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Option pricing is a mystery to most traders. They struggle to comprehend terms like implied and historical volatility or intrinsic and time value, or the “Greeks” (Delta, vega, theta, gamma, rho?). These terms are intimidating and my experience suggests that at least half the folks you hear talking about them do not really understand very much about them. It is important to at least be intellectually honest about it and know what you don’t know. It is also a good idea to debunk your vocabulary and get what you do know (or think you know) right. And because it is easy to get a head ache from trying to read and comprehend the myriad of equations and models generated from minds of multi-degreed scholars speaking a language only they seem to understand, it is comforting to know you do not have to learn a whole lot about the technical math soup. It is however, mandatory that you gain some working skills in how to recognize and flow with the option prices or you will get whipsawed and shredded by them.

It is not unlike the engineering, manufacturing, physics and computer technology that goes into a modern car. Any 10 year old can start it and drive down the road or off a cliff. The skill to use it correctly is mandatory but the technical wizardry to understand and construct it is not.

So option pricing must be understood in order to trade with any consistency. One major point is that option pricing is not static or consistent. The pricing structure is a moving target because the interaction of the market and the Market Makers constantly adjust the pricing.

Price comes from the floor? Models come from laboratories and do not dictate where the price will go. Rather, they try to predict it.

Historically, the idea of options is not new. Ancient Romans, Grecians, and Phoenicians traded options against outgoing cargoes from their local seaports. Modern techniques derive their impetus from a formal history dating back to 1877.

1877- Charles Castelli wrote a book entitled The Theory of Options in Stocks and Shares. 1900- Louis Bachelier is recognized for the earliest known analytical valuation for options. His work interested a professor at MIT named Paul Samuelson. 1955- Samuelson wrote an unpublished paper titled, “Brownian Motion in the Stock Market.” 1956- A. James Boness wrote, “A Theory and Measurement of Stock Option Value”. His work served as a precursor to that of Fischer Black and Myron Scholes. 1969-1973- Fischer Black and Myron Scholes introduced their landmark option pricing model No one discovered the “mother lode” but rather successive scholars added to the work of predecessors. Black and Scholes were noted with the Nobel Prize because of their leap forward and the remarkable accuracy of their model. Since 1973, other scholars have expanded the Black and Scholes Option Pricing Model.

1973- Robert Merton relaxed the assumption of no dividends. 1976- Jonathan Ingerson went one step further and relaxed the assumption of no taxes or transaction costs. 1976- Merton removed the restriction of constant interest rates. The results of this evolution are alarmingly accurate valuation models for stock options. Ok, you think that is boring you should read some of the papers and equations (I have and it was not fun).

Modern option pricing techniques are among the most mathematically complex of all applied areas of finance but they have reached the point where they can calculate, with alarming accuracy. Most of the models and techniques employed today are rooted in the Black and Scholes model. One notable major advance is the Cox, Ross, Rubenstein binomial model widely used in more volatile stocks. In fact the brainiacs currently have 7-9 different models out there trying to out do each other. Here is the basic idea?

Option Pricing Model: A mathematical model is used to calculate the theoretical or fair value of an option. Inputs to option pricing models typically include:

the price of the underlying instrument (stock): Fixed the option strike price: Fixed the time remaining till the expiration date: Fixed the volatility of the stock: Fixed the risk-free interest rate (e.g., the Treasury Bill interest rate): Fixed The historical accuracy of the prediction is quite good but short term variations to the price models can and do “Kill” traders on a regular basis. In the long run the models are cool but they are THEORECTICAL and subject to CHANGE!!!!! The difficulty is that the vast majority of option traders do not have the knowledge or even the viewpoint to see the variation when they come. Nor are they able to reflect anomalies in the price structure when they look at an option chain to get a price.

This is one of the reasons I so dislike Prescriptive Option Strategies. The prescription dictates how to make the trade. It dictates buy/sell, strike price and which month. Well that’s just fine if the market stays constant and the price structure does not move. Ok? so “hey market, I am going to trade now? could you please just stay calm and act really normal and don’t do anything rash until I am through? Thanks, that would be real nice of you.” Somehow I don’t think it works that way. The real problem with most option traders is that they don’t know what they don’t know.

For example; today, with the stock at support and moving up it may or may not be a good idea to buy a call option. It may or may not be a good idea to trade the In the Money strike price. It may or may not be a good idea to trade the next month out. The pricing composition will reveal hidden potholes Read more…

I just finished a training session on the internet and I answered a question that I have answered 100 times before or more. It got me a bit worked up because there is far too much mythology out there about the market and how it works and who does what to whom. I am going to attack one of the straw men of trading myths.

It is widely thought among beginners and sadly many veterans alike that there is a boogey man in the closet; a little man behind the green curtain that pulls strings and levers and takes my trade away from me. This misperception was generated in the early days of the NASDAQ electronic trading platform. In the early days when electronic (versus open outcry ? face to face) trading was just getting started there were instances of market makers adjusting order flows to stretch spreads. They would delay market orders so they filled at higher or lower prices when the prices were moving fast. There were also some instances of prices being manipulated to hit pockets of stop loss orders that were visible on the screens. A number of lawsuits and firings and license revocations stopped that very quickly, but myths prevail and it seems that people need to have demons to explain calamities and excuse their shortcomings. The calamity is that trading skills often do not match the market conditions. When that happens please have the sense not to blame the mean nasty conniving market maker.

Fact: The market maker does not know or care much about you, at least not in a negative way. A market maker wants you to be there because with out you they are out of business. But you are not a target to abuse. You are a number, you are a single trade in a day of hundreds it not thousands of trades and the five to thirty cents your trade makes will not be more than a drop in a bucket to them. They want your trade and will compete with other market makers to get your business. When you place an order in the spread the market makers may debate whether to meet your request, and if it is reasonable some hungry market maker will take it even if the others don?t want to. You represent their livelihood but you are not FOOD!

Fact: Except in a few extraordinary cases, prices have to move incrementally. That means the idea of market makers jumping up or down to grab your stop bogus. It is illegal and would get picked up by the regulatory process. The exceptions are as follows; a gap in over night trading can give the market maker a right to gap prices. A Fast Market (wild irregular trading) condition gives some leeway for market makers to catch up. Market makers can in certain cases also move prices with out corresponding price action. If volatility changes in the market and there are no active orders on the ?book? they can adjust option prices. In that case they can adjust prices to actual changing conditions. Otherwise they can not just move prices around to look for your stop. They can push a price up or down by manipulating the bid and ask but generally there has to be stock movement and or volatility movement before prices can be adjusted.

Fact: Your stop is not visible to the market maker. Even if it is an actual order, if it is away from the price it is invisible to them. Until the price action approaches your stop (close to the money) they can not see it. Once it is close to the money it is visible but the above rules apply.

Fact: A market maker can not skip your order either. They are required to trade 100 shares or one contract before moving a price so if you place an order of 100 shares or 10 contracts and you don?t get filled they did not skip you and if you had only one or two contracts fill it would be perfectly legal. If your 10 contract order was an ?All or Nothing? and you got nothing, they they were not obligated to fill it for you. However if no orders had yet been traded at that price and it was not an ?All or Nothing?, they would be obligated to take part of your order because they can not back away from a trade. At least 100 shares or one contract must be traded before prices can be moved if there are legitimate orders in line. So, if there is a Bid and Ask showing and you place an order here is what can happen? You get filled (probably there is some volume and you are part of it) You get partial fill and the price moves (they are reading volume and momentum and decide to move the price; orders can be partially filled and market orders can be spilt up and filled at the next price) You get no fills and the price goes up (one hundred shares had already been traded before your order showed up and your order prompted them to raise the price) No trades go through but the price goes up and you do not get filled (you offered in the spread and they have no obligation to bargain- they can move it and hope you come after it).

Games:

There is definitely an element of gamesmanship that is legal. Generally the market maker will have more experience and will be better at it than you. That is not illegal but definitely painful to the rookie who may feel cheated, but if a rookie takes on the pros and loses it is not because of cheating.

Fishing:

Option trading is where most fishing goes on. Slow volume means orders come through one at a time and so there can be an electronic face off between you and the market maker. They are not trying to cheat or hurt you and generally it is the trader that pushed the button that starts the game. As stated earlier, if you hit the Bid or Ask, your order will almost always go through but, if you offer in the spread and there is light volume, it can be like poking a wasp?s nest with a stick. It?s like offering some one ten dollars for their twenty dollar chair. You started it. So you send in the order and it is not filled and the price goes up. Whoa, you think ?Cool. It?s moving my way, I?ll try again but I still want to get a discount?, so you offer in the spread again. Same thing happens so you quickly raise your price to the Ask and buy before it gets away from you. Now the price settles back down and you are frustrated. If you were to check out the volume you would find that you were the only order and you were played. If you had offered at the Ask the first time it would have probably been filled but, your offer allowed them to move the bait which you hungrily chased. At Read more…

The adage goes “If Doctors and Attorneys are so smart, why are they still practicing their professions?” Well, it is a fact that to be good you must always keep honing your skills. The persistent practitioner becomes the consistent performer.

When I was a kid, I would dash around in my eagerness to grow and learn new things. My dad would always caution me, “Don’t rush it. Take your time and do it right the first time. You can always make the time to go back and do something a second or third time if it’s important, but it’s a lot easier just to do it right the first time.”

Truer words were never spoken and in trading there is far too many folks starting over or giving up altogether.

Hardwired to Mess up

All your life you have been conditioned to be tough and strive to win. That will work for you in life but it will fail you in the market. Being tough, optimistic and hanging in there when a trade is going against you is not a good thing. And being right is not the measure of a good trader. A good trader is ambidextrous. Upside and downside moves are seen as equal opportunity. A good trader appears fickle and almost too willing and eager to leave trade that is not going as planned. A good trader never loses. A good trader sees the small amount of money associated with being stopped out as a cost not a loss. The good trader sees that cost as the price to find out if a potentially big move would happen. A good trader knows when a stock / index has reached a Pivot Point and sets up entry and exit points that make sense. A good trader knows that with proper reward risk ratio, more than 1/2 of the trades can go off base and profits can still be made.

Contrary to popular wisdom, being successful in the market has little or nothing to do with winning. In fact trading, which is often compared to warfare and battle, is not about winning and losing at all. If it rains on your picnic did you lose? Hey it looked like a nice day. Was it your fault that a sudden storm showed up and your picnic was washed out? Since you can have nothing to do with the direction of a stock or the market, how can you win or lose? The market is going to do what it is going to do whether you play or not, all you can do is to act and react so as not to get run over. If you have taken a position and it moves against you, it is not your fault unless you did not anticipate that possibility and have an exit strategy in place. Well it may not be your fault but is still your problem.

Ok, so if you can’t dictate the outcome, then your odds are 50/50 every day that you are in the market. 50/50 you say??? Yes 50 / 50. Time and time again the market moves the opposite way that was expected. News stories can reverse the direction of a stock or market and the market often reacts the opposite way the news might suggest. Trading must involve a comprehensive plan for a move in any direction.

My Bracket Trading? process is the vehicle for properly setting up the trade. It keeps you Calm, Confident, Consistent and Profitable. This is done by taking a tactical approach to the trading. You identify all the relevant price levels and targets along with the pivot points. Knowing how to do this correctly will identify the right expectation of a trade, the cost if it turns against you and the reward if it moves in your favor. It lays out the instructions for every “IF – Read more…

Have you ever wondered how in the world large businesses or corporations such as GM or IBM just manage the small day to day tasks of operating and managing such huge concerns? It is just mind boggling to think about the millions of little details which have to be handled just to keep the doors of such complex corporations open! I’m not a CEO or CFO type and I certainly have no training or expertise in those areas, but I have spent a lot of time talking to folks whose job it is to run large and medium sized companies in an effort to understand how to better run my own, comparatively tiny business. What I found was truly amazing, if not totally refreshing!

What my searching uncovered was really encouraging in that it showed me that their businesses, no matter how large or complex, all have basically the SAME three requirements. The details are a bit different to be sure, but they all depend primarily on effective management and sound decisions in three areas; cash flow (or income), a source for stabilization of that income, and long term growth. I describe this a ‘encouraging’ in that my small business … in fact ALL businesses … have the same needs in the same areas, no matter the size of the concern. Let’s take a quick look at all three of these areas.

The first and most important of the three is the need for consistent, sometimes daily CASH FLOW. This area is prioritized above the others because it is here where the money is made to meet expenses of continuing in business. Face it .. business have bills to pay. General Electric must meet it’s obligations just as surely as we must in our family’s daily existence. AT

Trading in the stock market can be very tricky, especially if you?re looking at more than one position. While certain strategies are inherently complex, managing multiple positions of even the most simple strategy can quickly become an ?awesome?? task!

I prepare a ?Trade Of The Day? for my daily on-line trading labs. This report is published every morning prior to the market?s opening and it details or ?outlines? a ?trading plan? for that particular stock. Recently, I was looking at trading ADVP down for the day. Additionally, I prepare a list of 3 or 4 other stocks to watch. The idea is to have an additional trade or two to fall back upon in the event that we?re unable to get into the Trade of the Day.

The challenge that morning developed very quickly as the planned trade appeared NOT to be cooperating for an entry. We quickly moved to a secondary trade in CMCSK, moving in and out 2 or 3 times in the first hour. During this time, ADVP began to move and while our attention was diverted, it had actually confirmed down and moved below what we later determined was a prudent entry point. In other words ? we MISSED an almost ?sure? trade on the ADVP ?tombstone? while our attention was diverted to CMCSK. While you?re in the ?rattle of the battle?, with the stock price squirming and wiggling around, it?s extremely easy to totally miss the precise time to move into a position, despite your best efforts!

For the past several months in the Trading Lab, I?ve been paying a lot of attention to teaching the traders how to use a given set of rules to help simplify their trading. These rules were NOT in place at the time the trading was being done. The results, while NOT devastating (we made about $200 on the trade) certainly were responsible for us missing another $500-$600 of profit. So let?s spend a couple of minutes going over these rules so we can minimize preventable losses. We?ll come back and apply these rules to the above chart to demonstrate the difference in profitability. Let?s take a close look at the ?rules? and how they can simplify your trading, freeing up your attention for additional profits.

Rule #1

Always let the stock price CONFIRM the anticipated direction before entering the trade. For example, if you are trading into a short ? that is you anticipate the stock price will move down, and then let it do something to convince you it?s actually moving lower BEFORE you enter the trade! That confirmation can be something Read more…

We are currently in earnings season – a time when companies announce their earnings results from the past quarter. These much awaited announcements can cause quite a bit of volatility in the markets, especially when the results are something other than expected. But, as a trader you can learn to capitalize from this volatility and profit from some unique trading opportunities.

Before a company ever announces its earnings, analysts are out there interpreting information and doing their best to predict what that company’s earnings will be. If the actual earnings are much different from the estimated number, we will generally see a gap in the stock. That gap occurs because investors were blindsided by what the actual earnings were and will either sell that stock in droves, (causing a gap down), or buy that stock, (causing a gap up). The direction of the gap will not always make sense. For instance, we will have instances of a company beating their earnings estimates but their report may contain some information that can be interpreted as a slow-down in sales in the future. That slowdown may be the piece that investors focus on and they sell their stock because of that forward-looking guidance. Although the earnings were good the future-looking guidance was bad, so investors may feel it is best to sell their stock. And the larger than usual selling pressure may cause the stock to gap down regardless of the positive earnings. We will also see instances of a reverse situation. Bad earnings accompanied with some good information may, at times, attract enough interest in the stock to cause a gap up. The point is that even if you knew exactly what the earnings would be for a company, it still would be difficult to predict what the investors would focus on and what direction that stock would move. This can make holding a position over an earnings announcement very risky but there are ways to take advantage of all that uncertainty.

When the situation is right, I will create a strangle over an earnings announcement. A strangle is a hedged play in which you purchase an out of the money call option and an out of the money put option on the same stock. The idea is that if the stock gaps big after the earnings announcement, you will lose on one side of the trade but make money on the other side. If the gap is big enough, your profits from the winning position will offset your loss and leave you with a net profit on the trade.

You need to be careful with this because if the stock does not gap far enough, you will end up with two options that are worthless. You need to set this trade up on those stocks that have the potential to gap big after their announcement. Here are the guidelines that I use to help get me in those trades with the highest potential to gap big. The first thing I am looking for is a stock that has an average daily range of $1 to $1.50. This ensures that I am doing this trade on a stock that can move. The second piece is that I prefer to do this on a stock that has recently been in a strong uptrend. It seems that stocks that have really been in favor can create even more excitement around earnings. If the overall news is good, you can see even more buying pressure into that stock causing it to gap up and if the news is bad all those buyers who had been attracted into that stock during the uptrend panic and begin to sell causing a big gap down. Remember, we need to see a big gap in either direction to offset the side of the trade that will go against us.

The more money we spend on our options the more difficult it will be to make money on this trade. We are buying out of the money options on this trade and to keep the cost of the trade down, I prefer to buy as little time as possible. My third criterion is that I do this trade on companies that are announcing the week or two before options expiration. We will only be purchasing a small amount of time in this case and thus increasing our success rate on this trade.

Now that we have narrowed down the group of stocks on which to implement this strategy, let me show you how it works. Let’s take a hypothetical example of XYZ stock that is announcing earnings on the Tuesday evening before October options expiration. The stock has been in a strong uptrend and has an average daily range of $1. It meets all my criteria so I can go forward with setting the trade up. XYZ is trading at $72 and we want to purchase an out of the money call and an out of the money put so the trade will look like this:

Purchase 10 Oct. 75 calls @ 1.20 Read more…

Timing is everything! Especially when it comes to trading in the stock market. It amazes me the thought process a lot of students go through when it comes to trading.

First, you do NOT have to have all your money in the market at all times to make a fortune trading.

Second, you should not have all your trading funds in the market at all times ever!

Third, wait for a stock to come to you. What I mean is for it to be done falling to play the upside, or done going up to play the downside ? but don?t enter in the middle of nowhere on a trade. I like to use about half of my funds to trade and have the other half available for some fantastic, unexpected buying opportunities that might come around once in awhile or to double up on a trade that has not exactly worked out as fast as I had planned.

What I am about to discuss I have slightly touched on somewhat in a recent newsletter, but since timing is so critical, and I still see seasoned traders after years of trading still not getting this? I feel the need to stress it in more detail.

When I wrote my 40 CENTS DVD series, it was in a hopes of helping students see the power of waiting for stocks to reach the perfect point to play them. Where is that perfect point? It is really not that hard to find. I like to look at support and resistance using candlesticks. To me I want to get in at the very beginning of a run to the upside or a fall to the downside.

UPSIDE:

I will wait for the stock to stop falling. I look for a market close doji or open candlestick at support as a sign it may have stopped falling. However, it is critical to confirm it with a continuation pattern the next trading day. The next day if the stock continues up I enter the trade intra-day for the upside. If it is moving up and down and I am not quite sure, then I use the high of yesterday to give me an entry point. If it breaks that high, I can enter. However, if it is not going up DO NOT ENTER? but I see so many students enter here anyway and I just want to scream WHY DID YOU DO THAT!

DOWNSIDE:

I wait for a sign that the stock has stopped rising, a market close doji or closed candlestick at resistance as my sign it may have stopped going up. Remember I still need to confirm it the next day. The next day if the stock continues to fall, I can enter the trade intra-day to play the downside. If it is moving up and down and I am not sure, then I use the low of yesterday to give me a confirmed entry point. If it breaks that low, I can enter. It is really easy to set an alert to my cell phone to let me know it hit that point, instead of watching the stock all day to see if I can enter the trade. However, if it is not going down DO NOT ENTER? just use common sense before entering a trade and profits can be yours!

OTHER CONCERNS:

Of course you want to look at other trading indicators to confirm direction? and there are a lot you could pick from. My rule of thumb Read more…

I have the unique opportunity to teach Traders with a wide range of knowledge. Some individuals are just beginning, while others have been around the market for 20 years. There are some “laws of life” that seem unchangeable. For example, I know that some people will earn more than me in this market and, unfortunately, others will never have success in their trading efforts. It’s sad to think that some people will not see their aspirations for financial success materialize. It is comforting to know what makes the difference between the winners and the non-winners (I choose not to use the “L” word).

If I know that some people will never have success trading, why do I still teach them? Should I not be honest and tell some people to save their money because they have no chance? The answer is simple, I have no idea who will be the big winners and who will end up a frustrated shadow – until it happens. However, I do know what makes the difference between winning and not when it comes to successful trading behavior. I also know what it takes for individuals to transform from frustrated investors into top earning professionals. What is the secret? Is it really that simple? Can anyone make it work? What do I have to know to finally start being successful? Who do I have to bribe so I can borrow the Magical Stock Market Genie? Sorry to be the bearer of sad news, the answer is not as easy as making a wish and waiting for money to fall out of the heavens. It takes patience, self control, the correct information, and practicing until perfect.

Being a consistently successful trader is a lot like climbing Mt McKinley in Alaska. Sure mountain climbing is difficult, and Mt. McKinley is the highest mountain in the entire North American Continent, rising 16,000 feet from ground to highest peak. It may seem like an impossible task, but climbing that amazing mountain is actually considered, by the professionals, “easy” when compared to other record setting structures. The climb might be considered “easy” (by experienced climbers) yet during the average season if 1,000 people make the attempt statistics indicate that 500 will succeed, 497 will be disappointed and 3 will die.

Why am I comparing investing to mountain climbing? Because successfully attacking the mountain and coming back alive from the trading floor, requires exactly the same basic elements. You must have the right knowledge, advance preparation, the correct tools and equipment, and plenty of perfect practice. You can increase your odds of success even more if you associate with other experienced climbers and you have a team member that has already made it to the top. While on the mountain (in a trade) you need to be ready for unexpected changes in your environment. You must be mentally ready for the challenge, you need to develop the right instincts and you need to have total self control. Even more important, you must be able to admit defeat quickly, so that you can live to climb another day, with as much of your equipment as possible. You do not need to be super human and you are not required to walk on water, read minds, or have a perfect sense of direction.

“OK, what will it take for ME to be one of those people that make to the top?” Are you sure that you are ready for the answer? I mean, really, do you want to know the truth? I warn you, the answer is not going to be what you want to hear! Here goes, so if you choose to read on, you do so at your own peril. I warn you once you have the answer, there will be no turning back. If you read on, you are agreeing to leave the world of the confused and to enter the secret chamber of the few who know the magic powers of applied knowledge. What is the real secret? When you become a master of the basics you can conquer the top of anything – mountain or the stock market. “That’s it? That’s your BIG secret? I don’t get it. Know the basics, give me a break, there has got to be something more, what did you leave out?” I warned you! Didn’t I tell you that you might not want to hear the truth?

Many years ago, when Miles and I were beginning our trading education we were privileged to have access to a few of the best traders in the world. We asked them what we would have to learn or do to reach our dreams. Each person shared personal preferences and valuable suggestions but all of them were in agreement that making big money in the market is a process of patience, self control, and focus on basic rules. They also said that we should choose one or two investment techniques, and then practice until we were masters of those techniques. We were also told to pick a handful of companies and get to know them so well that we knew “the heartbeat of the stock.”

I am sorry if my answer was a disappointment to you, becoming a master of the basics is not glorious and it seems too simple. Yet, being able to consistently apply the knowledge of the basics is what makes the difference between winning big money or not. It seems so easy that most people keep searching for some hidden secret or trick that will earn millions of dollars, and the answer is right in front of them all the time. What I think is that people want to take a short cut so they can bypass the struggle, they do not want to practice, they want to get to earning the big money right away (without any effort).

Teaching classes lately I have been astonished at how many traders, who consider themselves seasoned traders, are not fine tuned on basic skills like reading charts and identifying Support

I have been on traveling a lot recently, and it is amazing to me what people are saying about the stock market. Most reply, wow this is not a good time to be in the market?while I am thinking “what an INCREDIBLE time to be in the market”!

If you stick to the basics, looking for good companies at support or resistance, that the odds of the trade working are so much better. However, a stock testing resistance and not being able to break through it seems like such an incredible play in uncertain times like today’s market. Even if the market goes up, this stock already did. So when it doubt, looking for stocks that really have a chance of falling is always a good choice when selecting a play.

It is simple to learn how the downside works, whether you decide to sell stock short, buy puts, or write covered calls. Once you have learned the upside plays, learning the downside will only take about 10% of the effort to learn?because you already know so much. The sad thing is that most people are missing the best money in the stock market if they are not playing the downside. Falling stocks mean FAST PROFITS! Who could ask for anything more?

A big secret to playing a trade, when you are not quite sure of the market direction, is to set alarms (bracket trade). I set alarms in my REAL TIME MARKETS that go to my cell phone and my computer. These alarms are real time and come to me instantly, which is critical. It takes my broker a few minutes to call me when I set them with him. The alarms allow me to follow my plan, and not have to worry in between. The alarms also give me TIME FREEDOM and I don’t have to watch real time charts, which most of the time get you out at the wrong times. If you set the alarms, make sure you have one set to get you out immediately if a trade goes against you, but you can check first to see if the stock is just kissing good-bye a price and heading the right direction before you get out. You can find REAL TIME MARKETS on my home page. Just one trade will be worth the fee for the whole year!

Looking at the statistics that may give us some direction of what the market is possibly going to do is the Put-Call Read more…

I am writing this as I am sitting here at the airport in NYC, after an incredible private tour of GROUND ZERO, from someone who experienced it first hand. It is just unbelievable to see what these people have been through and how much it is still effecting them today. It sure makes me grateful for my many blessings and how every day is such an incredible gift to never take for granted.

I was honored to spend a little time with a group of traders on Long Island recently, and I was sad to see how many people are paralyzed to trade and have pulled their money out of the market just plain scared to trade. Then on the other end of the spectrum there are students that have lost all of their portfolios in this bear market, taking themselves out to the game altogether.

It just amazes me how students seem to unconsciously sabotage their trades by avoiding the simple tasks that can protect their portfolios. I have been listening very carefully to students, trying to see what it is that is stopping them from trading or causing them to let a trade go too far the wrong way that the end result is a loss of all their trading funds. From the last few months of gathering these comments and pondering them, there seems to be a number of issues around this thought process and I would like to address some of them in this newsletter.

First, my old basic comes to mind, that when in doubt go back to practice trading. Even though I do real trades with money, I daily track and do practice trades. What I have discovered is that serious traders are always doing practice trades. It seems only the new and not quite committed traders tend to avoid this important work – work that pays big benefits.

No matter how much money you have, there always seems to be more trades you can do.

What I have been able to enjoy, is to practice all the trades I would like to do, and follow the stock and the option to see how the prices are working. Then when I come out of a trade and have the cash for the next trade I know the heartbeat of the stock (and the option) to better trade that stock. This is very powerful, and leads to some great trading. The problem is that even though practice trading is easy to do, it is just as easy NOT to do! NOT practice trading is what stops people out of the game, and it is the one thing that can build back your confidence to put you back in the game. Once you see the real value for practice trading you should come to the conclusion that is does have incredible benefits and power.

Practice trading is very simple, just pretend you are really doing the trade, write it down, but do not place a real order. Set a price to exit at a profit and at a cost, and follow up with the trade to see how you did. Assume you buy at the ask and sell at the bid.

The easiest program to use for practice trading is the ETA software with Chart Navigator. It actually allows you to pull up the option chain and transfer the option (or stock) right into a practice portfolio. The neat thing is every time you download your charts it downloads your practice trades to see if it met either of your exits, forcing you to complete it. You can order this program at 1-800-346-9039.

One of the biggest problems I feel, is many students want to practice trading with their money. They are so eager, but this is a critical error in judgment. Practicing with money has not been a good choice in most stories I’ve heard. If you lose your money from practicing with it, and don’t have the knowledge to trade properly when the money is gone? then you have nothing left and most will give up and go back to the very thing you desperately wanted out of?your job, or whatever is stealing your time freedom!

Bottom line, I wish people did not have a dime to trade with when they are new to the market or have lost their confidence trading! If you were forced to have to practice trade, because that is all you can do, I truly believe that once you have practiced to the point that you really know what you are doing – so bad you can taste it?you will find a way to get the money to trade. You know the saying “when the student is ready the teacher will appear”? Well, when the student has practiced so hard that they really know what they are doing and they want to trade so bad – I believe the money will appear!

Next, I really think that it is impossible to be successful trading, if you have any issues with wealth. No matter how good you are at practicing, analyzing and picking trades, if you feel you don’t deserve to be wealthy (conscious or subconsciously) than you will find a way to sabotage your success. A lot of students do this by not using simple stops to protect their funds if a trade goes wrong.

It seems we all know to use stops, but I think a large percentage of traders just plain old don’t do it! They get busy and don’t write it down, or write it down and ignore it. Perhaps they used a real stop loss, and got stopped out needlessly?so refuse to use stops because of that ?but if you had a car accident, you wouldn’t quit driving would you? Then don’t do that here. I use alerts instead of real stop losses to overcome needless stops out of trade. Anyway, back to this wealth thinking, for whatever we might think the reason is?I feel the reason could be deep seeded and have to deal with our self-esteem and ability to realize our right to be Read more…