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Investing Basics – Diversify Your Portfolio to Make Money

There are two main reasons why people prefer to invest in gold over other forms of investment: the potential for large gains and the fact that it’s difficult to lose money with it. These incentives encourage many people to make the switch from traditional financial products to gold, particularly as financial professionals warn that the financial situation is looking worryingly bleak.

In fact, experts have predicted that this year may turn out to be a worse year than the last as the global economy suffers yet another downturn. Therefore, investing in gold may be the ideal option for those who want to ensure that they can keep on top of their investments so that they can protect their retirement goals.

Investing in Gold

Gold is one of the safest ways of investing money because it retains its value and is easy to buy. However, there are also other alternatives to investing in gold. For instance, you could diversify your portfolio by investing in shares or bonds. However, these conventional investments are far more likely to lose value over time – with the possible exception of the stock market.

In contrast, gold holds its value and even increases in value if the world economy becomes more turbulent and major conflicts break out in key areas of the world.

You can also invest in gold by buying shares from a specialist gold dealer. Alternatively, you could invest in certificates or ‘rollover’ certificates. A rollover certificate allows you to sell your gold within a short period for a tidy profit, usually within one to four months. These investments are much easier to manage than other types of investments and you don’t need a major cash sum on hand like you would if you were going in for a traditional savings account.

Some people prefer to go in for gold bars as a form of investing. In this case, you would have to store the gold itself in a safe place until you want to sell it.

It is very important to keep your eyes open when you are thinking about investing in any form of investment. You might choose to diversify your portfolio and go in for different forms of investing in order to provide yourself with some protection. If you’re looking for a good way to invest in something that’s hot, fast, and available, consider investing in cryptocurrencies.

Cryptocurrencies

Here’s a quick history lesson – Bitcoin was created in 2009 by an unknown person or group. Over time, it has grown to become a valuable investment opportunity with an incredible amount of volatility but has recently become to be thought of as a type of digital gold. This is a major advantage over traditional investment options – nothing is ever really sure until it hits the market.

Since 2009, there have been hundreds of different cryptocurrencies that can be exchanged. The original intention was as a method of automated exchange, which is exactly what the bitcoin protocol allows for. Because of its openness to new software and trade, there is always room for innovation and expansion.

However, in 2009, there was no way to know what the protocol would evolve into. As time passed, there were more transaction fees, but people were still buying and selling this virtual currency. At one point, there were even reports of individuals changing their whole retirement investments around simply because they liked the idea of investing in a digital currency with less risk.

As always, don’t invest blindly. Do your research and study the most relevant cryptocurrency information. Only after you have fully researched and have a firm understanding of this new investment asset should you attempt to invest in it.

There is no doubt that you can make money from many types of investments. However, you will have to do your research and decide what forms of investing will give you the best return.

If you are looking at gold as one of your investments, then getting help from a financial professional will be a good idea. Not only will a financial advisor be able to give you sound advice, but he or she might also be able to help you find the best form of investing in order to make the best decisions for your situation.

Filed Under: GOLD INVESTING

Want Trading Success? Avoid These Four Trading Mistakes

Let’s Begin With The 90/90/90 rule

It states that 90{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} Of All Day Traders Lose 90{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} Of Their Money Within 90 Days.

Our mission here today is to avoid joining 90{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} of aspiring traders by debunking the four most dangerous mistakes in trading.

Common misconceptions fall into four categories. These four trading myths are responsible for why a lot of traders fail. I think they cause the biggest trading errors and are the biggest reasons why traders fall into the 90-90-90 group.

We will deal with each one right here so that you can avoid the same traps.

Don’t be worried if you recognize the mistakes you are making. You are in good company, and there is no criticism implied. These are simply things every trader must understand.

The best and most essential thing you can do for your trading is to dismiss the fantasy and get yourself a rational outlook on trading, based on real-world facts.

So, read the following carefully and, please, take the principles fully on board. Consider it a helping hand from someone who has been there, avoided disaster by pure luck, and survived to tell the tale.

Let’s get started.

Mistake #1: Trading Is Easy

You see it everywhere. We are inundated every day with the concept that trading is easy. As mentioned elsewhere, the ads and infomercials are partly to blame for this. And then there are the seminars, the youtube videos, the forum posts, the claims put out by people on social media.

But this stuff is put out by people who want to sell you something. The myth is that if you buy their training course, their software, their whatever, you can immediately be successful.

And everybody knows that if you are successful in trading, you can make a lot of money.

So the vendors and marketers jump straight past the probability of failure, and go straight to the results of success — they show you expensive cars, boats, and homes. And beaches and palm trees and exotic locations. And rolls of banknotes and expensive watches.

As if these things are a natural result of buying whatever they are selling.

You Can Make A Lot Of Money Trading

Part of it is true. If you are successful in trading, you can make a lot of money. But all the stuff about it being easy to get there is the biggest myth in trading. It is incredibly hard to get there.

Primarily because it requires you to do things that are completely against what you have learned in life, not to mention completely against human nature. Even if you have learned what you should do, it’s often really hard to actually do it.

This is why having a trading system with a positive expectancy (ie a winning trading system) will not necessarily make you a winning trader. 100 different traders will get 100 different results from that same system. And many of them will be losers, even though the system itself is a winner.

And that’s because it’s so difficult to do everything you are required to do to get to those winning results. Even if you know what you should do.

Not Me! I’m Different

Once again, you may be reading this and thinking “Not me, I’m different”. But that’s an age-old problem creeping in. Confidence in yourself, and instinct. Which are things that serve you well in other areas of life.

And also an over-optimistic estimation of ability. Trading has dramatically different requirements and disciplines from any other form of business. So, such an over-estimation is almost certain — you don’t know what you don’t know.

Unless you understand the right thing to do, in trading, and why you must do it, and unless you go the extra mile and train yourself to actually do the right thing, your evolved human nature and your life experience will cause you to do the wrong thing.

A Trader’s Sequence

With a faulty, big-picture assumption that trading is easy, a trader immediately runs headlong into a number of big problems.

If we think trading is easy and brings in quick profits, it follows that there is:

  • No need for trading education
  • No need to discover and stick to a trading system that is proven to work
  • No understanding of probability as it applies to trading
  • No need for risk control
  • No need for caution in position sizing — after all, if you’re sure you’re going to make a profit, why not make as much profit as possible?

Thinking there is no need for education means that traders start completely unprepared and have no idea what they’re getting into. It means they have no idea what they are doing when they do start. They are expecting to put a trade on and watch the profit roll in.

Because they don’t know how or why to enter a trade, there is no real rational basis for the trade to make a profit.

And, in fact, each and every trade anybody ever puts on has a 50-50 chance of winning or losing. That’s right. Even a very successful, accurate trader who wins 70{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} or 75{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} of his trades over time, has a 50-50 expectation for this next trade. The successful trader makes his profit from a number of trades over time.

So, the beginning trader has put a trade on that has a 50-50 expectation. And, because he has no edge, no data, no trading plan, he has nothing better than a 50-50 expectation for a number of trades over time, either.

Because he is convinced he is going to win — he is seeing it in his mind’s eye — he has traded a position that is far too big for his account size. This means, if the trade loses, he will lose far too much of his account on this one trade.

And it gets worse. Because he doesn’t understand risk management — he doesn’t even see the need for it — he has no pre-defined exit plan, and his loss is going to be even bigger than it should have been.

He has no concept of how probabilities apply to his trading. So he doesn’t know that he is going to endure a string of losses at some point — no matter how good his trading system is, and no matter how well he is trading it.

But he doesn’t really have a good trading system. And he doesn’t have either the knowledge or the ability to trade it well. (Two different things, which we will cover later). So his string of losses is likely to come sooner rather than later.

Because he is not maintaining good position sizing and good risk management, he has an extremely high probability of either losing his whole account or quitting when he has lost a large percentage of it.

This is why 90{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} of traders fail.

And it is completely unnecessary. It can be easily avoided if a trader just takes on board the correct expectations when he is starting out.

But hardly anybody does.

Why?

It’s a bit of human pride and hubris (“I’m different. I’m special, I’m way smarter than the average guy”), and another very insidious human trait: we believe what we want to believe. We fail to look at facts. We make decisions based on emotion, not based on research and rationale.

But, it is possible to avoid the fate of the 90{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb}. The path to trading success is right here, in this article. But it’s hidden in plain sight, camouflaged by human biases.

Paradoxically it does require you to be different from the majority. But it’s not ‘smarter’ that you need to be — it’s MORE HUMBLE.

So that you can accept that you don’t know what you need to know. And accept that you need to learn, and do the right thing every step of the way. And not take shortcuts, or do things differently, because you’re ‘smart’. That is actually the dumbest thing you can do.

But it’s just the first of these four areas in trading where you have to just accept something that is counter-intuitive — whilst it may be counter-intuitive, it’s true.

Mistake #2: Trading Brings Big/Fast profits

Trading can bring big profits. There is plenty of data out there to support this. It’s true — it’s indisputably true.

But it’s not going to be fast.

And, as we saw above, it’s not going to be easy.

So big easy money is another fantasy that has to go.

In order to make big profits, one of two things has to happen.

The first would be that you put on the kind of huge risk which no sane person would dream of, and you get lucky.

This is obviously completely unpredictable, and completely unsustainable. You can’t depend on luck, and you’re going to go broke quickly if you don’t get it.

The second is that you:

  • learn and fully take on board how trading really works
  • learn and understand how probabilities come into play in your trading
  • armed with the first two points of knowledge above, find a trading system that ‘works’
  • understand that you must personally prove that it works — for you. Understand how to do that. And then do exactly that
  • formulate a complete trading plan which defines
  • how to identify your trade setup
  • what trigger has to occur to get you into the trade
  • what your initial stop will be, whether your stop will be moved if the trade moves in your favor, and when and how it will be moved
  • how you will exit a trade with a loss
  • how you will exit a trade at a profit — including partial exits if you wish

Then…

  • start to trade your system with very small amount of capital
  • have a plan for how/when you will increase your trade size — eg when you make x amount of profit, your trade size increases by y. Or it might be, “I will only risk a maximum percentage of my capital at any one time”.
  • have a plan for how/when you will decrease your trade size — in the case of hitting a losing streak. eg your capital drops to x amount, you decrease your trade size to y.

Expect to take time to reach bigger profits — because the prime consideration is risk — preservation of your capital.

Basically, the path to making big profits requires that you learn what you need to know, do what you need to do, in order to trade correctly. And have realistic, rational expectations. In other words, know what to expect. And make sure that you know in advance what you will do in adverse scenarios.

Your trading success rate is completely dependent on these elements.

This is why it’s time-consuming and hard. But not impossible.

The hard part lies in dropping the fantasies and getting the correct mindset to learn

Mistake #3: No Need To Consider Risk (Because I’m Going To Win)

New traders concentrate on profits. They tend to put on a trade with great anticipation. They just ‘know’ this is going to be a great trade. They wouldn’t be putting the trade on, otherwise, because that is their prevailing mindset.

Because they are so convinced this will be a great trade — they can see it in their imagination — they break two of the most important rules in trading, both related to risk.

The first rule to get ignored is that they don’t calculate a position size based on risking a small percentage of their account size. They put on a position size that is too big for their account. It’s too big because, if the trade loses, the large position they have put on will result in a loss which is too big a chunk of their account.

The second rule that tends to get broken is that the idea that the trade will be a loser is so foreign that they either don’t put on a stop loss at all, or they put on a stop loss, but they don’t honor it when it is reached.

Price reaches their stop and the idea that the trade is going to be a winner is so entrenched, that they wait for it to come back.

It’s too hard to admit that they’re wrong because everything has been based on ‘knowing’ that the trade was going to bring in a profit. And, anyway, they’re losing money — if they exit the trade now, the loss becomes real.

But, most often, the price will continue the way it’s going. The trade doesn’t ‘come back’. So they finally call quits when the pain is too great, and suffer a loss that is even bigger.

In contrast, all professional and successful traders know the truth about this.

(1) The probability of the next trade is 50-50 — no matter what the long-term results of the trading system. It makes no difference if you are trading a system that has a 90{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} win rate or a 30{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} win rate, the next trade is 50-50. This is so essential to understand.

(2) Every trading system encounters strings of losses. You might incur 5 losses in a row, you might incur 15 losses in a row.

The complete understanding and acknowledgment of these two facts mean that the trader will be very careful to trade the correct position size, use the appropriate stop-loss, and honor the stop loss if it is hit.

For these people, there is no possible question of acting otherwise.

They do not second guess, and they are not ashamed of losing. They accept that losses are an inevitable and necessary part of trading. But they also completely understand that to get through the losses and reach the winners, the number one priority in their trading must be dealing with risk. They know they must first protect their capital.

We see that there is a stark 180-degree difference in how trading is viewed by a successful professional trader, compared to the beginning trader.

Here is a compilation of the two graphics above so that we can compare side-by-side the trader’s losing path and the trader’s winning path.

You will never be a successful trader if you don’t get on the right side of this dividing line. Just about all sustainable trading success stories are a result of following this path to success.

Mistake #4: I Can Start Trading (And Make A Lot Of Money) With Low Capital

Funnily enough, it is actually possible to do this! As long as you do not expect to do it either:

Fast
or
Without the necessary education.

We talked about this above. However, it’s a complete myth for the 90{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb}, because they expect to do it right now with no education, and they expect to get rich quickly. The successful professional trader fully understands that his profit is inexorably tied to the amount of capital he is trading.

Because his risk management is rigorous, he never trades with a higher risk than his plan dictates. The position sizing will be entirely dependent on the size of his account. So, therefore will his profit. The beginning trader expects to make a fortune from a tiny starting account and, worse, he expects to do it fast…

The trader who follows the correct path of starting small and scaling his trade size out of profits can start trading with low capital and eventually make a lot of money. It is done by the power of compounding. Which Einstein described as the 8th wonder of the world. Einstein actually said ‘compound interest’. But compounding your profits follows exactly the same principle.

successful trading rules

Successful Trading Depends on These Important Things

 

Filed Under: STOCK MARKET TIPS

Technical Analysis of Stock Charts

The Art and Science Behind Technical Analysis of Stock Charts

Technical analysis of stock charts is both a science and an art. The science is in identifying all the chart patterns, candlestick formations, trends, channels, etc. then adding indicators, Bollinger bands, and the like, to help gauge the strength of a price move, or whether it is likely to consolidate or reverse. The art is in developing the skill which recognizes these things almost instinctively so that you get a sense of what is about to happen.

The idea is to be able to forecast future price movements of a financial instrument and adapt a trading strategy that fits your view.

For longer-term investors, technical analysis of stock charts is usually distinguished from fundamental analysis of companies. While fundamental analysis looks at financial accounting ratios and news events for a particular company, with a view to predicting whether its currently traded share price is fair value, technical analysts believe that all this information is built into the price charts themselves.

While some technical analysts are longer-term traders, most are concerned about short term opportunities. If you’re good at technical analysis of stock charts and combine this with a knowledge of option trading and personal discipline, you can do very well.

Technical Analysis of Stock Charts and Dow Theory

Around the turn of the twentieth century, the basis for modern technical analysis was born. After analyzing stock charts over many years, Charles Dow wrote copiously about recurring price patterns and how these can be used to anticipate future moves.

The basis for Dow Theory relies on the following assumptions:

  1. That all investors act in their own interests and consequently, the financial markets are efficient – meaning that supply and demand reign supreme.
  2. That price movements are not totally random. If prices were random it would be extremely difficult to profit using technical analysis. In his book, “Schwager on Futures: Technical Analysis”, Jack Schwager states:

“One way of viewing it is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandom behavior. The goal of the chartist is to identify those periods (i.e. major trends).”

Fortunately, using the appropriate option trading strategies, we can not only profit when a market is trending, but also when it is randomly fluctuating within a price range.

technical analysis of stock charts

Some of the most useful tools for technical analysis of stock charts are:

  • Bollinger Bands – for price volatility
  • The volume of shares traded – tells you a lot about probabilities
  • Trend lines
  • Support and Resistance lines
  • Indicators – which either confirm our outlook or warn against possible weakness in it.

Technical analysts consider the market to be 80{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} psychology and 20{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} scientific. Fundamental analysts consider the market to be 20{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} psychology and 80{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} scientific. Psychological or scientific may be open for debate, but there is no questioning the current price of a security. After all, it is available for all to see and nobody doubts its legitimacy.

The price set by the market reflects the total perception of all participants – and we are not talking about amateurs here. These participants have considered (discounted) everything possible and settled on a price to buy or sell. The forces of supply and demand are at work.

By examining price action to determine which force is prevailing, technical analysis focuses directly on the bottom line: What is the price? Where has it been? Where is it going?

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Filed Under: STOCK CHART ANALYSIS

The Calendar Straddle Option Strategy

Enjoy the Flexibility of the Calendar Straddle – One Covers the Other

The Calendar Straddle is an options strategy formulated to earn a profit when low volatility is present in the underlying asset. It is also called a neutral options strategy.

It is a combination of both a short term straddle and a long term straddle. The trader sells the short term straddle and buys a long term straddle with the objective of realizing profit due to the slower rate of time decay on the long term straddle compared to the short-dated one. Since short-dated options expire more rapidly than longer-dated ones, the difference becomes your profit.

A calendar straddle is also known as a horizontal spread because the trader purchases option contracts that expire on one date while selling other options expiring on another date. You’re also looking to take advantage of the differences in the options implied volatility for different time periods. As a trader, you should only use this strategy when you can purchase the longer-dated options at a relatively cheaper price than the shorter-dated ones that you’re selling.

The best time to pick a calendar straddle strategy is when the price action of the underlying stock or other asset is expected to remain stable in the short term but in the longer term should break out to make a more significant move. In this case, all the options should finish at the same strike price.

calendar straddle

 

Two Ways the Calendar Straddle Profits

This type of trading is mostly done by veteran options traders. Profits can be achieved in two different ways. Firstly, from the higher rate of time decay on the short-dated options compared to the long-dated ones, and secondly, through a secondary profit realized by the longer-dated straddle following a reasonable price movement in the underlying.

The Calendar straddle is appealing because it has the ability to profit when the price action of the underlying asset is stagnant. It also offers flexibility to the trader to cash in on the long term straddle when the value of the stock is expected to reach a breakout stage. It also has limited risk with no margin required to hold the trade.

If you expect the value of the underlying to move significantly shortly after the expiration of the short-dated options (weekly or monthly) then you can allow the short-dated straddle to expire without rolling further. If not, then once expired, and assuming your long-dated options are a few months away, you may wish to sell another short-dated straddle position and receive more income if you think the conditions are right.

The profit associated with this trading technique is limited in the short term but can be huge in the longer term. Losses are limited to the net debit after subtracting the credit from the short position from the longer-dated straddle. Using risk graphs, you can determine your expected profit levels.

Calendar Straddle strategies provide one of the best opportunities to benefit from stocks with consolidating or stagnant price action or in a tight trading range. The only disadvantage is that profit potential is limited up until the expiration of the sold options. After that, if you’re lucky, the price of the underlying could explode, the implied volatility might balloon on your bought positions so that theoretically, profits could be unlimited.

The calendar straddle, or neutral options strategy, is an advanced options trading strategy. It is simple to implement and the only variations might be how far away you choose for the expiration of your long straddle. The determining factor would be implied volatility (IV). You should choose months with the lowest IV. By doing it right, you can make a stable income with minimal risk.

Enjoy This Video About the Calendar Straddle

 

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Filed Under: OPTION TRADING STRATEGIES

Candlestick Chart Patterns Explained

Candlestick chart patterns explained for beginners – get ready to win! The most effective way of understanding candlestick patterns in the stock market is to first divide them into their three main categories:

  1. Bearish reversal patterns
  2. Continuation patterns
  3. Bullish reversal patterns

In addition, it’s important to remember that once we understand the candlestick patterns basics, we don’t want to confine ourselves to using them as a standalone method for stock chart analysis. The most successful price action prediction outcomes combine what candlestick patterns mean with some other key elements that affect price, such as support and resistance levels, particularly on higher time frames and trend lines.

Putting these together, we can be confident that we have a candlestick patterns strategy that will serve us well and produce many profitable trading opportunities.

Candlestick chart patterns work best on daily charts because the price action during this period contains a lot more data to work with. This doesn’t mean that they can’t also work on shorter time frames and you’ll find a number of articles or videos to that effect. However, the examples and comments that you’re about to read are all based on daily candlestick charts. At the end of the day, the candlesticks tell a story.

Over time, individual candlesticks form patterns that traders can use to recognize major support and resistance areas. There are a great many candlestick patterns that indicate opportunities within any given market. Some provide insight into the balance between buying and selling pressure, while others identify continuation patterns or market indecision.

So let’s get started . . .

Six Bullish Candlestick Chart Patterns Explained

Bullish patterns form at the end of a market downtrend and signal to the trader, that price movement is about to reverse direction. When you see these signals, you should be thinking about strategies that will profit from an upward trajectory in the market.

1. The Hammer

The Hammer candlestick pattern comprises a short body with a long, lower wick and is showing us that although there was selling pressure during the day, this was then canceled out by strong buying pressure that drove the price back up. A green hammer, where the price closes higher than the open, is a stronger signal than a red hammer, where prices close lower than the open.

Another name for the single green reversal candle in the image below is the Pin Bar.

hammer chart pattern

2. Inverse Hammer

The Inverted Hammer is a similarly bullish candlestick pattern to the above mentioned Hammer, the only difference being, that the upper wick is long while the lower wick of the candle, is short. It indicates buying pressure, followed by a selloff that wasn’t strong enough to drive the market price down. It tells the trader that buyers may soon have control of the market.

inverse hammer candlestick pattern

3. Bullish Engulfing Pattern

This is a combination of two candlesticks. The first candle has a short red body that is completely engulfed by a larger green candle. Even though the second day opens lower than the first one, buyers push the price up, culminating in the buyers being victorious. Traders should expect this momentum to continue.

bullish engulfing candlestick pattern

4. Piercing Line

The Piercing Line, like the Bullish Engulfing, is a two candlestick pattern. The first candle is a long red (bearish) one. The next candle is a long green (bullish) candle. It also usually includes a gap down between the closing price of the first candle and the opening price of the next.

The reason why it is called a “piercing line” is because that “line” in question is the mid-price of the first candle. To qualify as a Piercing Line pattern, the second bullish candle must push the price action up to above a level that is 50 percent of the first candle.

piercing line candlestick pattern

5. Morning Star

As the end of a market downtrend approaches, the Morning Star candlestick pattern is considered a sign of hope. This one is a three candlestick pattern. It includes a long bearish candle and a long bullish candle on either side of one short-bodied candle.

For it to be a “Morning Star” the body of the small candle should not overlap the bodies of the two larger candles on either side. The best Morning Star patterns occur when the body of the third candle is higher than that of the first candle but this is not essential to the definition. Sometimes, a short pause follows, and then the price continues upward.

morning star candlestick pattern

6. Three White Soldiers

This pattern occurs over three days and consists of bullish green candles with small wicks, each of which closes higher than the previous day. This is a very strong bullish signal that signals the reversal of a downward trend.

three white soldiers candlestick pattern

Six Bearish Candlestick Chart Patterns Explained

These bearish candlestick patterns form at the end of an uptrend and signify a reversal to lower price action. They are most effective when confirmed by resistance areas, such as major resistance levels on higher time frames, the top of channel patterns, or protruding out of and then withdrawing back into the top of wide volatility Bollinger Bands.

1. Hanging Man

The Hanging Man is the bearish equivalent to the bullish Hammer. Looking at the image below, you can see why it’s called that. It indicates that there was a significant sell-off during the day, but that buyers were able to push the price back up again.

However, the large sell-off is an indication that the upward momentum is declining and we’re in a period of indecision. A bearish candle that follows will confirm our belief that either a reversal or short term pullback is on the horizon.

hanging man candlestick pattern

2. Shooting Star

The Shooting Star candlestick pattern is the reverse of the Inverse Hammer and forms at the end of an uptrend. It has a small lower body and a large upper wick. It’s called a “shooting star” because price will rise during intraday trading but later, will reject the highs and fall back to the ground.

shooting star candlestick pattern

3. Bearish Engulfing Pattern

This candlestick pattern occurs at the end of an uptrend. You’ll see a small green (bullish) body which is then engulfed by a long red (bearish) candle. This indicates a peak, or slowing down, of upward price trajectory and foreshadows an impending reversal or pullback. The stronger the second red candle is, the more significant that a continuation downwards is likely to be.

bearish engulfing candlestick pattern

4. Evening Star Pattern

Unlike most other patterns discussed here, the Evening Star is a three star candlestick pattern and is the opposite of the bullish Morning Star. When you observe a small green candle sandwiched between a long green candle and a long red candle, then you know that you’re looking at an Evening Star.

It is confirmation of a bearish price reversal or pullback and is especially so when the third, i.e. red, candle closes lower than the open on the first candle.

evening star candlestick pattern

5. Three Black Crows

This candlestick pattern comprises three consecutive bearish red candles that have either very small or non-existant wicks. The close of the previous day is virtually the same as the open of the next day, but each day, the price descends lower and lower. Traders interpret this as the beginning of a new downtrend.

three black crows candlestick pattern

6. Dark Cloud Cover

This pattern tells you that a bearish reversal is underway. The bullish green candle optimism of the previous day is overshadowed by a red bearish candle that almost engulfs it, but not quite. It closes below its mid-point. If the wicks of the second candle are short then you know that the bearish reaction to upward price has been decisive.

candlestick chart patterns explained

Four Candlestick Continuation Patterns

Whilst the patterns that we have been looking at so far are reversal patterns, the following indicate a short period of rest in the market before price continues in its original direction.

1. The Doji

When price action in one day (or another period) has a very narrow range and almost closes where it opens, so that the candle resembles a small cross, you’re looking at a Doji. These candles typically have a short, to non-existent, body, but the wick size may vary. It indicates a struggle between buyers and sellers which results in indecision as to which way price action should proceed.

You will observe the Doji as part of the Morning and Evening Star candlestick patterns, but when they appear alone, they’re a neutral signal and more likely showing us a pause before the price action continues. Doji’s can often present themselves as “inside days” and as such, can be perfect candidates for the Inside Day Trading Strategy.

If you see a few Doji-like candles consecutively following each other at an extremity, followed by a price breakout, then you should consider this to be a breakout from price consolidation which, if at or near the touch of a trendline, can be very powerful.

2. Spinning Top

The Spinning Top candlestick pattern has a short body that appears between wicks of equal length. It’s telling us that the market is indecisive. The bulls and bears have equal strength.

If you see a few of these Doji-like candles consecutively following each other at an area which your analysis tells you involves a decision point, such as near the touch of a trend line, followed by a price breakout, then you should consider this to be a very powerful signal that price action will continue in the direction of the trend line.

candlestick chart patterns explained

3. Falling Three Methods

This involves three consecutive green bullish candles that move in the opposite direction to the prevailing downtrend before the price continues downward. On either side of these three candles, you want to see two strong bearish candles with long bodies and insignificant wicks.

You also want to see the three green candles contained within the range of the two bearish candles. It means that the bulls didn’t have enough support to realize a price reversal, so expect a downward price trajectory from here.

candlestick chart patterns explained

4. Rising Three Method

This pattern is the opposite of the one directly above. Again, you’re looking for three red candles contained with the range of two decisive green candles. They indicate a short pause in the market before price action continues upward.

rising three methods candlestick pattern

Now that you have a good grasp of candlestick patterns and what they mean, this would be a good time to practice recognizing them by going back over some stock or forex price charts and highlighting them. Observe where they work best and under what conditions. Then you can formulate your successful trading plan.

Please Remember This

Candlestick chart patterns should NOT be used as standalone signals for trading opportunities. They need to be used in conjunction with other forms of technical analysis such as trend lines, support and resistance areas, key Fibonacci zones, etc. When used this way, they become powerful signals with a high probability of success. This is called  “confluence trading” and it is what the most successful and wealthy traders always do.

Remember, successful trading is not about winning every time. It is about placing the odds as much in your favor as possible. After that, it’s just a numbers game.

 

 

Filed Under: STOCK CHART ANALYSIS

Bottom Fishing Stocks Using Inflated Option Prices

One of the reasons why “bottom fishing stocks” is the best time to use this strategy is that, due to the huge stock selloff, the implied volatility in the put option prices will normally be high. This means that the near-money options that you’re selling will be at inflated prices, thus bringing you a greater credit for the transaction.

You get paid a handsome sum for simply waiting for the stock to fall further – if it does.

Another Huge Advantage

Instead of creating a vertical put credit spread for bottom fishing stocks as outlined above, you could choose instead to make it a diagonal spread. This means that you would sell the near month put option and buy a long-dated put option at a lower strike price.

You may be exercised on the near month option and own the 500 shares, ready for a covered call strategy, but you will also now have a long-dated put option at a lower strike price, over which you can continue to sell more put options each month, or under which you can create a debit spread, bringing you even more income.

Details of this strategy along with so many more powerful secrets about the art of adjustments for options trading profit are outlined in the Trading Pro System.

bottom fishing stocks strategy

Filed Under: OPTION TRADING STRATEGIES

Bottom Fishing Stock Strategy – Example

Let’s say XYZ company stocks have recently fallen dramatically to around $17 on high volume – sometimes referred to as ‘capitulation volume’.

The stock has since been trading in a range around this ‘bottom’ area and you believe that it can’t fall much further. This makes it a good buy and you would be happy to own the shares if they fall as far as the $15 price level.

You also have sufficient capital to purchase 500 shares.

This is what you do:

  • Sell 5 put option contracts at a strike price of $15 with an expiration date about a month away, and
  • Purchase another 5 put option contracts at a lower strike price, same expiration date.

This is called a put credit spread, otherwise known as a “bull put spread“. You need the ‘long’ position as a kind of insurance protection in case the stock plummets further. You will receive a net credit to your brokerage account.

Once this is done, three scenarios can follow:

1. The stock stays around the $17 level by the options expiration date. In this case, you get to keep the credit you have received and can choose to write another put credit spread for the following month. You have effectively been paid for waiting for the stock to reach your desired level.

2. The stock falls to $15 and you are exercised on your sold options and the stock is put to you. You now own 500 shares of XYZ and can then implement further strategies using options, such as selling covered calls with protected puts.

3. The stock plummets to way below $15. In this case, the stock will be assigned to you, but your bought puts will increase in value and limit your potential losses. You could use the profit from these bought puts to buy more shares and in doing so, average down your entry price as part of a longer-term wealth-building plan.

Bottom Fishing Stocks Using Inflated Option Prices

 

Filed Under: STOCK OPTION TRADING

Comparing the Bear Call Calendar Spread with the Traditional Bear Call Spread

We have previously discussed the Bear Call Calendar Spread. So the logical question might be, “how does this compare with a ‘regular’ Bear Call Credit Spread?”

Below is a risk graph using exactly the same number of option contracts, only this time, all with October expiration dates.

bear call calendar spread

 

See how it compares with the payoff diagram of the Bear Call Calendar Spread – see below.

bear call calendar spread
If we had only used October SPY options for both legs. Our upside breakeven would’ve been reduced to $118.59 and above that, falling away to a maximum loss of $1,400.

On the downside, however, our maximum profit would be $1,600 if the SPY closes below $117 at expiration date. This $1,600 would be the initial credit premium we received which we note is greater than for the bear call calendar spread at $1.60 per contract.

Since our choice of option trading strategies is really just a matter of risk vs reward over a range of strike prices up to a given expiration date, you would be more inclined to enter a bear call calendar spread if you believe the price action of the underlying will remain pretty much unchanged up to the last week before expiration.

You will receive the maximum profit potential this way. This strategy is therefore most suitable for a stock whose price action has low volatility over time. Consulting weekly and monthly charts will help you here.

bear call calendar spread

 

Filed Under: OPTION SPREAD TRADING

Is Binary Options a Scam if you Have a System?

Following on from our article about whether binary options are a scam, let’s investigate whether having a binary options system is both workable and profitable.

So here’s the thing – if your binary options broker is offering 70 percent profit on winning trades, can you devise a trading system whereby one winning trade will “pay” for all previous losing trades and then some?

You could employ a trading strategy whereby, after each loss, you increased your bet by an amount where the winning bet would “pay” for all previous losses and then some. But at only 70 percent profit, you would need to increase your “bet” by a minimum 2.35 times the previous one in order to win overall.

So now you need to decide what your first trade amount would be. For example, after 3 losing trades on a starting bet of $20, your 4th trade would be $261. But if you had started with $100 then you’d be risking $1300 on your fourth trade.

I suspect you’d be feeling a little jittery by then! If you started with only $2,500 trading capital and you lose this one, then your next trade will need to be more than your entire starting bank. If you’d started with $50,000 then you might not be so concerned … yet.

If you’re only starting off with $20 for your first trade, you then have to ask yourself whether the investment of time and patience, waiting for the right trade setup and realizing profits at 70 percent, is worth it to you.

Conclusion

So is binary options a scam or not? Looking at the above numbers, my conclusion is that, considering the absolute and inflexible nature of binary options in comparison to traditional options, it would not be a preferred trading instrument for me. There are so many more opportunities with traditional options.

Even if I was going to implement a money management system as described above, then I would be looking for a much higher dividend payout than $1.70 for a win. I would be better off picking the eventual winning horse in races only paying above $5.00 for a win, or a minimum $2.00 for a place, and doubling my bet each time until it pays.

At least then, my chances of profiting without wiping out my entire capital would give me more losing opportunities before the winning trade saved the day. But then I’d have to be good at picking winning horses.

 

Binary Options Strategy

Filed Under: BINARY OPTIONS

Call Calendar Spread Example

In this hypothetical example, we’re looking at trading options on the QQQ in an imaginary situation where we believe that it will continue to rise over the next few months.

So with the QQQ trading at $106 we decide to sell (short) the nearest OTM options at $107 expiring in 20 days, while at the same time, purchasing $107 call options expiring in 50 days. The total cost is $0.69 per spread position and since we’ve taken 10 positions, the total debit is $690 plus commissions.

Now take a look at the image below, where we’ve analyzed the risk graph.

call calendar spread

You’ll notice that if the QQQ doesn’t rise above $108.78 before the near month expiration date, then a profit will be realized if both positions are closed simultaneously. But if the QQQ’s fall below $105.24 we begin to realize a loss, which falls away up until a maximum of the $690 cost of the debit spread. So this is definitely a calendar spread with a bullish outlook.

The maximum profit of $711 is realized if the underlying is sitting at the option strike price of $107 at expiration date.

Things to Look Out For

Before entering a call calendar spread position, make sure you check that there is not too much of a discrepancy between the option implied volatilty of the near term options compared to the longer term ones. If the longer term options are too over-priced, the deal may not be as sweet as you imagine.

Since this position is a debit spread, there will be no margin requirement with your broker. Margin requirements only come with positions where you receive a net credit upon entry.

Experiment With Strike Prices

In the second example below, we have taken a different approach. Instead of using $107 calls, we have chosen to go for $109 call options, which are further out of the money. So now our risk graph looks different – and our risk to reward ratio has also changed.

call calendar spread

This time, our position has only cost us $460 instead of $690, so that is our total risk. Our maximum profit on the other hand, has risen to $849, which is almost double our maximum risk. However, we need to believe more strongly that the price of the QQQ will rise in the near term because, unlike the $107 calendar position, there is no room for a fall in price before we start losing money.

Our upper level breakeven point however, has risen to $111.40.

Consequently, the further out of the money your call options are, the more it approximates a simple long call option position with a later expiration date, except that the entry price is reduced and the upside profit potential is also capped. This sounds like a bull call spread, except that if the price rises too much, too quickly, you begin to see a loss.

 

 

Filed Under: OPTION SPREAD TRADING

Options Trading Education and Training

Options trading can be a very profitable way of investing if you can choose the right type of options contract. A contract is a security, which allows a buyer to buy or sell a particular asset (usually stocks) at a later date. An investor would buy a contract on a stock, for example, to purchase 100 shares worth one hundred dollars each at a given date in the future. If the price of the stock decreases by twenty percent after one year, then the investor would sell his contract and get back the difference.

options trading

If an investor wants to buy an option on a particular asset, he or she must know all about options trading before buying options on the asset. This knowledge is needed if an investor wants to buy options that would increase or decrease their investment value.

However, if the value of the asset decreases, the investor would need to sell his option and get back the difference. In other words, if the price decreases by twenty percent from the current value of the stock, an option would give the investor the opportunity to earn money from the decrease in value. Thus, options trading and the ability to buy and sell options are two sides of the same coin.

Options trading education can be done online or in-person at seminars. Seminars generally run for 1-2 days and tend to be much more expensive, due to the overheads involved. There are various online options trading education and training courses to teach new investors the basics of trading and options trading. These classes have already taught many of the basics and are meant to be useful to beginners, who do not have time or desire to attend in-person courses.

Educational courses aiming to teach new investors the basics of trading and options trading can easily be found on the internet. These courses are free and are designed to be easy to understand. There are also free video tutorials available to help the novice investors learn the basic concepts.

One thing to keep in mind before investing in options is to determine the investment potential of the stock that you are interested in buying. It would be beneficial if you could analyze the business profile of the stock and identify which kind of investment it has, especially if the stock’s future is still unknown.

Option trading in commodities can also be used as a hedge against inflation. If a commodity (such as oil) increases in value, it can act as a good hedge against inflation by acting as the seller of an option to buy oil and the buyer of an option to sell oil. By buying a contract, you can increase your investment and profit from the depreciation of the commodity.

One other advantage of trading options is that you can sell (or ‘go short’) an option anytime you wish and it is a very easy and cheap way of trading. The advantage of this is that there is no commission involved; hence, you can always sell your option as an independent investor. If you have a limited amount of money to invest, then trading on the stock exchange may be more suitable. However, options trading does not require a large capital to be invested.

Most of these options trading education courses Aiming to teach new investors the basics of trading and options trading can be found online. There are various websites (including this one) that offer relevant information for free. But if you’re looking for a structured course that takes you step by step through the entire learning process, then it’s well worth paying for one.

Before signing up, make sure that you have read all the instructions carefully and understand the terms and conditions clearly. If you are unsure about the options trading process, then you can consult your financial advisor or a chartered accountant. The booklets and information provided should also include any additional costs you may incur to get the services of an expert adviser. This will include brokerage fees for any trades you make.

If you are wanting to do options trading for a living, then you must know your limits. Some of the things you can trade include stocks, commodities, currencies and indexes. Trading can be done on both fixed and the floating price.

Technical knowledge and training are also important, as you can not only predict trends based on past data but also can make decisions based on the current information available to you. The right knowledge is definitely worth the effort required.

Filed Under: EXPLAIN OPTION TRADING

The Call Calendar Spread Explained

The call calendar spread, sometimes called the bull calendar spread, is an options spread strategy that is most suited to market conditions where you believe the underlying financial instrument is due to rise within the short term, but not by too much.

Over the longer term, however, the options trader is bullish on the underlying.

Here’s how the call calendar spread is constructed:

  • Sell 1 Out-of-the-money (OTM) call option with a near term expiration
  • Buy 1 Out-of-the-money (OTM) call options with a longer-term expiration

The idea is to reduce your entry price by selling the shorter-term options and with the intention of riding the longer-term call options for profit.

For this strategy to work, you don’t want the price action of the underlying to spike upwards before the short term option expires. These days, with weekly options, you can come up with all sorts of interesting combinations of expiration dates to make this work for you.

Your intention is also to take advantage of accelerating time decay on the OTM short options, as expiration approaches.

Expiration months on the call calendar spread can be anything from one month apart to whatever distance into the future you wish you place your bought options. Some people are happy to close both positions for a small profit at the expiration of the short options, while others would rather ride the long option into potentially larger profits over time. It all depends on your long term view of where the price of the underlying is expected to be.

Call Calendar Spread Example

 

 

Filed Under: OPTION SPREAD TRADING Tagged With: bullish option strategies, call options, option spread trading, options trading

The Three Legged Box Options Trade

Whether you only have a few thousand dollars or a large sum to invest, the Three Legged Box Options Spread is one of the best option trading strategies available for retail investors today. You can try all kinds of strategies but according to well-known veteran trader David Vallieres, this one is the best. The appealing thing about it is, that it’s execution is easy while it’s results are reliable and consistent.

We would call the three-legged box spread a “lifestyle” type trade, meaning that you don’t have to keep watching the market for most of the day. It’s the type of setup which, once entered, only requires monitoring a few times each week in conjunction with setting up an alert with your broker as to when a target price in your underlying instrument has been reached.

It’s not a day trading, nor a high-frequency options trading system. Nor is it about scalping, or forex options trading, or binary options. You could almost call it the perfect option strategy.

Some Benefits of the Three-Legged Box:

A high profit to loss ratio – you don’t need to get a high percentage of trades correct to make an overall profit.

Flexibility – there are many variations on how you choose to enter the trade.

Longer expiration dates – gives you plenty of time to be right and less account “churning” (turning over your money many times and paying multiple brokerage commissions).

A clearly defined loss – over hundreds of trades, the average loss is about $413 and you don’t need to place stops. Have you ever put on a trade, only to be stopped out just before it goes into profit? Three-legged box options eliminate this from happening because a maximum loss is already built-in – and it’s time friendly.

Defined profit targets – The average profit, based on one contract for each leg of the trade, is $1,340.

Very easy to open and close trades – no complicated spreads.

No overnight “worries” i.e. big moves or assignment.
Clear entry and exit points.

No adjustments necessary – it just works or it doesn’t.

Relaxed, informed, and thoughtful trading. You just scan the markets, looking for a special set of parameters in the underlying, and then place the trades.

You can trade single contracts and keep brokerage commissions low

This system is more effective than using iron condors, calendar spreads, butterflies, etc. etc.

Successful option traders know what kind of market they’re in. This is critical. With the above option trading strategies, the ideal time to place these trades is when the VIX (Volatility Index) is at 40 and coming down. At such times you have premium in the market, which provides option selling opportunities. When the VIX is below 20 these are not the most optimum strategies, (even though they’re still very effective).

But with the three legged box spread, it doesn’t matter what kind of market volatility you’re in. It could be high (VIX above 40) or low (VIX below 20) or somewhere in between – and this type of trade works just as well in any.

If you specialize in your trading style, you will make a lot more money than if you’re trying different things. This is because you’ll perfect your technique and know a lot about your strategy. The three-legged box is the best one to get to know.

You have to treat this like a business and this means an expectation of a profit. Studying volatility and understanding what kind of market you’re in, or entering, increases your winning percentages of profitability. If you want to be in the top 2 percent of traders then you have to know this.

The three legged box spread has limited risk but unlimited profits to the upside.

three legged box

What’s a Box Spread?

Before we can talk about a three-legged box spread, we first need to understand what a regular Box Spread is. It’s a trade that has 4 option ‘legs’ at two different strike prices which, if purchased for less than the difference of the strike prices, gives you a guaranteed profit.

So let’s break down a box spread into its components, with the added feature of the delta.

box spread options

Looking at the graph above, with the underlying stock currently trading at $67.50, the 55 calls would be in-the-money (ITM) while the puts would be out-of-the-money (OTM). This being the case, we can speculate that the delta on the call options would be about .89 while the puts, being OTM, would have a delta of .11. Adding the two deltas together would give us a combined delta of 1.00.

Now if we were to simultaneously purchase a 55 call and sell a 55 put under these conditions, we would create what is called a “synthetic stock position” which is another way of saying that in terms of price movement in the underlying, the unrealized profit or loss would be the same as if we had actually bought the shares. It would be much cheaper than buying the underlying stock, but would also carry the associated risk of losing more than our initial trade investment amount, in the same way as if we had “gone long” a leveraged futures, spot forex or CFD contract.

If we were to do the same thing on the 75 calls and puts, per the chart below, we would create what is called a “synthetic short stock position”. The effect would be just the same as if we had short-sold the underlying stock covered by the options contracts, instead of using options.

So by creating a regular box spread with just one contract for each leg, we achieve the same thing as if we had purchased 100 of the underlying stock at $55 and short-sold 100 shares of the same stock at $75. One counter-balances the other, but with a $20 price difference in between.

Now here’s the trick – if you can enter the 4 legs of this trade for less than the difference in strike prices including brokerage commissions, then you can forget it until the option expiration date when you will make a guaranteed profit – being the net credit.

Unfortunately, it is very difficult for retail traders to put a full box spread trade on and make any money. Floor traders can do it because they don’t pay brokerage commissions and if they can buy it for less than $20 (in this case) they will make a guaranteed profit.

However, there are some retail traders who have “legged into” the box spread and done so in a retail environment, to their advantage. If your expiration dates are far enough away, giving you enough time to get the initial direction right, you can lock in profits.

The Long Three Legged Box Spread

Instead of having 4 option ‘legs’ which creates a box spread, we’re only going to have 3 legs. So taking the example we’ve been looking at above, if we remove the ITM long call option from the equation, we end up with a basic long 3 legged box spread. So we’re going to be:

  • Buying a 65 call
  • Selling a 65 put
  • Buying a 55 put (for protection, as well as for margin reasons)

three legged box spread

The first two above positions have effectively created a synthetic long stock position and the third position covers, or “insures” it to some degree with a protective put.

We would place the above trade if we anticipate the future price action of the underlying to rise by at least 5 percent. So in this case, it would be $67.50 x 1.05 = $70.88 (let’s say $71 to keep it simple). Notice that all the strike prices are below the current market price of $67.50.

The above “long” three-legged box gives us a predefined loss on the trade, which means we don’t need any stops. It also satisfies our broker’s margin requirements because we are not over-exposed to risk.

If this stock doesn’t move, the sold $65 put will generate some theta premium for us. We essentially have a bear put credit spread alongside a long ATM call position. Let’s take a look at the profit graph at expiration.

three legged box risk graph

If the stock goes nowhere, we have a maximum loss of $230. If the price action goes against us, our maximum loss will be $520. But if the price action goes in our favor (i.e. it rises) then a 5{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} move in the underlying will give us a target profit of $1480. If we’re lucky and see a 10{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} move, we realize a profit of $2960 on just one option contract.

Once in a while, we will “hit the jackpot” when a news event or similar, causes an upwards price spike. Sometimes the market will initially go against us but then will reverse and go in the direction we have anticipated. Using the 3 legged box, we give ourselves plenty of time for it to do so.

The Short Three Legged Box Spread

In this case, if we remove the OTM put options from the original box spread above, we get our short three-legged box. We going to:

  • Sell 70 calls
  • Buy 80 calls
  • Buy 70 put

It’s simply the reverse of the Long Three Legged Box spread described above.

short three legged box spread

Looking at the profit graph again, a 5{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} fall in the underlying will realize a profit of $1480 while a 10{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} downward move will reward us with $2960. If the price of the stock goes up instead of our anticipated downward direction, our maximum loss will be $520. If it goes nowhere, we lose a maximum $230.

All the above figures are based on using only single contracts. If you traded 2 contracts per leg, you would double your profit potential as well as your potential loss levels …. and so on.

short three legged box

Three Legged Box Spread – Things to Keep in Mind

Before entering a three-legged box spread you have to know the kind of market you’re getting into, especially the historical volatility of the underlying stock or other financial instruments. You’re looking for an underlying stock or commodity future that you believe will MOVE.

You also need to choose a financial instrument that has a liquid options market for this to work. Implied Volatility in the options can provide opportunities for variations in the strike prices you choose.

You should also never use 2x or 3x ETF’s. These are designed for day trading and can hurt you. You should also prefer stocks or ETFs that are trading in the $100 price range. This makes the 5{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} rule as outlined above much easier to calculate. Historically speaking, stocks in the $100 range are more likely to move the required 5{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} for this strategy to work effectively.

Typically, we would not hold a 3 legged box till the expiration date. We choose options that have 6-9 months until expiration. This gives us plenty of time to be right.

three legged box

Three Legged Box Spread Variation Example

If we can’t get a favorable P&L graph due to Implied Volatility being unfavorable, we can create a slightly skewed three-legged box that converts the risk graph into something more appealing. In the end, you want to see a favorable “profit & loss at expiration” graph.

So experiment with strike prices and analyze.

Here’s another example of a three-legged box taken on the DIA (“Diamonds”) ETF (which is based on the DOW Index). Notice the initial strike prices which are around the DIA when it’s trading at $170.50

three legged box on dia etf

But due to the implied volatility in the options, we might choose to buy a 165 put instead of the 170.

3 legged box variation

Here are some examples of stocks and ETFs that trade on the US markets that work well with the 3 legged box spread:

DIA
GLD
AAPL
SPY
IWM
QQQ
EEM
XAU
TLT

three legged box

three legged box options

The Three Legged Box Option Trade

Filed Under: OPTION TRADING STRATEGIES

Near Riskless Trading Strategies

Have you ever wondered whether it’s possible to enjoy trading setups in the financial markets, that are not only highly profitable, but virtually “risk free”?

I’ve recently been reviewing a series of training videos by a well known trading veteran, where he explains to his viewers, exactly how to do that – in 3 different ways.

He calls it “Near Riskless Trading” – or NRT for short.

These excellent training videos reveal the specific strategies and market conditions under which you implement them. All the assets on the site are fully downloadable.

futures vs options

Discover the NRT Strategies Here

How Near Riskless Trading Works

The strategies involved, create a unique arbitrage opportunity that makes a profit, no matter which way the underlying instruments move after you’ve placed the trade. The hedged positions protect you from losses, don’t require you to have “stops” in place and don’t involve constant monitoring. You can hold them over the weekends without worrying what might happen on Monday.

I don’t believe this particular strategy is, at time of writing, being taught anywhere else.

To appreciate the true value of these strategies, you will first need some undersanding of how the “option greeks” and especially, the delta, affect the pricing of options.

For this reason, the “Near Riskless Trading” strategies are part of a larger concept, known as “High Level Options Mentoring” (HLOM).

At time of writing, there are 48 videos available, covering two separate mentoring groups. There are approximately 22 videos per group, as some groups are combined. They are a little ‘long winded’ because they are recordings of live training sessions, but if you want the short version, you can also download and print the PDF ‘written’ version and read details of the three NRT strategies there.

Then you might want to head over to the recorded ‘live’ sessions and listen to the discussion and watch the actual setups on your TV or computer screen. The trainer uses the ThinkorSwim (TOS) platform to describe the setups. More than that in fact – you also receive downloadable ‘templates’ which you can import into the TOS trading platform. These give you the signals that you’ll need to enter and exit positions.

You can also ask questions about any content that you see in any of the mentoring videos, or any other training material on the site for that matter – in the “comments” box and receive answers.

One thing that occurred to me while watching the Near Riskless Trading videos, was that, even though the focus of these strategies is based on US markets, some of the strategies could be adopted to option trading in countries outside the USA, where other trading instruments such as “contracts for difference” are available.

The only thing that you will need to be sure of, is that your options broker, or software, can provide you with the “delta” in the option chains.

Trade With Other Peoples’ Money

Once you understand the Near Riskless Trading strategies, you’ll also find another series of training videos on the membership site, which teach you how to use your knowledge to trade with between $30,000 up to $250,000 of “crowd funded” money.

These firms don’t require any entry costs, but they do expect you to “pass their test” before giving you real money to trade with. When I say “test”, this doesn’t mean anything academic – they just want to see how you perform with “paper trading” first.

Discover the NRT Strategies Here

Here’s a summary of what you get with the High Level Options Mentoring and NRT strategies:

  1. Downloadable files, spreadsheets and TOS templates relevant to the system.
  2. 48 Downloadable recorded private mentoring sessions.
  3. “Trading Room” recorded sessions.
  4. Technical Analysis for charts, training.
  5. Opportunity to join any future “live” mentoring sessions.
  6. Information on how to use these strategies successfully with crowd funded money.

Filed Under: OPTION TRADING STRATEGIES

Is Binary Options a Scam? Read This and Decide

Is binary options a scam or not? That is the question. Now for the answer. What I’m about to tell you is my honest assessment of the value of binary options trading. But first, for those who don’t know, let’s define exactly what binary options are. Once we’ve done that, we will then assess their worth in comparison with traditional options trading (sometimes called “vanilla options”). We will do this based on a “return on risk” principle.

Finally, we’ll draw some conclusions based on our observations and in the light of other ways of risking capital for a return.

What are Binary Options?

Binary options have three main elements:-

1. You need to predict a future outcome to be realized within a specified time period – anywhere from 1 minute up to more than a week away.

2. During the period before expiration, no adjustments can be made, nor can the options be sold early for a profit or stop loss. Profits or losses can only be realized at the time of expiration. They are also absolute and final.

3. If the outcome is realized, you receive a profit on what you risked – usually about 70 percent. If the outcome is NOT realized, you lose most of, if not all, your invested capital on that trade.

In summary, the reason why they are called “Binary Options” is because the results can only be a win or a lose. This is final and absolute. There is nothing in between. Hence the term “binary” (meaning “twofold”).

Binary options can be traded over a range of commodities, indices and currencies. Currency pairs (forex) seems to be the most popular, as they trade 24 hours, 5 days per week and are very liquid.

Is Binary Options a Scam?

The answer to this question is really one of perception. If you’re one of those people who can consistently pick winning outcomes and can do with for an overall profit, or have a proven binary options trading system that does this, then I’m sure you will be waving the flag for binaries.

But let’s run a few numbers. We’ll assume a generous profit of 75 percent for wins and 100 percent loss for losing trades.We’ll also start with $1,000 capital and each trade will risk $100.

On a given day, you place 5 trades on anticipated outcomes for currency pairs within a 5 minute expiration period. Your first 3 trades are losing ones – you’re now down to $700 capital. Then your next 2 trades win and at 75{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} profit, you make $75 on each. So you’re down $300 to begin with, then up $150  –  an overall loss of $150.

Let’s say that you’re better at picking winners and you win 3 and lose 2 trades. You’ll be up by $225 ($75 x 3) to begin with and you’ll be very happy at your new account balance of $1225. Then you’ll lose the last 2 trades and be down $200. So your ending balance for the day is $1025  –  a profit of just $25, for risking a total $500, in 5 x $100 trades.

If you’re really good and win 3 out of 4 trades (or 75{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} win rate), you’ll make $225 on the wins and lose $100 … a net result of $125 profit.

How confident are you, that you can achieve an 75 percent success rate, bearing in mind that you can’t close out a position if it temporarily goes into profit – you have to wait until expiration for the result?

The service offered after clicking the image below, offers Binary Signals via text message and boasts 72.5{3a39a80e0257ac0455bc3b3978d4f68a2ed2cda6344ecf0a5f3dbf28ade020eb} accuracy. Combine this with the above strategy and enjoy the profits.

Looking at it Another Way

You could say that trading binary options where the profit is 70 percent and the loss 100 percent, is like betting on the favorite in a horse race, where the win dividend is $1.70. The only difference is, that in this “race” there are only two horses – one is called “Up” and the other “Down”.

If one horse in this “two horse race” was far superior to the other, then you would feel confident of a win. That would be like saying that the odds of the currency pair being above where it presently is, in five minutes time, is very high.

Is Binary Options a Scam if You Have a System?

 

 

is binary options a scam

Further Reading on Binary Options

Binary Options Trading

Binary Options Strategy

Short Term Binary Options

Banc De Binary Review

 

 

Filed Under: BINARY OPTIONS Tagged With: binary options, binary options system

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DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to Buy/Sell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.