Techincal Indicators

How to Predict which way the Market will go 1-2 days in the future, or techincal Indicators

MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a buy signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.
However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal and you should trade accordingly.
Its a really good idea to look at the weekly chart for the MACD before making a trade. While the daily chart is the one you will be mostly consulting, you dont want to go against the market trend in the long direction. For example, if you are only going to be in for a few days, just stick with the daily. But if you are trading ETFs and writing covered calls that go by a month by month basis, youll want to also check the weekly in case a reversal is immenent that will go against your trade.

RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on December 15th. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
Lets look at the beginning of this chart, Sept 8th. The way you read this chart is this:
Go to where it says Sept 8th. NOW. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says sept 8. You can see there is a line that comes straight up from the 8 through a pink bar right above it. See the pink long bar immediately above the 8? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediatlly to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Now look at the dates again, look at Sept 8th. See how there is a faint grey line that goes straight up from

the 8th (of sept) that goes straight up through the red histogram bar I just decribed? And then even when the histogram volume bar ends (at about 600 Million) the light grey line keeps going up. Follow it all the way up...see how it goes right up into the word that says 'Volume', or more exactly into the u in the word 'volume'? Well that word volume isnt supposed to be there in the chart itself, but it would have gone up into a candlestick like in the other candlesicks that are on this chart. For example. Look at October 13. Follow it right up into the white candlesick above it. That candlestick represents the price of the qqqq stock for that day...its open price and its closing price. See right next to that white candlestick the next trading day, oct 14 is a red candlestick? And the day next to that, Oct 15th is another red candlestick, but a little bit lower. This is three trading days in a row. Each day has it corresponding candlestick above it showing the price of the open and close.
This same fient grey line that goes through everything also follows straight up into the RSI and straight down into the MACD likewise signifying that one day in the points of all the graphs.
What do I mean? Lets put it all together. Lets check out November 24th. You can see that on the 24th there was a jump up from the previous day. The candlestick says the market opened at about 27 (see where the bottom of the candlestick is, and trace it to the right along the price numbers on the right side of the panel graph, or the x axis) because thats where the bottom of the white candle is. Now look at the top of that white candle, you can see it is near the top at about 28 and a half. By the way, if the candle is red, you read it the opposite. The TOP of the red candle is where the opening price is and the BOTTOM of the candle is the closing price. Again its the reverse of this for a white candle.
What this generally means is a white candle is a bullish signal, indicating strength and the stock market going up, and red candles are generally bearish, or signals that the stock market or that stock is going down.


Technical Indicators
There are several technical indicators out there that I use that tell me if the market is oversold or undersold. Basically what these indicators do is act like street signs, or roadmaps as to which way the market will likely go. Here are three indicators that I use and you will be using. You can find these indicators on the website stockcharts.com.
MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a sell signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.
However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal!!! So whatever way the market had been going and the black line and the red line touch each other in the space of less than 1month, perferrably in less than 3 weeks, you will plan for the market to begin going the other way and trade accordingly.
RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on April 25th.. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
One thing....if you see that the RSI is going in one direction, and the stock is going in another direction, this is something called divergence. Almost always this means that the stock is going to turn around and suddenly follow the direction that the RSI has been travelling in. Below is an example of Divergence...
Sometimes the RSI alone isnt even enough. A stock will be roaring up and the RSI will be maxed out on the cieling and will hang at the top like smoke in a room. Sure, the RSI says overbought and time to sell but you have to check out the other indicators as well. For example, if the MACD at the same time says you are in a strong uptrend, the stock can keep going up with the RSI maxed out on the ceiling for another week or two. Ive see it. Or if a stock just keeps dropping, the RSI can stay on the floor for quite a while. The point is that the RSI is a general guide to if a stock is overbought or oversold, but the MACD is pretty much the final word along with the candlesticks. But if a stock is trending hard in one direction, do not make the mistake of picking some of it up or shorting some of it just because the RSI is maxed at 70+ or below 30. You have to check the other indicators for the big picture.

Now looking at the screen shot above, go to where it says Nov 17th. NOW. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says Nov 17th. You can see there is a line that comes straight up from the 17th through a pink bar right above it. See the pink bar immediately above the 17th? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediatlly to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Heres the big overall picture. The chart in the middle with the candlesticks, the MACD below it and the RSI chart above it all go fowards in time at the same rate all together. Sort of like an EKG or EEG. Pick any day on the main middle chart, each represented by a candlestick and look straight up and or down at its exact correlating point and that day or candlestick you picked to look at will match up with that point on the MACD or the RSI, straight up and down at that exact vertical point. Let me make it simpler. If you printed that page with the stockprices candlesticks and the Macd and the RSI if you layed a ruler on the page straight up and down, so that the top of the ruler would be at 12 oclock and the bottom of the ruler would be at 6 oclock.

Candlesticks
A rice trader in Japan in the late 1600s started to see patterns in opening and closing prices in relation to the future price of the price of rice. When he started to chart this, he found patterns developing over and over again. He used these price patterns to chart or forcast what was going to happen in the next several days. After a while, he was making a fortune and began to refine his system. Candlesticks today are a result of this traders system.
The underlying basics for candlesticks are market forces that are repeatable based on crowd pychology, stock strengh and price, and strength and weakness in the stock and market as a whole.
There are several patterns that I will get into here that are a great way to spot check your stock and see with a fairly high degree of probablity what the stock will do in the next three days. But first, more on candles themselves.
A stock opens at a certain price, and closes at a certain price and in between that open and close price, does what it does throughout the day. This information constructs a candlestick.
If the price is lower than the open,or if the price is lower during the day thatn the open, the candlestick is red. If the price closes higher than the open, or during the day is higher than the open, the candlestick is white. The shape that the candle is in, if it has a short body with a long or short tail or what combination of candles compromise the last 2-3 days tells us what the stock is likely to do in the upcoming next few days.
Throw a baseball straight up into air. As the ball approaches the top of its projectile path it will decelerate to a speed of zero, and then reverse downward picking up speed as it approaches the ground. Now imagine yourself drilling into a piece of wood. You suddenly hit a hard spot in the wood at which time bear down with all of your might to overcome the temporary resistance created by the knot in the wood. When you penetrate the knot you surge forward and quickly poke through to the other side. These are two analogies to help explain the patterns of stocks as they transition between one move and the next move. When a stock is completing a move, it experiences a period of deceleration, which is referred to by chartist as price consolidation. Consolidation is one of the most important signals that a stock is about to begin a new move. The move can be a continuation in the same direction, or it can be a reversal in the opposite direction. The area of consolidation represents a battle zone where the bears are at war with the bulls. The outcome of the battle often defines the direction of the next move. As short-term traders, it is important to identify these areas of consolidation and enter a trade just as the new move is beginning.
During the consolidation period or 'battle zone', traders, both long and short are patiently waiting on the sidelines watching to learn the outcome of the battle. As these winners emerge, there is often a scramble of traders jumping in with the winning team. The candlestick patterns gives the trader excellent clues on when this move is about to take place, and helps the trader time his entry so that he can get in at the very beginning. There are four different consolidation patterns experienced by stocks. They are 1) Bearish Continuation, 2) Bullish Continuation, 3) Bearish Reversal, 4) Bullish Reversal.

Tommorrow: About these types of Candlesticks.
And as always, if you were here to see what the market is gonna do in the next several days, look above at the traffic light button on the nav bar at the top of the page.

Cheers,
Tradinginsider

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More on Burn level and technical indicators

Burn Level
This is a concept where you have to have a job at the offset where you have REPLACEABLE MONEY at the drop of a hat at the beginning of your trading. Replaceable money at the point where you will not sweat replenshing your beginning funds over and over again...at a level that is confortable to you. When you start off and the money becomes burned for whatever reason you lost it, you will be able to easily replace the funds and fire away again.
This accomplishes two things. 1) Things will be shaky with your trading and even with instruction you are going to make a few mistakes, hit the wrong button, misinterprit something and you are going to torch the segment you happen to be using as you are learning. Know this is going to happen. 2) Having an acceptable Burn Level prepares you for the likeyhood of possible loss, thus FREEING you from giving a shit. This lets you trade with confidence. If you know you have other soilders (money packets) waiting behind the lines to take the place of thier fallen comrades you will trade more correctly and with confidence leaving fear behind. Without fear of loss, you will be more apt to trade correctly in the correct contrarian style and weather out the pressure to sell when everyone else is selling and instead hold or buy more like you are supposed to (depending on the situation of course, I will go into this later.)This will allow your profits to accumliate and continue.
What the proper Burn Level is depends on your income and your bills. Someone with a 100 dollar burn levels is someone who can throw around 100 dollar starts in your trading account, have the 100 burn up on a bad trade and then throw another 100 dollars down the next day and trying again the day after that, would be someone that makes about 35,000/yr. That is pretty much the base amount for this trading system. If you make anything like 25,000 a year, you better have a part time job as well in the evenings bartending or something to compensate. Of course, as your salary increases up the scale, so does your burn level. Someone making 250,000 a year because they own thier own business or are a high flying MBA has a burn level of say 700-1000 dollars. A person like this can drop 1500 without breaking a sweat knowing that they can replace it pretty easily the next day if they torch it.
Now this does not imply that this system Im going to show you has holes in it, it is pretty solid. There will be the beginning period where you need to build up your trading confidence and there will be that occational chaotic period when down is up and up is down in your trading 2-3 times a year where you are going to have a good estalished burn level so that you can absorb your losses financially and most importantly emotionally, so you can accept it and immediatly keep going onwards to profit.
In any positive expectation upward growth on a chart weather it be a business, trading, or a professional positive expectation poker player, there will be statistical dips and eddys and temporary losses. This is simple statistical math. Look at any upward chart, very rarely will things go straight up. There are downperiods, dips, etc. Your Burn Level allows you to deal with this, knowing that in the long run you will always be making the money back and then some as things continue to advance. Pick up Artists in a way have a burn level. They know that by flirting out of 10 women will result in 2 dates. Out of all the dates, 2 in 20 will end up in the sack. Its all numbers, the pickup artist knows what the long term gains are, and doesnt let the rejection deter or stop him. In the long run he will always win.
Replaceable money is the key here. That is the backbone on Burn Level. Scared money never wins. Have your initail measured supply and have your backup ready. At a certain point you will be able to fly full time, but not until then. Dont quit your job yet. Finance your endevours and keep your supply present while you fine tune your trading abilities. Determine what your burn level is and go from there. Think: While I am learning, What level of money can I constantly resupply with fresh incoming funds? This allows you to trade true with confidence.
As an aside, a lot of people that got started in business or trading lost everything, several times. Then they found thier stride and picked it up and excelled. If you want to succeed in the market you have to be obsessive about the dedication that you put into studying it. Like me. I spent 15 years studying the market and finding out what works and what didnt work. So now you have all my information that I learned the hard way in this book that you can now begin to use.
You will be starting with Part 1, or the option bounce trading method. Unless you have 4 piles of 5,000 dollars apiece to begin with...then you can go right straight to part 2. If you dont have this money, then this burn level section applies to you as you will be using part 1 to get your account up to snuff so you can begin with Part 2. Burn level applies to those people who will be trading using Part 1 of the system.
Create a list:
This Burn Level information applys to Part 1 of the stock trading bounce method. With the proceeds from the first part you will fund the second part. If there is a mistake or loss from the second part, you will return to the first part and resupply the funds for the second part.
With your burn level money create a list. Lets say you start with 2000 dollars and you are at the 100 dollar burn level. That is you are going into option trades with 100 dollar trades. With that 1900 you have left, thats 19 more 100 trades. Each trade you do write down the date, the stock and the price you got in at and the price you got out at. In the collumn next to it have a collumn with an area to write why the trade worked or why it didnt. Hindsight can greatly benifit your future trading. This allows you to track if you are doing something wrong. This will also allow me to track what you are doing wrong. Later in this ebook I will give you instructions on how to send this list of yours to me so that I can evaluate your trading and help you adjust correctly to a profitable trading pattern.
How to Predict which way the Market will go 1-2 days in the future, or techincal Indicators
MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a buy signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.

However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal and you should trade accordingly.
Its a really good idea to look at the weekly chart for the MACD before making a trade. While the daily chart is the one you will be mostly consulting, you dont want to go against the market trend in the long direction. For example, if you are only going to be in for a few days, just stick with the daily. But if you are trading ETFs and writing covered calls that go by a month by month basis, youll want to also check the weekly in case a reversal is immenent that will go against your trade.

RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on December 15th. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
Lets look at the beginning of this chart, Sept 8th. The way you read this chart is this:
Go to where it says Sept 8th. NOW. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says sept 8. You can see there is a line that comes straight up from the 8 through a pink bar right above it. See the pink long bar immediately above the 8? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediatlly to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Now look at the dates again, look at Sept 8th. See how there is a faint grey line that goes straight up from the 8th (of sept) that goes straight up through the red histogram bar I just decribed? And then even when the histogram volume bar ends (at about 600 Million) the light grey line keeps going up. Follow it all the way up...see how it goes right up into the word that says 'Volume', or more exactly into the u in the word 'volume'? Well that word volume isnt supposed to be there in the chart itself, but it would have gone up into a candlestick like in the other candlesicks that are on this chart. For example. Look at October 13. Follow it right up into the white candlesick above it. That candlestick represents the price of the qqqq stock for that day...its open price and its closing price. See right next to that white candlestick the next trading day, oct 14 is a red candlestick? And the day next to that, Oct 15th is another red candlestick, but a little bit lower. This is three trading days in a row. Each day has it corresponding candlestick above it showing the price of the open and close.
This same fient grey line that goes through everything also follows straight up into the RSI and straight down into the MACD likewise signifying that one day in the points of all the graphs.
What do I mean? Lets put it all together. Lets check out November 24th. You can see that on the 24th there was a jump up from the previous day. The candlestick says the market opened at about 27 (see where the bottom of the candlestick is, and trace it to the right along the price numbers on the right side of the panel graph, or the x axis) because thats where the bottom of the white candle is. Now look at the top of that white candle, you can see it is near the top at about 28 and a half. By the way, if the candle is red, you read it the opposite. The TOP of the red candle is where the opening price is and the BOTTOM of the candle is the closing price. Again its the reverse of this for a white candle.
What this generally means is a white candle is a bullish signal, indicating strength and the stock market going up, and red candles are generally bearish, or signals that the stock market or that stock is going down.

Technical Indicators
There are several technical indicators out there that I use that tell me if the market is oversold or undersold. Basically what these indicators do is act like street signs, or roadmaps as to which way the market will likely go. Here are three indicators that I use and you will be using. You can find these indicators on the website stockcharts.com.
MACD
The Macd is a trailing indicator that is a strong indicator of trend. You can find the Macd on www.stockcharts.com . When the solid blackline crosses over the solid red line, that is a buy signal. When the red line crosses over the solid black line so the red line is on top, that is a sell signal. Usually you want verification...there should be a space of 6 units between the black and red line before you commit and follow the signals after the red and black lines cross over each other signifying a trend reversal.
However, sometimes the red and black line will start going back and forth in a touchy or non committed market (choppy market) where the bulls and the bears are fighting each other. In this case, if the black and the red line touch each other TWICE in a ONE MONTH period, automatically this means reversal!!! So whatever way the market had been going and the black line and the red line touch each other in the space of less than 1month, perferrably in less than 3 weeks, you will plan for the market to begin going the other way and trade accordingly.
RSI
This is another trend indicator. What it is useful for besides showing the trend is how powerful the trend is and how LONG IT WILL LIKELY LAST. Most people can see the direction of the trend but do not know how to use it to gauge a strengh of a trend. Lets look at an example of both of the above for the RSI and the MACD below...this screen shot was pulled on April 25th.. You can see that it covers the beginning of sept to the middle of december. It gives you a snapshot of the stock market Nasdaq.
One thing....if you see that the RSI is going in one direction, and the stock is going in another direction, this is something called divergence. Almost always this means that the stock is going to turn around and suddenly follow the direction that the RSI has been travelling in. Below is an example of Divergence...
Sometimes the RSI alone isnt even enough. A stock will be roaring up and the RSI will be maxed out on the cieling and will hang at the top like smoke in a room. Sure, the RSI says overbought and time to sell but you have to check out the other indicators as well. For example, if the MACD at the same time says you are in a strong uptrend, the stock can keep going up with the RSI maxed out on the ceiling for another week or two. Ive see it. Or if a stock just keeps dropping, the RSI can stay on the floor for quite a while. The point is that the RSI is a general guide to if a stock is overbought or oversold, but the MACD is pretty much the final word along with the candlesticks. But if a stock is trending hard in one direction, do not make the mistake of picking some of it up or shorting some of it just because the RSI is maxed at 70+ or below 30. You have to check the other indicators for the big picture.

Lets look at the beginning of this chart, Nov 14th.. The way you read this chart is this:

Now looking at the screen shot above, go to where it says Nov 17th. See the chart below it, the MACD? And see the chart above it, the RSI? Both of these charts correlate with the big chart in the middle. See each candle on the main chart in the middle? Each candle stands for a day of trading in the stock market. Look at Where is says Nov 17th. You can see there is a line that comes straight up from the 17th through a pink bar right above it. See the pink bar immediately above the 17th? That is a volume bar, or how many shares of this particular stock ( this is the qqqq, or the nasdaq composite) has traded for the day. Immediately to the left see the numbers on the left? 200 M, 400M 600M and 800M? This stands for 200 million shares traded, 400 million, 600 million or 800 million. So the bars right there above the dates are a histogram which tells you how many shares or the volume that was traded that day.
Here's the big overall picture. The chart in the middle with the candlesticks, the MACD below it and the RSI chart above it all go forward in time at the same rate all together. Sort of like an EKG or EEG. Pick any day on the main middle chart, each represented by a candlestick and look straight up and or down at its exact correlating point and that day or candlestick you picked to look at will match up with that point on the MACD or the RSI, straight up and down at that exact vertical point. Let me make it simpler. If you printed that page with the stock prices candlesticks and the Macd and the RSI if you laid a ruler on the page straight up and down, so that the top of the ruler would be at 12 o'clock and the bottom of the ruler would be at 6 o'clock.
Candlesticks
A rice trader in Japan in the late 1600s started to see patterns in opening and closing prices in relation to the future price of the price of rice. When he started to chart this, he found patterns developing over and over again. He used these price patterns to chart or forecast what was going to happen in the next several days. After a while, he was making a fortune and began to refine his system. Candlesticks today are a result of this traders system.
The underlying basics for candlesticks are market forces that are repeatable based on crowd psychology, stock strength and price, and strength and weakness in the stock and market as a whole.
There are several patterns that I will get into here that are a great way to spot check your stock and see with a fairly high degree of probability what the stock will do in the next three days. But first, more on candles themselves.
A stock opens at a certain price, and closes at a certain price and in between that open and close price, does what it does throughout the day. This information constructs a candlestick.

If the price is lower than the open,or if the price is lower during the day than the open, the candlestick is red. If the price closes higher than the open, or during the day is higher than the open, the candlestick is white. The shape that the candle is in, if it has a short body with a long or short tail or what combination of candles compromise the last 2-3 days tells us what the stock is likely to do in the upcoming next few days.
Throw a baseball straight up into air. As the ball approaches the top of its projectile path it will decelerate to a speed of zero, and then reverse downward picking up speed as it approaches the ground. Now imagine yourself drilling into a piece of wood. You suddenly hit a hard spot in the wood at which time bear down with all of your might to overcome the temporary resistance created by the knot in the wood. When you penetrate the knot you surge forward and quickly poke through to the other side. These are two analogies to help explain the patterns of stocks as they transition between one move and the next move. When a stock is completing a move, it experiences a period of deceleration, which is referred to by chartist as price consolidation. Consolidation is one of the most important signals that a stock is about to begin a new move. The move can be a continuation in the same direction, or it can be a reversal in the opposite direction. The area of consolidation represents a battle zone where the bears are at war with the bulls. The outcome of the battle often defines the direction of the next move. As short-term traders, it is important to identify these areas of consolidation and enter a trade just as the new move is beginning. During the consolidation period or 'battle zone', traders, both long and short are patiently waiting on the sidelines watching to learn the outcome of the battle. As these winners emerge, there is often a scramble of traders jumping in with the winning team. The candlestick patterns gives the trader excellent clues on when this move is about to take place, and helps the trader time his entry so that he can get in at the very beginning.

Tommorrow....

The MACD, RSI and more on candlesticks...

Until then,

Tradinginsider

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How to trade the stock market ebook exerpt

The basic problem with all the above items is that they rely on herd reactive mentality. What you need to do is switch from reactive mentality to predictive Contrarian mentality.
What does that mean, you ask? That means that you will be looking at the market at day or two ahead of time and deciding what the market will be doing based on technical analysis (see pages ----- ) and overall news. You will also be using the news to do the opposite of what everyone else is doing in a Contrarian fashion. (See pages ------).
I will not own individual stocks as a average indicator is far more safe in the long run. The QQQQ is not going to go anywhere. But individual stocks can be a problem. Take APPLE for example. Suddenly Steve Jobs, the GURU CEO of apple has pancreatic cancer. And is taking a leave of absence due to illness. This freaks out everybody because Jobs alone was responsible for apples comeback with the IPOD and later the IPHONE. Without him at the helm, who knows? The stock takes a big drop over the next several days. If you were holding this stock trying to do the above, the news of the above would have kicked you hard in the ass. Or if you owned Intel or DELL there suddenly is big problems with their core business model. Or if you owned Mercury Finance, suddenly it comes out that the CEO and others are cooking the books and the stock plunges..and stays down. Now look at the difference of owning a average technical indicator that is the average of 100+ tech stocks. Averages can take the impact of individual stocks like the above and keep going. One or two stocks aren't going to really bump the overall QQQQ direction to a great extent..far more safe for the long run. There are no corrupt CEOS in the QQQQ. Or a CEO suddenly getting sick and resigning. The QQQQ are here to stay and will chug in the overall direction and news of the ENTIRE market, not isolated bits of it. You are protected from individual stocks' bad news, and instead are subject to Macro news, or that of the entire market, which is far less dramatic. Except for a stock market crash like in 2001 or 2008 or 1929. But then you can just ride it down with puts and still make money. Tradable technical indicators are the path to money.
The only time that I actually do purchase individual options of individual stocks is when I am doing my stock bouncing method from part 1 of the system. And that is only holding 1 to 2 days. All the rest of the time I am using the method from Part 2.
Contrarians
Contrarians
There was a book written back in the early 1970s chronicling a trader who would trade the opposite way of the crowd and as a result make enormous profits. He claimed that the crowd was almost always wrong. For example. When everyone was screaming in 1999 buy BUY BUY, there is no better time to buy with no end in sight, he knew that was a signal to sell all his stock and get out, there was a crash coming. The talking heads are almost always wrong, as all the fund managers. When the crash happened, he saw the carnage and the dying funds and the lawsuits. Then he saw the housing market was completely roaring around 2002. Looked like another bubble. As the market was correcting in the early part of this decade, he was selling short and writing puts off ETFs via QI D (will get into ETFs later.) and making tremendous amounts of money as the market kept going down. When the housing market crashed, suddenly everyone wanted to sell their homes and there was no buyers. Except for the contrarian. While everyone else was losing their ass with their homes, he was waiting patiently with his reserve of cash. Now that homes were around 25% cheaper because there was no buyers in 2006-2007, he began buying up homes and renting them. When the housing market comes back in around 2011-2012 the value of these homes that he bought on the cheap will bounce back and then some. He will then unload them for 35% profit. See the pattern? Do the opposite. Be a contrarian. They say when there is blood in the streets and everyone is crying that it is the end and everyone is losing everything, THAT IS THE TIME TO BUY. Lets use the great depression as an example. When the stock market crashed in 1929 almost everyone lost everything (in part due to the liberal margin requirements that have since been rewrittin to protect the public ) stocks plunged to way way low levels near zero compared to what they have been. Can you imagine if your grandfather had the contrarian foresight to start snatching up thousands of shares of GM for pennies on the dollar or thousands of shares of cocacola for pennies on the dollar? Suddenly when the US economy roared in the 1940s-1950s and these stocks bounced back even bigger than thier before hand highs in the mid 20s, he would suddenly be worth billions. Why doesnt everyone trade like that? Because in the middle of the storm, its easy to let fear rule your thinking. The backbone of both parts of my system is contrarian in nature. I will go into detail with examples and charts on how I trade in later chapters. Now, back to you initial capital required and how to use it.
I have a friend in the stock market that did nothing but lose. Thousands up, thousands gone. Over and over. Trying to figure out what works, what didnt. Bang. Money gone. Then he'd replace it. Scortch. Gone again. More in. Torch. Money gone. And so it went. As I watched this, I recoiled. Omg, I thought. This guy has lost close to 200,000 dollars in the last 20 years. Wow. He would try different trading strategies. Learning things. Learning what worked, and what didnt. Now 20 years later with his contrarian style and his knowledge on how the market works, he is one of the rarified individuals that make 200-300% a year. Trade as I outline in both Part 1 and Part 2 and you will be trading like a contrarian. Remember, the masses are asses. The stock market is a zero sum game. If most people lose, the few that win, win big. Cant have 80-90 percent of everyone win. Thats impossible. What you need to do is get into that 10-15% winners circle.
Burn Level
Burn Level
This is a concept where you have to have a job at the offset where you have REPLACEABLE MONEY at the drop of a hat at the beginning of your trading. Replaceable money at the point where you will not sweat replenshing your beginning funds over and over again...at a level that is confortable to you. When you start off and the money becomes burned for whatever reason you lost it, you will be able to easily replace the funds and fire away again.
This accomplishes two things. 1) Things will be shaky with your trading and even with instruction you are going to make a few mistakes, hit the wrong button, misinterprit something and you are going to torch the segment you happen to be using as you are learning. Know this is going to happen. 2) Having an acceptable Burn Level prepares you for the likeyhood of possible loss, thus FREEING you from giving a shit. This lets you trade with confidence. If you know you have other soilders (money packets) waiting behind the lines to take the place of thier fallen comrades you will trade more correctly and with confidence leaving fear behind. Without fear of loss, you will be more apt to trade correctly in the correct contrarian style and weather out the pressure to sell when everyone else is selling and instead hold or buy more like you are supposed to (depending on the situation of course, I will go into this later.)This will allow your profits to accumliate and continue.
What the proper Burn Level is depends on your income and your bills. Someone with a 100 dollar burn levels is someone who can throw around 100 dollar starts in your trading account, have the 100 burn up on a bad trade and then throw another 100 dollars down the next day and trying again the day after that, would be someone that makes about 35,000/yr. That is pretty much the base amount for this trading system. If you make anything like 25,000 a year, you better have a part time job as well in the evenings bartending or something to compensate. Of course, as your salary increases up the scale, so does your burn level. Someone making 250,000 a year because they own thier own business or are a high flying MBA has a burn level of say 700-1000 dollars. A person like this can drop 1500 without breaking a sweat knowing that they can replace it pretty easily the next day if they torch it.
Now this does not imply that this system Im going to show you has holes in it, it is pretty solid. There will be the beginning period where you need to build up your trading confidence and there will be that occational chaotic period when down is up and up is down in your trading 2-3 times a year where you are going to have a good estalished burn level so that you can absorb your losses financially and most importantly emotionally, so you can accept it and immediatly keep going onwards to profit.
In any positive expectation upward growth on a chart weather it be a business, trading, or a professional positive expectation poker player, there will be statistical dips and eddys and temporary losses. This is simple statistical math. Look at any upward chart, very rarely will things go straight up. There are downperiods, dips, etc. Your Burn Level allows you to deal with this, knowing that in the long run you will always be making the money back and then some as things continue to advance. Pick up Artists in a way have a burn level. They know that by flirting out of 10 women will result in 2 dates. Out of all the dates, 2 in 20 will end up in the sack. Its all numbers, the pickup artist knows what the long term gains are, and doesnt let the rejection deter or stop him. In the long run he will always win.
Replaceable money is the key here. That is the backbone on Burn Level. Scared money never wins. Have your initail measured supply and have your backup ready. At a certain point you will be able to fly full time, but not until then. Dont quit your job yet. Finance your endevours and keep your supply present while you fine tune your trading abilities. Determine what your burn level is and go from there. Think: While I am learning, What level of money can I constantly resupply with fresh incoming funds? This allows you to trade true with confidence.
As an aside, a lot of people that got started in business or trading lost everything, several times. Then they found thier stride and picked it up and excelled. If you want to succeed in the market you have to be obsessive about the dedication that you put into studying it. Like me. I spent 15 years studying the market and finding out what works and what didnt work. So now you have all my information that I learned the hard way in this book that you can now begin to use.
You will be starting with Part 1, or the option bounce trading method. Unless you have 4 piles of 5,000 dollars apiece to begin with...then you can go right straight to part 2. If you dont have this money, then this burn level section applies to you as you will be using part 1 to get your account up to snuff so you can begin with Part 2. Burn level applies to those people who will be trading using Part 1 of the system.
Create a list:
This Burn Level information applys to Part 1 of the stock trading bounce method. With the proceeds from the first part you will fund the second part. If there is a mistake or loss from the second part, you will return to the first part and resupply the funds for the second part.
With your burn level money create a list. Lets say you start with 2000 dollars and you are at the 100 dollar burn level. That is you are going into option trades with 100 dollar trades. With that 1900 you have left, thats 19 more 100 trades. Each trade you do write down the date, the stock and the price you got in at and the price you got out at. In the collumn next to it have a collumn with an area to write why the trade worked or why it didnt. Hindsight can greatly benifit your future trading. This allows you to track if you are doing something wrong. This will also allow me to track what you are doing wrong. Later in this ebook I will give you instructions on how to send this list of yours to me so that I can evaluate your trading and help you adjust correctly to a profitable trading pattern.

Tommorrow: More on Burn Level

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Ebook exerpt part 2

Ever wonder who wins in the stock market? It sure doesn't seem like you or anyone that you know directly. But you do know that there is a group of people who win. Maybe you were at a Bulls game downtown and you saw a bunch of 20 and 30 something guys that you figure to be option players sitting court side. Maybe its some of the guys you see on TV living it up large talking about their high paying money manager job on CNBC. Whats the difference between you and those guys? Two things...knowledge and information. Knowledge to know enough to go against the crowd as a whole and be the 5-10% who regularly wins because you trade with a contrarian style. Information that you will know how to sift through by the time you are done reading this book. Now lubricate all the above with decent money coming in daily. That really changes things, doesnt it? Suddenly YOU are in charge. You now have the money to start that business you always wanted to start. You now get up in the morning doing what YOU want to do and relishing the day ahead of you. New BMW. Check. Fat nice leather wallet with several credit cards that arent maxed out? check. Stylin clothes? Check. Wealth has a certain frequency to it. It SINGS.
You have been trading on and off for a few years or just started trading and you keep losing your money. You dont know what you are doing. You are 1) Daytrading 2) Swing trading 3) Options trading 4) Moving in and out of stocks using tips from people or hot lists on the internet.
AND CONSTANTLY LOSING YOUR ASS.
This Ebook allows you to skip the 15 years of trial and error and large losses and get right to profitable trading. Almost every trader stumbles in the dark for over a decade when they start trading and they unwittingly end up funding pro traders houses in the hamptons and thier 50 feet sailing crafts. Stop being the 90% of the public that loses trading and start trading with the 10% that makes all the money off the 90%.
WHAT THIS BOOK DOES IS LET YOU SKIP THOSE 15 YEARS OF LEARNING and get RIGHT TO IT via my experience.
ARE YOU READY TO LEARN HOW TO MAKE MONEY IN THE MARKETS DAY TO DAY MONTH TO MONTH AND YEAR TO YEAR? LETS GET INTO IT
PRIMER>>First, I will go into technical analysis so that you are proficient in it, and I will go over the news for a bit, as you will use both of these in the two trading systems that will be outlined and explained in detail. Then I will go into Part One, which is basically you taking several thousand dollars and bouncing it contrarian style using tech analysis and the news to do the opposite of what everyone else does. In short everyone else loses, you reap big, being one of the few 10% that win these trades. You will spool your money quickly and when you reach about 30,000 you will these transition over to part two. Part two is you using covered calls and a few options in order to hedge your stock. This is more long term and steady trading the indexes only.

I. How to interpret stock charts using Technical Analysis and learn how to bounce options.
This is for those that have only several thousand dollars of which to trade with. You are going to split your pile up into 12 equal piles. And you will be doing something called Bouncing options. This part is high risk, high gain, and allows you to spool 1,500 to 2,000 grand up very quickly to 30,000 or so.
II. Part Two of Method: How to Write covered calls on Indexes and use leap options
This is the meat of the system and how you will make your money long term and how you are going to leave an endowment trust to your family after you leave this planet. When you have your money up to 30 to 40k (depending on the price of the qqqq and the market) you will then go on to part two where you are making money with less risk than part one. Part two is when the machine keeps chugging on from month to month allowing you to make a steady stream of income. You are going to break up your 30k pile into three piles. Once you get up to 100k you are going to break up your piles into 6. This will further increase your safety margin. From there you will stick with 6 piles as you increase your cash
By using covered calls and being an option WRITER you have time on your side. As a matter of fact, you want time to erode so that the option expires worthless. That allows you to turn around and write another one right away on the same pile of stock you own.
Leap options, while they can erode, are a nice hedge that you can use. They can be anywhere from 4 months to a year or so on out (expire from 4 mos to a year out.) While this does take away from your edge a bit, the extra time that these leaps allow give you a big chance to get over the erosion factor. Again, all of this is going to be covered in detail.
And now for the interesting part. What you have been doing wrong and why it is wrong.
What you have been doing wrong and why it is wrong
1. You have been trying to 'play the news'. You sit there watching the headlines on cbsmarketwatch.com or bloomberg or MSNBC. When a piece of news comes out on a stock across the screen, you race to the computer and attempt to get in on it. The problem with this is the professionals on the stock market floor and the big boys that have big blocks of stock they are trading are privy to this information 15-20 minutes before the public. Sometimes they know even before that. That means that the stock already moved 20 minutes or so before you even heard the news, based on that news. Sometimes there is even this kind of a situation....
A guy who owns his own business is laying in bed on Saturday morning with his wife. Its a nice suburban home, hes got two Mercedes in the driveway, three kids, one about to go off to college. He built up the company in the last 15 years and 6 years ago he and his partners took it public, hes now the CEO. Hes worried. Something came up in his core business that is now suddenly not too relevant in the marketplace due to an advance in technology and he knows that he is going to miss the earnings estimate when his company reports the following Wednesday. He has a lot of stock in the company but he knows its illegal for him or his wife to start selling while the price is still high. Hes laying there looking at the ceiling and his wife asks him what is wrong. He fills her in on the situation and they both lay there and talk about it for a bit. Well, he decides, hell have to weather the storm and the drop in stock and work on his company and bring it back with hard work and improved processes. Then they go to breakfast and play some tennis. His wife gets on the phone in the early afternoon and talks to her close friend and confides in her about the problem and they talk about it for a while and then the subject moves on to other things. Her friend then mentions to her husband.."Do you know the Williamsons?", she says and talks about it. Her husband listens and nods and then later while talking out the garbage thinks about it. His buddy has some stock in the company his wife brought up. Wonder if he knows about this? He calls up his friend. His friend is concerned. Monday morning comes along and his friend calls his buddy that works on the trading floor of the stock market. "Waitaminute", his the guy on the trading floor says, wearing his stock market ID badge. "You got this from WHERE? Right from the CEOs wife?" After hearing this, the trader thinks for a minute and hangs up the phone. He can pull in big favors with this one, throwing a hot tip out to some of the big boys on the floor as well as some clients on the downlow. And he again picks up the phone.
What or who do you know sitting in your living room in front of your laptop? You hooked in on the trading floor of the stock market with your ear to the ground? Know some of the big boys, go golfing with them, hearing some tips? No. Its them vs. everyone else, and you are everyone else.
Even the professionals that have special news services called 'First Call' get their information in other ways, and earlier. Advance knowledge is power, and that's why there are big boys and pros, and then there is everyone else. So when you see the news online on marketwatch.com or Reuters, its old information that's already been acted upon.
2. You invested in penny stocks. Penny stocks are worth a couple of pennies for a reason. Sure one might pop up to $12.00. I think everyone knows someone who knew this guy who that happened to. It was like they hit lotto, they bought a house and a nice car. What usually happens is you buy a stock for .25 cents and it goes down to .07 cents an stays there amidst severe fundamental problems with the company, i.e. their books are off, or there is a skimming problem or the officers took money and built a house in Florida with it and you are left with promissory notes. Then the stock goes to .04 cents and hangs there for another year. The fact of the matter is good solid stocks are usually traded with something that has Washington on the paper, not Lincoln on the copper. Don't attempt to make penny stocks your wage earner. Want to do penny stocks? Do it on the side with some service that investigates penny stocks and gamble with it. Put a few hundred dollars in a few penny stocks that you have researched. If one hits, one hits. Sorta like buying a couple hundred dollars in lottery tickets. But hey. Do whatever gives you a buzz. But know this...its not a living. Its side action. Side action only. If you want to speculate (and I do mean speculate) when you have some side dead cash lying around after you've been doing my system go join up at a few of those penny stock sites and snap up a few and prepare to hold, and prepare for 98% of them to do nothing. While you are at it, dont forget to pick up your lotto tickets.
3. You saw some stocks that were really taking off, they showed up on the 'most up' list for that day. You figured that it would be a good momentum play to pile on. The problem with this is by the time YOU (read: general public which means you included) see the stock hit the radar, that stock has already climbed high enough by that point to MAKE it on the 'most up list' and by the time you are moving in at 1pm or 2pm the professionals are all starting to unload and sell. The next day or two or three the stock then starts to tank. This is a classic error most new traders make. Tradestation or a home trading program notices that there is a surge in buying for a certain stock. The pros had some inside info on this stock earlier that day or the night before and acted on it. If it wasn't illegal inside info, it was sure close...the boys on the floor talk. Give each other tips ahead of time. So when you got in, it was old news and the pros were dumping. That's why most of the time when you buy into momentum plays it starts going down almost right away. How about this for an image...you staring blankly at your computer screen watching the stock you just bought start to go down 20 minutes after you bought the stock. Now insert a buzzer sound effect.
4. You try to find rolling penny stocks. You noted that several penny stocks are rolling for the last few weeks/months. Well, you know the range, so you get in on the bottom. But so does everyone else. Everyone gets in on the bottom and everyone wants to sell at the top of the roll. But everyone else sees the top of the roll is the top, so no one wants to buy at the top of the roll. So the market maker widens the spread in order to get some takers. No one. Your order just sits there. No go. Why this doesnst work: If the knowledge is common knowledge then everyone will place themselves in the favorable spot and hardly anyone will place themselves in the non favorable spot. Thus everyone wants to unload at the top of the roll, with no takers. Thats not contrarian. The masses are asses, so to speak, and this is a 'masses' move.
5. You learn about the bid and the ask. You try day trading and try to beat the market makers spread of his bid and ask. You are suddenly the scourge of the market maker for that stock. He is trying to make a living as the market maker for that stock lining up buyers and sellers, matching them up and taking a profit for himself, sort of like a bookie. Then people like you came along in the late 90s on web based trading platforms like ameritrade and scottrade trying to do the same thing, effectively taking money out of his pocket. So the market maker fought back. He would know your order and where it was coming from and what action you were throwing down and he would leave your order sitting there. Or you tried placing limit orders and then the market maker would swing the bid and ask one way just to tag your order and then swing it back throwing you out of the game. Daytrading for 8ths and 16ths is very tough and most people, over 90 percent lose at doing this from home. In the late 90s early 2000s day trading became all the rage. In the newspaper all the time in Chicago they would run stories about people that took out 300,000 US and quit their jobs and set up a computer and desk and proceeded to lose everything. Sounds like they didn't know what they were doing, right? As if they read a few books and decided to go for it.
What it really sounds like is that they went to war with the market maker for whatever stocks they were trying to daytrade. First of all they were probably using a web based trading system, which right there shows me they weren't really educated as to what they were doing. They needed to use a different trading platform such as cybertrader so they could access new exchanges and deal with other traders directly, using trading systems like island. Instead they set up shop with something like ameritrade or webstreet (webstreet no longer exists, its been bought out) and tried to trade 8ths or 16nths on certain stocks or index composites. You might as well mail in a check and skip the drama. If you are going to be sniping for 1/8ths and 1/16ths you better have an advanced trading platform like CyberTrader. But good news. With my method you just need your normal everyday trading account online. Nothing fancy. Later in this ebook I will show you how to open an online trading account, so that you can trade using the methods described in this ebook.
Market Makers are like bookies. In a sense, they have a license to steal. They line up buyers and sellers and manipulate the price of the stock in order to encourage buying or selling. Then they take the difference for themselves. Lets say the stock is trading at 33 1/8. They are looking at their computer screen and seeing what or if there are any orders are out there. They see a block of orders with a limit order instruction to buy at 33 but no higher, and some sellers that want to sell at 32. There is no other action, a few orders here and there. The market maker might decide to move the stock price down a bit in order to trigger the 33 buy order, then move the stock price up a bit in order to stimulate action from people at their computers on the trading floor or those people at home seeing that the stock is starting to move up, so they buy as well.If there is a lot of buyers lined up, typically the stock will begin to rise in price. If there is a lot of sellers and not so many buyers, the stock will begin to drop in price. The market maker is trading for himself, matching up customers and taking the difference for himself.Then the day traders came along in the late 90s early 2000s. Suddenly they were looking to take profit from buying and selling from the marketmakers. And it was WAR. And the market makers won and the day traders lost.How did the day traders lose? Well, they were trying to play the same game the marketmakers were playing with one very big difference: the marketmakers could manipulate the price of the stock and which way it moved. Its like playing tennis against a partner that can control the ball in midair as well as the court underneath your feet. So the daytraders set up their accounts and went in both guns blazing. Lets look at it from the market makers prospective. Back in the early 90s they had it good. They could widen their bid and ask spread and they made some good money. Then in the late 90s everything came under scrutiny as everything suddenly was invaded by daytraders and everyone with a computer at home trying to trade. The bid and the ask spread narrowed considerably as everyone was trying to shave 16ths of a point. Instead of the market makers enjoying people parking sums of money for months at a time not particularly caring if they got in at 33 or 33 and a half, suddenly everyone is trying to move piles of money in and out over and over again trying to make a 16th or an 8th of a point. This drove the MMs (Market Makers) crazy. So they fought back.Lets say its 2003 and I'm a MM and sitting looking at my orders screen. The orders are coming from all directions, island trading systems, brokerage houses, as well as web based brokerages, such as Ameritrade or Options Express. I see legit orders from say Morgan Stanley for big block buys, probably institutional investors, they will hold for a week or two then sell. Fine. Then there is this goof I see that Ive been dealing with yesterday all day from ameritrade. This guy is sitting in his basement with 200 large trying to shave 16ths of a point off of the QQQQ Nasdaq index. Then he tries buying again and selling it again. He is trying to make the profit that would be going into MY pocket, clogging up and interfering with my business. So seeing that I have the ability to decide which way the stock price is gonna go, I decide to let him purchase his block of stock. He buys his 200,000 dollars of QQQQ. While looking at my order screen I note that there is more buyers than sellers. What I should do is start moving the selling and letting the stock price go up. But screw that, I need to get rid of this guy. I start moving the stock price down after 200,000 dollar guy gets in. On purpose. To freak him out. I start dealing with sellers. I then move the stock down a point, down to say, 31 and a half and then start moving it around in a range down there just to freeze out Mr. 200,000 guy who is panicking that his 16th of a point shaving system isn't working. And I leave him up there to sweat it out while I deal with buyers and sellers down at the 31.5 range. Pretty sweet, huh? Unless there is news or the market as a whole is roaring, MMs can pretty much do what they want in the short term to get rid of daytraders.Day trading as a whole is a bad idea unless you have an expensive system. Actually, strike that. Day trading is a bad idea as a whole. When you are trading tick by tick you really lose perspective of the market, sort of like going up to a forest (the stock market) and standing with your nose to a tree. You just really need to back up and take a look in a several day time frame.Bad because you will fight market makers. You will lose perspective of your time frame. You very well may have a gambling problem.
There are additional restrictions and account limits for people classified as day traders, i.e. trading several times a day.Yeah. People who need to pull the trigger a couple of times a day might be as suited holding a pair of craps dice in their hands at a craps table. Do you crave the ACTION regardless of the consequences or are you really in the stock market to make money? If you can honestly say that its the action that gets you going, you and your money will be soon parted. This is more like gambling and trading up close at inter minute intervals is kind of like going up to a forest (stock market) and standing real close with your nose up to a tree. No big picture.
6. You learn some technical analysis. But that takes about 8 years of learning, what works, what doesn't. You place your orders and suddenly the market goes the wrong way. You are starting to lose your money. You check the market the next day. Again down. The next day yet, its down some more. You freak out that you are losing your money, and you sell for a loss.
7. You try fundamental analysis. Pretty confusing...wait. Do I need to order a quarterly report analysis from a stock analyst or can I figure it out using Yahoo finance and looking at the analyst page for that particular stock?
8. You tried giving your money to a pro. That worked in the late 90's, your mutual fund was growing at a rate of 30-40% a year. Suddenly the stock market crashed in 2001 and those same mutual fund managers lost most of your money. Now you don't like mutual funds. Then you start thinking...all of these market managers and hedge fund guys on CNBC and Bloomberg...how come they were all wrong? And Kramer from Mad Money? His portfolio took at beating. Hmmmm. These guys are talking heads for the public at large. They are not contrarians. When the market goes the wrong way, they go the wrong way as well. I worked for a mutual fund center in the late 90s. When the crash came in 2000 the phones were flooded by people losing thier ass and screaming and the fund managers were ducking phone calls.
Kramer from Mad Money is coming under fire as of late for his investment advice. Dont listen to him or any other talking head. They trade and give advice to the masses. Again: The masses are asses and are always wrong long term. All talking heads on CNBC, MCNBC, Bloomberg, etc. All wrong long term. The only good thing about the financial networks is to get a snapshot on the market as a whole, i.e. the publics sentiment on the stock market. As you are trading in the morning at 10:30-10:45 (central time) you can have these channels on in he background for general information purposes only. NEVER listen to a stock tip or advice from any TV show. Stay away from individual stocks as a whole. Unless you are the officer of a publicly traded company, then you can own your own stock, as you have direct control on its value.
9. You found a good company in Wall Street Journal or Investors Business Daily. In IBD the company was listed as 99 98 99 A A A. You bought that stock for that company with a few grand, maybe more, and then the company suddenly revealed something disturbing regarding its core business. The stock price plunges. It becomes delisted 2 months later. Money gone. IBD and Wallstreet journal are papers for the masses. Contrarians dont read those two papers. If they do, they look for several indications of the market and then go the otherway.
10. You try to catch 'the falling knife'. You hear in the news that a particular sector or big company just got slammed for some reason or other, missed earnings big, their core product was a failure, something big with the CEO just went down, etc. You figured that since the stock just got cut 60% it was now a bargain to get in in comparison to the price this stock has been at for the last 2 years. You move in and the stock just continues to float down further and further over the next several days as investors further punish it and sell it off, and then to add insult to injury, several big finance firms then 'downgrade' it, which sends it down yet further. Can a stock that was just cut 60% keep wandering down a further 20-30% and then STAY there for another 10 years? Hell yes. Ive a few stocks Ive been watching since the late 90s do just that. Bouncing stocks is very complicated, and in Part 2 I cover how to do it correctly. Just seeing a big stock cut hard in the news is NOT a good idea to swoop in and puchase it for half off. You need to know several big factors...what the news is, why the news cut the price of the stock, the long term ramifications to its core business, etc.
11. You try options. It was like having a fistful of money clenched in your hand, then you slowly opened your fingers and all the money blew away. You either a) watched the stock move the wrong way and your option devalued considerably so you sold b) the stock didn't move too much and your options price eroded and suddenly it expired worthless and c) you bought the option and the underlying stock suddenly shot up. Great!!! Your options just tripled and there is 2 months left till expiration!! Sell now and take the profit? No way. They could go up more, I'm gonna hold on to these! The stock then drops and your options are down to 1 and a half times what yo bought them at. Still have a profit, but you are upset you lost some of the profit, so you hold some more. Everyday time eroded the option price. But you hold, hopeful. They expire worthless. You will need to read my section on options before you start to play with these.
12) Instead of moving your money around in piles that you can average down with, you move your money in one big pile. Win or lose. C'mon lucky number 7!!! That's like going to the track or going to Vegas and pushing your entire pile out on red or black. Nobody is right all the time. Move your pile around in one big pile and one of those times you are going to have a losing number. Poof. Back to working in the cubicle. My father knows a guy who was a hiflyer in the stockmarket. Did risky trades...some days hed be up 100,000 grand, some down the same. He lived his life like he was on cocaine, always on the move and gambling. He had a bad run in the market, and now he is depressed working as a security gaurd for 12 dollars an hour. Ouch. Dont gamble on individual stocks and always have several piles of reserve.
13) You do what the public does.....you buy high and sell low. Sounds stupid doesn't it? Why would anyone do that? Lets look at what most of the public does and why. The market has a few good up days, including a stock. Wow, this stock looks good, its making money, look at all that money I could have made and the money I could make if it goes up more. So you buy it. Then while you are holding it the stock starts to drop. Woah..waitaminute here. I'm in this to make money not lose my money. So you sell it while its low cause you just got punished. You have Classic greed vs fear herd mentality. This is why 90 percent of people lose in the stock market.
There you go. All new traders go through the above list while they are looking for 'the holy grail'. Read the above list and dont do any of the above.

More tommorrow from my ebook.

Also update on today, stock market correction will continue. Time will tell if its a large or small correction then an upwards continuance.

Also this blog will be reworked on Saturday, sorry for all the dust and non working buttons. Will try to have this blog working correctly by the end of the weekend, with all the nav bars operating including the traffic light report button.

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Ebook exerpt

Most people in the United States live from paycheck to paycheck, approx 80% of us. In one sense, that is almost equal to slavery. We are chained to our job that we most likely do not enjoy. We like to eat, and we need a roof over our head. Having heat and electricity is nice too. Every day its up out of bed and to the grind. We come home tired, only have a few hours to ourselves in the evening and we crash only to get up and do it again the next day. Lets take a look at that. Not only are we working the 8-10 hrs a day, but there is additional time that we spend that supports the working lifestyle. Lets say your hours are 8am
to 5pm. (There was a time 20 years ago your hours would have been 9-5. Then employers decided that they didnt want to pay for lunch. So they now have people come in an hour early and the lunch hour you get is now unpaid.) You wake up at 5:45 to take a shower and eat, dress, etc so that you can be out the door at 7am so that you can make it to work at 8am. At 5pm the commute takes most people an hour or so and they get home at 6:15, that is if they didnt work late on a project. Then the night goes really fast. Dinner, time with the kids etc, maybe some TV. If you REALLY wanted to be sharp the next day because you have to get up at 5:45 you would be in bed at 9pm. But hey, you think. "Im not a robot, right? I have a life". You arent gonna come in the door at 615- 6:30 and only have 2 1/2 hours to yourself and then get
right in bed again. Thats no life. You have things to do. Your time to yourself to have fun, think, watch tv, hobbies. Your spouse or your kids. If you were going to do that, you might as well have a cot at work so you can sleep there. No, so you stay up till midnight and only get 5 1/2 hours of sleep and are dead tired the next day. Ive done it. My friends have done it. A lot of America does it. And a lot of America is dragging ass in the morning. Why do you think Starbucks has done so well over the last decade or two? So what it comes down to is that in reality you are spending 12 hours a day on work related activities that support your 8-9 hour day at the office, and this includes getting ready for work and travel to and from the office. This doesnt leave us with too much time for ourselves.

But what if we could open up our time? We would then be self sufficient from only working a
few hours of day by trading in the stock market?
How about this? You wake up at 7:30, stay in your bathrobe and make a cup of coffee. You sit
down at your computer at 7:45 and check the premarkets. You flip on Bloomberg and Fox
Financial and take in the news of the day, which can affect and override technical indicators. For
the most part your decision on which way the market is going was made last night, but you keep
an eye out for any variances.You are on the phone with a few of your friends. One also trades for
a living at his house, and two others keep watch at the office where they work, with
cbsmarketwatch.com up. You guys compare notes. Two heads is better than one, especially if
one of your friends constantly makes a killing in the market. For the most part you just watch in
the morning, prepared to defend your investments if anything were to suddenly turn. You might
step out for lunch, get something to eat at Panera Bread, do some shopping. You are back at the
computer at 1:30 and check the financial news channels for any new developments. The pros
come out in the afternoon with their trading. This is when you want to really keep an eye out for
any actions you might undertake in your writing of options, or buying them back, or moving a
block of stock from one of your 6 piles. Or if you are still in Part one of the system you are
looking for setups for the next day. 3 o clock! Market close. Another 1-2 thousand dollar day.
Nice. Now you are already at home and free to do whatever it is you want to do. Maybe go to
that Mercedes dealership and maybe buy that car you have your eye on? Sure beats when you
used to make 45,000 dollars a year as an IT guy sitting in a cubicle with a name tag. Ever see the
movie "Office Space"? If you ha vent seen that 1997 classic yet, go see it and you'll recognize
everything in it as a goof on life living in a cubicle.
This system that I developed is going to take some risk. While you will win 70% of the time
using this system, there is a possibility of loss. Do not quit your job until you have this goin for
about a year or two and you are comfortable with it. And another thing about making money.
Scared money never wins in the long term. Gamblers will tell you this as well as people in the
stock market. Say you are working your job at the office and you suddenly get a 5,000 dollar
bonus. You are thumbing that check and thinking of all the things that you are behind on..bills,
some home improvements you need done, and your car needs maintenance, maybe you even
have to purchase a new car..you could even use that as a down payment. You wanted to start in
the stock market, but damn..you really need that money. Hmmm. You think about putting it in the
market and you are really scared. What if you lose it? You coulda used that for other things you
really needed. You hold the check for a bit more, looking at it, conflicted.You decide that you
will deposit it in a online trading account but you will be really careful on how you invest with it.
You put it in your account and it registers as available 2 days later. Instantly if you wired it in via
your bank. Now you are waiting for a good safe opportunity to come along. You pass on a few
things that could have worked because you cant lose that money. Kinda shy on that mouse
trigger. Finally a week or two later something comes up that you finally commit to. Then two
days later the market has a sudden shake up and in the morning you see that the markets are way
down. HOLY SHIT..OMG you think and with a nauseating feel you pull up your account and see
that its dropped 20%. No. No. You cant lose that money. The house. The car. Bills. You get on
with your online account and panic sell. You just lost 1,000 dollars plus commissions.
.
Lets review what went wrong in the above paragraph. 1. You used money you couldnt afford to
use or lose. Basic bills, house upkeep, transportation, rent, food, anything that involves survival,
shelter, bills, heat, electricity comes first. 2. Seeing that it was money that you couldnt afford to
lose, you traded with a definite style that involved fear and therefore this put you at a SEVERE
handicap. Trading with fear leads to loss because when you trade with a fear type survival
mentality you will trade along with the herd and lose along with 90% of the traders. Contrarians,
which I will cover in the next section, are usually among the top 10% of all traders. They swim
upstream and as such make all the profit. Lets look at the previous example how a contrarian
would have handled it. He would have waited where the market had made an emotional
overreaction. Right then, at that point, he would move in with his funds knowing that within 2
days or so the market would snap back after people woke up from their emotional overreaction.
Then he would have sold with a profit. Or more to the point with my story example above, when
the market lost 20% that day in the morning, the contrarian would not have sold, he would have
held his position. (Depending of course on the news. I will get into that as well.) If he thought
that the 20% loss on his stock was news driven from the sector he was in or the market as a
whole and nothing to do with his stock he was in HE WOULD NOT SELL< INSTEAD HE
WOULD BUY MORE>. This magnifies the contrarians profits when the market swings back the
other way again. Reacting with fear leads to loss. Reacting in a measured way with confidence
leads to gain.
This may seem nuts, but you have to trade with money that you can otherwise stack on a pile and
light on fire. This means that all your glaring immediate needs have already been met. If you
have to fix something in the house, or your mortgage payment is too high, or your car needs
maintenance, brakes, engine, etc, or your wife needs a new car or you need to do that room
addition because the baby is on the way, or you owe a lot of money on your credit cards where
the monthly payment is a bit high, you need to use the money for these things first. Or you are
going to trade all wrong. Proper mental attitude of risk is mandatory.
This is tough to weather emotionally. Imagine there are some guns shots in a theater. People all
of a sudden jump and as a whole like a herd of antelope all run the same way at the same time
out the door. Herd mentality is hardwired into our brains as humans as an actual survival
mechanism. Most of the time in history the crowd is usually right. If everyone started running,
chances are there was a predator coming and it was a good idea to not ask questions and join
them. But now in today's trading age, this will actually cause financial loss to go along with
everybody. The crowd is usually almost always wrong. As a matter of fact while I am on the
subject, look at all the financial talking heads on cable TV. They are almost always wrong. As
are the mutual fund managers taking losses for their funds over the last 8 years. In order to make
money trading, you have to trade like a contrarian. Imagine when everyone is running out of the
theater when shots where fired and during this you are running back in. That's Contrarian. And
its tough. Its a tough solitary disciplined road but its the road to cash.
Ever wonder who wins in the stock market? It sure doesn't seem like you or anyone that you
know directly. But you do know that there is a group of people who win.

This segment of my ebook will be continued tomorrow....
until then,

Tradinginsider

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