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 8
ths and 16
ths 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 8
ths or 16
nths 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 1/8
ths and 1/16
ths 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 16
ths 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 16
th or an 8
th 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 16
ths 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 16
th 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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