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Today's question - It's all about the momentum of looking at resistance as stock prices go into higher levels.
Question About the Resistance Point - Submitted by Abdul Rahman
The question: "When a stock reaches an all-time high, as there is no historical point of resistance, how do I know when the stock is possibly approaching a new resistance point. And where do I stop and start taking out some or all of my positions?"
Quick Look At Charts and Angles
The main thing is to recognize how greedy do you feel or how happy do you feel when a stock is reaching highs.
The simple approach is looking at angles. The way I like to phrase it: The angle of elevation at 30 degrees it's an ordinary healthy dividend playing stock.
A stock that starts to accelerate very quickly is, in my opinion, a rocket stock.
If you're somewhere in between you might be okay, but the faster (the steep) the incline and the longer, the more stretch things get.
Here we're taking a look at examples that really can clear up this matter for you.
Example #1 Nvidia
If you take a look at Nvidia you can see here on the yellow - it starts accelerating very quickly. It starts to get a little scary, and it accelerates very fast for a long time.
And that's why eventually these things pullback. The smartest thing you can do is look at it as an angle.
Example #2 Microsoft
If we look at Microsoft that angle is a lot slower. And the situation seems more stable. Maybe you want to start drilling things down into a daily chart if you're trading more actively.
Then, you can do the same thing. Pay attention to those angles. You can take a look at the weekly chart or on a daily chart. It doesn't matter. What you want to see is how fast angle is.
Sometimes things as pullbacks, resistance, and retracements happen even if the stock is moving at a normal angle: the main reason - market conditions.
Example #3 Boeing
If you have something like this, you have to pay close attention to the variation. First, we had an angle that was healthy; then you had a more accelerated angle. After some time there is again normal angle. Actually, It was more of a sideways.
But now if you look at the shorter term - boom! That thing's accelerated, so I wouldn't be surprised if this thing pulls back.
When Do You Want to Take Profits?
The faster this thing goes, the more profits you want to take. Some people will say: I look at the RSI, I look at the MACD, I studied moving averages. All those things can give you some clues, but the reality is that you have to notice this:
Is that stock is moving too fast?
Or is it moving normally?
If it's moving too fast, it's probably too stretched which means you should take some money off. Keep things simple, because the more complicated you get into, the more it'll play tricks on you.
Example #4 CMG
Now, let's take a look at CMG. You don't have to hit every point when you're drawing the angle and the range of the movement.
Look at that part on the picture. Pick points where the stock changed direction to where it is now, and there it is.
I found that making things more complicated is a bad idea. That just drove me insane, so keep it simple and analyze those angles throughout the desired period.
That's the way I would look at it when a stock is making some all-time highs where you can't even see where the resistance point is.
The steeper that angle is, the higher the chance that pullback is going to happen. And if it doesn't happen for a while, then it is going to be nastier on the longer term.
Be careful and understand that if your stock accelerates and you see your account positive, when everybody's happy and when they're all buying - that's when you're taking some profits.
We had a interesting week here with the markets. The earnings here that have been coming out with Apple and all the other stocks that tech-based Amazon was shooting up like a rocket. A lot of these companies have been moving very sky high but the VIX, as you know, has not been doing too well. It's been going low. For active traders, I always say you want a higher fix which typically means a sell-off and that's just because you get more volatility. With more volatility, you get more opportunity opportunity. It allows you to make more money in the end.
In either case, you know with the volatility as low as it's been, it does concern me to some degree. It's something to always be careful of when other people are greedy, you probably want to be fearful. And when other people are fearful, you probably want to be greedy
In other words, buying stocks when they sell off and selling them as they continue to go higher.
If you look at the SPX, you can see we've keep treading and grinding higher. Those of you that are my bears, I'm sorry, it's just what's going on - what's happening, there's been a lot of volumes that also came in with some of these tech stocks.
We are stretched. I would still like some pullbacks even if they're light ones but this is just the market that we have going on. Without a pullback or a good solid pullback in quite a long time, you definitely want to be very careful because it just means it's stretched like a rubber band. It can go on for months, years, you never know but you always want to prepare for the risks at hand. That's what you need to do as a trader.
Canadian marijuana stocks are blowing up. Do you think there is any risk involved?
Of course, there are risks with marijuana stocks. With anything, there are always risks involved.
The question comes down to what risks are you thinking of? What risks can you handle? What risks are you willing to take to be able to gain for the return?
I don't look at any industry-specific - it could be marijuana stocks, it could be airline stocks, it could be an underwear company. You look at Under Armour, for example, that used to look at this one. It was a high flyer when the IPO came out and then well with time wasn't as hot anymore so things happen.
It doesn't matter really what the company is. What matters is what are people investing in and how is the perception relative to the price because the price is always perception.
What does it really mean when stocks' at $10? It's a matter of what people are willing to pay for. It depends on the ticker symbol. Do I know what they're going to do?No. I look at it at the time and evaluate it based on what I see on the movement. That's what I do and it's not necessarily when they're blowing up.
If they're too far stretched, you want to be careful of course because then they get a pullback. That's the main concern for me. Depending on what you're looking at.
But are there any risks involved? Of course. There's always going to be risks involved with anything in trading or walking down the street. There's always going to be some kind of risk there. It's just a question of which risks are you familiar with and which ones you can handle.
What behavior do you recommend to have with our family who doesn't have an idea of the market?
What the learning curve is? Should we lie and say everything is good? Tell the truth about the losses and receive and complain and bad energy from them or avoid talking to them about trading? The reality is the emotions the good ones and the bad ones are impossible to hide to those who we live with.
Yeah. It's definitely very difficult to talk to people especially your close involved family members who don't understand trading and can't grasp the concept of it. It's a whole different world because they don't comprehend the risks involved. They don't comprehend what you see and it's a whole different industry.
So would I lie to them?
No. There's no point in lying to family members. This creates tension. It's like loaning money to family and friends. You don't usually want to do that because it can create tension.
It's like getting into a business deal again with your family members. Sometimes you just want to avoid it because there's tension that will occur.
There's no reason to lie to them though as far as what you're doing.
The thing is, do you need to share everything with them?
No, you don't. For example, even with my folks and parents and just close family and friends, I don't share with them my stresses that are involved with trading. Sometimes I do but it's very rare that that happens. I might share a subtle thing, maybe works busy, there's a lot of things going on, things aren't working out in my favor.
In those situations, it's good always to trade lighter especially if you haven't grasped things. But it's tough to manage those emotions and put it on people.
I know we want to chat with people and get those things out. The better approach would be to gather and have a friend that you can connect with and network with. If you have a friend or colleague that you just coordinated once a week or once a month together and just chat about your strategy. Chat about what happened throughout the week on the stock market.
Again, I would say trade lighter or smaller at the beginning till you get things which reduces the stress. There's no reason to really lie about it. You may not need to share every single detail of what you did, how much you lost, how much you made - all those kinds of things because it does add up and take a bit of a toll on you emotionally and also, on your friends and family. I hope that makes sense.
Of course, with your very close ones near wife or partner and so on, you probably will need to share some details. That, of course, is going to be important part of the relationship.
What is the difference between a pullback and a consolidation? Did they give the same results or do they provide the same results?
A pullback is usually a retracement. A retracement could be to the upside when a stock is moving down.
When a stock is moving down, you could say this slightly is a retracement. It's probably more of a consolidation.
Usually, retracement or pullbacks are at an angle. Whether it's this way or this way depending on the direction of the stock, they're at an angle. Whereas, consolidations are more sideways.
Do they give the same results?
Yeah, they do. They give breathing rooms. They give a chance for the stock to digest the upward motion or movements.
If we look at this movement here to the upside, here is our pullback. You can see it gives that stock breathing room to continue moving higher. Whereas here, which is a little smaller, I'll zoom into it here in a second. This, I would say, is more of a consolidation or a digestion. Again, it allows you a consolidation. Allows you to digest moves. Also, another one right here.
If you go into a shorter time frame, you can see these even more. Here we have a little bit of a consolidation right here. Here's some consolidation. This one is longer, as you can tell, than the previous ones. This is where the stock changed direction quite a bit so you could see the longer digestion moves.
The longer or the stronger the move either to the upside and then you need a pullback, the stronger you'll want that pullback or the longer in time you'll need it. It's like going to a restaurant and you go and eat a whole bunch of food. The same concept applies. If you just have one plate full, you don't need as much time to digest. If you try and have five or seven plates, you're going to need a lot more time to digest.
The same thing in a stock. When you have a massive movement, you need time to digest and turnaround that boat. Even though you had some here in between, some digestions that digested the small lower movements all take time. That's what you're looking for.
Where can I find information on your ABCD process? And number two, I have thinkorswim and need to learn how to use stops.
Let's take a look at some ABCD patterns, they take time to really understand. Usually, they're a little bit easier to find on things like the weekly, if you're new. Also, they're more concrete, more precise, and more reliable. That's why I prefer to look at them and the weekly or the monthly especially if you're just getting started.
Do they happen on the daily? Absolutely. But they're a little more difficult to spot but you could still see them. For example, looking at it here, you could look at it actually right here and then again you could continue this pattern but there's more noise there.
As far as the process goes, it's tough to explain it here. I could probably speak an hour about ABCD patterns. Usually, they come with Swing points or so. When you're looking for stock movements and swing points where stocks change direction, this is where you can find potential ABCD patterns. It doesn't always work out, but it gives you a starting point for learning things.
Sometimes, they're hidden. With Tesla here, I actually had a nice short that I remember a while back. I looked at it like right here. This was my ABCD pattern that I watched in Tesla. It's a little nasty looking but it worked out really well for me on the trade simply because this I noticed. This was the retracement and the reason I could tell this was that lighter volume right there, that was the key for me.
When I saw this volume pick up again, that was the shorting opportunity, and that was an excellent trade, and I remember it.
One of the other key takeaways was this big bar right there. That's kind of a big flag then once the stock goes higher here with a dry up and volume right there showed me that it was an ABCD pattern.
Did I know it would go here to this point and stop and continue moving forward? No, I didn't. But what happened here, as you can see, it was the next leg. The volume again dried out so that again as it started to pick up right here told me to get back into the trade.
When you take a look at this from swing point to swing point right here, you get about 90 points the retracement if you do the Fibonacci sequence.
Fibonacci's not always reliable. It's a guide but you can see how that guide comes right into that 50%. Again, we had from here to here, 88 points, and then from here to here 81, 75, 79 points so fairly close and worked out well.
We're getting the next leg right so here, we have about 75 points and then next one we're already 88. We're a little stretched, and that's why I say we're a bit stretched here.
As far as stops go, I mean if you're talking about mental stops then that's personally depending on where you do it. I do it usually a little below certain swing points could be on the day as well.
In options, do you always own the stock or only when you place a naked strategy?
When you trade options, you don't need to own the stock at all. It really comes down to your option level and approval and requirements that you have within your broker but you don't need to trade. You don't need to trade the stock at all. You could just trade the option and that's what many beginners kind of don't understand when it comes to options. You don't need to own the stock at all.
It's another way to make a little bit of extra money, but I could just sell this on its own. I don't need the stock, but you need to be approved for that in an account for higher option trading requirements.
Of course, you could also do things like let's do a calendar here to show you an example by one on the January 18th shows you a little more advanced option trading strategy. This, of course, without any stock and you can see what happens day in and day out that white line current. White line is the current today line gets closer and closer to that green line and eventually with time I could get out of this anytime that option premium decays because the one in December decays fast or the one I'm selling than the one in January.
Keep in mind, and this is a positive Vega so as volatility increases this graph also grows. As you look at it, it starts to expand again a little more advanced for the question, but it gives you an idea.
It looks like that's the only level my broker will ever approve, does this greatly limit my potential investing power and option trading?
I've been approved by my broker for option trading at level 1 which allows for covered calls and long protective puts since my account is an inherited IRA. It looks like that's the only level my broker will ever approve, does this greatly limit my potential investing power and option trading? I mean is it more serious money making capability more so at the higher approval levels or is level 1 approval really all I need to be very competitive in option trading.
It's an interesting question with IRA accounts. They will limit you and you don't usually get the higher permission levels when it comes to trading options, for example like naked strategies level 4 option trading strategies. You can't even get portfolio margining when it comes to IRA accounts.
If you've never heard of portfolio margin, let me share with you what that is. Think of it like going into a bank right and taking out a loan. Most people know about margin. but most people do not know about portfolio margin.
When you go into portfolio margin and you start looking at it, how does it work well in portfolio margin, they take a smaller amount. Instead of going on and putting in $50,000 on a stock or a trade, they only margin you out a certain percentage. Instead of 50,000 on a trade, they might give it to you for 20,000. It allows you to trade almost three times as much.
Instead of going to a bank taking out a loan like you would buy a house, this is the same thing except you don't have to pay anything extra for it. The only way to get that is if you take a test. You have to take a test which I took. That test it's not too bad you get approved, you also need to have at least $125,000 in your account. There's a lot of other requirements that go with it.
Can you make more with a higher level of options?
You definitely can we live in a capitalistic world. The more money that you have, the more you can make. That's the sad part about it because for me I also always advocate that.
One of the things I would say when you go to a bank, and you want to open a safety deposit box, and you just got your first job, and you have $100. That safety deposit box is going to cost you $50 a year or $100 a year.
It's not set up to help the poor. The economy that we have is not set up to help other people. It's set up to make money.
This world, as far as economically goes, is set up for people with money. That's heartbreaking when you think about it this way because you have a guy that just got a job, he wants to open up a safety deposit box, or even a bank and you got monthly fees of $20, when he only has a hundred dollars. But you put five million dollars in there, you bet you're going to get free checking. You're going to get a free safety deposit box and you might even get a free massage with it.
They'll do a lot of things for you at those banks, the more money that you have. That's just the way the world works. It's sad, but that's the way things work.
Fortunately, people like Bill Gates, Mark Zuckerberg, they contribute quite a bit charitably financially. That's kind of the human factor. That's great around just people but unfortunately the business side of things in the market is just based on greed.
The same thing with option trading. When you look at option trading especially when you're in an IRA, you're going to make less money when you can only sell covered calls because you can't. You have to hedge. You have to do protection because when you have a stock right here what you could do and I'll show you some of the strategies that I basically can do.
This is what happens. That's the industry standard. You do limit your potential as far as making money. So level 1 always good to have a higher level.
Can you explain any complications that might arise when buying back iron condors?
I have a question about closing sold iron condors and taking profits early. Sometimes I can't buy back the Condor I sold and closed or reduce my position. It's not being able to get out of position on a tip thing. Can you explain any complications that might arise when buying back iron condors? Thinkorswim is my platform.Thanks.
Do you have a ticker symbol that you're watching or trading this we're having trouble closing?
Look at Shop. I don't think you should have a problem but let's look at the liquidity. What you want to see is the liquidity of the options and the volume.
I mean if you're looking at December 17th, the standard options not the weeklies. If you're doing the weeklies, there are usually less open interest. Those are a little tougher to close out. You have to pay a little more of a premium and you take a little bit of a hit on that because the liquidity is less.
I struggle a lot with companies like Priceline just because the open interest is minimal. You could see it doesn't trade that much, so even when you go to the standard options, the public interest is light.
When you look at Shop right here, and you're trying to trade options, if you're doing the weeklies, you're going to have some trouble maybe. You have to take a hit which means the bid-ask spread is not going to be in your favor. You have to give a little.
If you're doing the standard options, you should be okay unless you're trading like 90 contracts, which I doubt you are five contracts.
What strike price are you trading?
You shouldn't have a problem with five contracts especially if you're kind of in this range 80, 85, 90 or even 110, 105, 115. I don't think you should have a problem if you're in the weeklies on this December 8th. Here's December 15th because you said December 17th.
I'm going to say the only thing you should really watch out for is - if you're way out on your strikes and the open interest is light, then you might have some trouble, and you need to give a little bit to get fulfilled or get filled on those orders otherwise you shouldn't have a problem.
The other thing you could do is get out of it in verticals. Because if you do it in vertical, sometimes it's less for the market makers to fill all in iron Condor especially if it's moving against you or in a weird position. Sometimes doing a vertical on one side then doing another vertical on the other side, taking it off and since in legs can be just fine and you can put those in real quick together. But that, of course, depends if your capital allows you to.
How do you get approved level four for selling calls naked? Is it experience, money, or how long you've been with your broker?
Everything. I mean they take a look at everything. Experience, how long you've had that open account, they might even look at your track history, they might make you take a test. It depends. I got approved a while back and it's wonderful. You can make more money on it but you want to call in and ask them. But they're not going to give it to you right away because they take on more risk.
Because, what happens is, I mean imagine, I sell a lot of calls simply because I'm trying to hedge my other side positions. You got this risk on and if I'm selling ten of these and look at the risk you could have on here with just ten contracts. You're looking at 217,000 on the loss. That's at $320 a share but even if it gets to 130, you're at $22,000 loss just if that stock jumps to 130.
So, the losses can become extreme, and as you start trading larger, they get intense and the broker. If you don't have a lot of capital in there and you haven't been trading for a while, they're not going to give it to you because then you owe them money and they're not going to go chase after you. So they check everything.
I've not traded for many years. The last time I did, it was all done through the broker. Is there a class or book I can study how to put in trades on the different platforms available today? Thank you.
I do have a couple of things on my website on how to place a trade. I believe in something straightforward.
If you go to this section, there's a lot of things out here. What is the stock? How you make money in the market? I think this one puts in a trade in there and there might be some others in here. Step by step of placing video number nineteen at the moment. You could go ahead and look at that. I'm just constantly evolving this section.
There are some books you should read. There's a full book list practicing technical analysis. Some video courses and some brokers and things like that. I take a look at that, so that's a right section to check out.
Also, your broker can help you out with that. They'll usually be helpful to show you how to place a trade because they want you to trade.
How many stocks to swing trading portfolio of 30,000 to generate 1% to 2% return monthly?
I'm interested in swing trading which charts and timeframes to follow for entry and exits once the trend has been determined. How many stocks to swing trading portfolio of 30,000 to generate 1% to 2% return monthly?
It's not the number of stocks that will determine your return. It's either appreciation or dividends or selling call contracts or trading options that will give you that return. It comes down to your risk levels.
How many stocks? I always say if you're trading 5, 10, 20 million dollar account, you don't need more than 5. The only time you're trading more than 5 to 6 positions is if you're more of a hedge fund and you have like 3 people working for you managing those positions. In that case, you might bump that up and usually that's with a much higher account value.
Usually, for most people, three positions is all you need. 1 to 2 even. You don't need to be that diversified at the beginning unless you're anxious about things collapsing or you're buy-and-hold and set it and forget it kind of person.
The reason I say that is because diversification now is very easy. You could buy like an ETF, and it makes it very easy for you to diversify.
As far as the timeframes go for entries and exits, I always start with typically the weekly is my nice go-to timeframe because it allows me to spot opportunities faster.
Sometimes, when I scan 2 to 3 days is beautiful because it allows more things on the chart. Just the time view and time frame but the weekly is my main thing.
I'll also check the monthly to see the bigger picture. So again, monthly weekly and then the daily, if they all line up and everything's pointing in the same direction, then it's excellent. It confirms your chance of success. It makes it much higher.
Anyways, that's the way. I look at it if you want to optimize it, you're trying to get all three time frames. If you only see the daily, sometimes people get faked out with this - like Underarmour that we showed earlier. If you look at this one and look at the monthly, it's toast. If we look at the weekly, it's toast. But if you look at the daily, and let's just say we were looking at things like that, you could say well the volume is picking up stocks going higher. It's getting into the gap. It'll probably get to 25. Shouldn't I get into the stock? No, absolutely not, because we know the weekly and the monthly is weak. If you just look at the daily, obviously you'd say I'd get in but that's why you look at those timeframes.
Interested in your guidelines - on how to select candidates for selling cash secured puts.
Typically, any option trades. I'll give you my fundamental insight on just options in general.
You probably want to trade. Normally, you want to trade options when the volatility is higher. That's why I always talk about higher VIX. Higher VIX is better sell-offs are good for the market for option traders. Even selling cash secured puts or selling puts, selling calls, anything option related. What you want to do is go ahead and look for stocks - usually above $50/$70 is what you want to look for like things like shop and very nice option open interest.
Anything over 50 with a little bit higher volatility is good. So things like Microsoft may be okay because it's 84. But the other issue is the volatility. Here you can see it's 16 or so it's a little light, so the premium there is not really fantastic. So that's the other issues even with higher stocks. If they're not that volatile, the premium there is minimal. Can you do it? But you need to leverage up with more contracts and some other strategies.
When I trade in small quantity, I'm always right. When I trade big, I always fail how to fix this.
How small is small and how big is big?
If you're trading small, then you're trading big is 50. You might want to start somewhere in the middle or in between. Take it in stages. Be consistent.
The great thing about having a real account is it allows you to grow personally as fast as your account grows.
If you start at $10,000 and let's say you're trading 50 shares, then you might be able to trade 57 shares of the same stock in 59. It allows you to grow incrementally.
But if you're going from 5 shares and then 50 shares or 500 shares, that's a big leap anytime you Joe from one hurdle to the next. Think of it like weightlifting. If you're lifting up five or ten pounds and you're doing your exercise to a hundred pounds, doesn't work that way. Never works out well. So you always do it in stages and you got to grow yourself personally. A lot of it is due to emotional psychology that you psych yourself out though the risk that you have. You're not in your flow.
Here's a little flow channel for you.
If you draw this out, some of you've probably seen this in my trader transformation course. If we have skill versus your difficulty of the task, if it's too difficult and you have low skill, obviously, you're going to have anxiety. If it's the difficulty is low and you have a ton of skill, it's going to be too easy and you're going to be bored. That's why you have the flow channel. That's where you want to stay match the difficulty with your skill.
I'm doing 30 day long calls with 50 Delta and usually close out a few days later with small profits. Any suggestion for better performance what would you do?
I have 500 dollars. I have learned options for the last year. Just started real training a few months ago and I'm down 380. I'm doing 30 day long calls with 50 Delta and usually close out a few days later with small profits. Any suggestion for better performance what would you do?
Most people that are profitable trading options do not buy options. They're hugely selling options. You buy options to hedge your positions. I'll buy options on an Iron Condor.
In certain situations, let's do Tesla. It's maybe easier. I'll buy an option to hedge but you're normally selling. So if we sell an Iron Condor and just slap this on real quick.
Let's say I have this iron Condor on. Will I hedge sometimes if things are going against me? Yeah. You can hedge by buying a contract but normally I'll go like let's say to the 72 range. I might buy a single, let's say it's moving a little against me. It may make the graph look a little funky but what it does is it transforms my Iron Condor and it hedges it like that.
If the stock continued to head higher, I could hedge it for a few days like this. That's the way you would do it, as far as buying things.
Usually, when you're doing 30-day long calls, 50 Delta, you want to go wider, and that's why most people lose money on options because they're buying options and again as I mentioned earlier, it's set up to make make it difficult with the level one option requirement.
You can't do an iron Condor spread without at least a margin of two thousand.
I'm just sharing with you the reason I would be buying an option most of the time.
I mean, if you have five hundred dollars and you're trading options, you're better to take that 500 dollars invested in yourself. Books whatever and build that account up rather than blowing it on options because when you do that you're making guesses at which ones are going to explode, and they need to explode quicker because you have the theta decay anytime. You're buying an option contract like this one, and you look at this, you have an option call and right here you have a theta decay of $10 every day. Of course, you'll be losing that money in premium.
I'm still not sure how to develop my strategies. They're a set of questions I should look to answer. Thank you.
It comes down to your personal risk style and strategy. It's tough to figure it out. Sometimes, you might want to follow a few different people to get some ideas and experiment with things.
It comes down to looking in the mirror. That's the end thing.
When you look in the mirror, are honest with yourself, that's really where things will click, and come together. But it takes a long time and some people never get it because they're always looking for someone else's strategy.
My goal and purpose is to share with you different insights so that you can find your own strategy. Because the way I trade may not work for you or somebody else and so forth but what you might be able to take as a small little piece of that and use it for your benefit. To continue to explore other opportunities to create your own strategy around that.
It comes down to discovering things for yourself. Just like what exercises will work for you. What type of foods do you like? As a baby grows up, you need to discover those things.
The same thing here. You need to play with different ideas and trading lightly can help do that.
What's your take on algotrading over live market action. Are you referring to algorithmic that you place your money into algorithms or algorithms just trading in the live market?
As far as algorithmic trading to investing into these machines or robotic investors, I mean for me I don't care too much for them because they do things automatically.
For many people, it works out great because they don't have to think much about it and it's fine. If that's the way you want to trade and best, there's nothing wrong with that. It's just a different approach.
As far as the just - the general movement of the markets, the way they've been moving, I don't usually like it. I don't like computer trading because it reduces the volatility. Most of the movements these days, at least probably 30 40 percent of it, is all computer-based.
Again, it slows down the trading. It makes more difficult to trade. So you're a little less active with lower volatility because that's what they do. They buy things up or they sell things at higher prices. There's a lot of things that happen like that.
I'm training on the Robin Hood app a couple of stocks, but I don't know how to read charts as to when to get in and out. Do you have any advice or direction for me?
I completed your introduction course. I'm training on the Robin Hood app a couple of stocks, but I don't know how to read charts as to when to get in and out. Do you have any advice or direction for me?
Yeah. You could study technical analysis.
Robin Hood is not usually an excellent charting platform or an app. I talked about this in the last webinar that they typically route things through their partner platforms or partner brokers.
Anyway, if you're looking for learning how to read charts, you could pick up a book on technical analysis and start there. Or look at the getting started page that I mentioned earlier. Bring you right back to this and start right here. You could even go to here technical analysis basics. You could start right here and go to that and that'll give you a lot of education as far as that goes. So look at all these videos.
If you want it in sections, there's a training section up here, and that'll point you to the same area for technical analysis basics. I think that's the main one and then you get a full list of all those videos.
There's quite a handful of them. So by all means, enjoy, and they're all free.
You seem to use several timeframes in your chart analysis like 6-month daily and 1-month daily. How do you decide which one to use for each stock?
I mentioned this one an earlier question. I always check the monthly, the weekly, and the daily. You want them all working together. You don't just pick one timeframe for one stock, you look at all of them. You look at all things and put them all together. You don't just look at one thing, you want to see the whole picture. So that's how you decide.
Since 2013, we have never seen any significant correction. How to judge when it will come?
You really don't know. You don't know when that correction will come. Oftentimes, what I look for is any time you have a huge explosive moves to the upside for a long extended period of time. What is long really just depends on the past. That's when you'd be careful.
When everybody's happy, when you're cheery, when your neighbor is getting into the market, when you hear people at the gym talking about stocks, when you listen to it on a regular radio - that's usually the time I'm very cautious.
As you look at it, they like to pump these things up. If we start looking at these things, they are stretched, and I don't like it, but that's the market we have. That's the game that's being played.
The further it stretches, the more careful I always get. Every time people are happy, I'm always more cautious, and every time people are selling and dumping shares, that's what I'm looking for.
So, usually, you like to see open interest in the hundreds or more.
Yeah. When you're talking about options. Depending on the size that you're trading.
I like to trade very highly liquid things just because it's good for my account and the size that I trade. But you know, if you're trading one or two contracts, it's usually not an issue to trade lighter open interest. The issue is - you have that bid-ask spread. That's the problem because you lose out some money as far as favorability goes.
Anyway, higher open interest is always good. So I would always look for more open interest when possible.
What is your process for determining which stocks to trade?
I understand the stock market, but my biggest issue is picking stocks. I make a list of the potential trades nightly and seem to decide to trade the wrong ones. The ones I don't choose seem to be the ones that run. What is your process for determining which stocks to trade?
Typically, I have my list of favorites. There's not a massive amount of them. It's only 179, and usually, I will trade the same stocks over and over again.
Most of these I haven't touched. I probably touched the main ones. Things that I've posted in the critical charts of like the Amazon, Apple, Facebook, and Netflix.
I've touched a handful of other things for shorter term trades: AMD, Caterpillar for a while back now I think it's a little stretched.
You'll typically trade the same stocks over and over again. Like going to a restaurant. When you go to a restaurant, is it going to be a brand new restaurant every single time? You go out. You've probably been to the same restaurant a couple of times, and you have your favorites or places you pick up.
The same thing in stocks, you'll probably have your favorites and the ones you like trading because you know them. How they behave, react, and move - those are the ones you'll probably want to stick with.
If they're not moving, if the charts not set up, be patient. Allow them to set up and then do those.
Don't force yourself to trade stock just because you're trying to push yourself to trade that day or deciding to trade that day.
Just continue to reduce and then you're only looking at three to four stocks and then you decide that day or that week, but you know make a plan and then go for it.
That's the process simplified but usually I'd trade the same ones over and over. You get familiar with them - just like your best friend, your mother, your father. You get familiar with them and what they're going to do if you burn the carpet down or what they're going to do if you spill milk on the floor. You get familiar with them and their behavior. The same with stocks. It's just you learn and it makes it easier to predict the outcome.
Did you personally trade more stocks or options?
At the moment, especially in these market conditions, definitely more options. Just the way that we've been trading with the grinding, definitely more options right now.
I would say for sure more options. Stocks are fine. I'm just too concerned with where we are in the market, and I find options can reduce that much more.
And also, as you look at options and you get more advanced - again this is level four option strategy, you can do synthetic trades. Which if you don't know what a synthetic trade is I think I might have shared it before. I try not to share too many advanced strategies with people on YouTube or open area not because I don't think you can handle it but sometimes it'll do you a disservice and it'll scare people. I try to make things the level that you're at when we do coaching sessions. I do get into these things.
But here's a synthetic for you that starts out with a call, and then we go ahead, and we buy a single over here on a put - not that one there we go sell a put.
You can see and understand stocks, and you go, and you buy a stock. You buy a hundred shares of stock. You have your delta of 100, and this is buying a stock, and it requires much more capital.
When you look at a stock, the capital that's required to put on this trade is well quite a bit more than if I was to go ahead and buy a call at 305, and then I sell the same thing on the put side. It gives me still a delta of that hundred with a decay of only about a dollar. It's not much so even if you move up and down, it gives you an exposure of a stock. The same graph basically as you would just in options.
You can do quite a bit with options. If you know what you're doing - maybe that blows your mind, maybe it doesn't, but you need to have the appropriate risk levels in your account to be able to do that.
With a stock, it's easier to get in and out. You don't have to account for the volatility with that you do with options. There's always pros and cons with each, but at the moment just based on market conditions, I do prefer options the way they are.
Doing synthetics like this, you can make it look exactly like a stock or just about very close as you can.
Do you think it's best to trade stocks over $5?
Yeah absolutely. Typically, stocks priced anything under $10-12, they're cheap, and they're cheap for a reason. Just like you go to buy toilet paper - you go to buy something that's cheap, that usually costs a hundred dollars but you might be able to get it for $35. It's less expensive because it's less expensive for a reason.
You either sacrifice quality. You sacrifice service; you could sacrifice salesmanship, delivery could be wrong.
There's a reason that stocks are cheap and sometimes you can't find good value.
Remember, it's about the percentage of gain on the stock rather than the number of shares you can buy.
Would you recommend covered calls for a beginner? If so, what is the downside as it sounds easy to do?
Definitely. I would recommend covered calls for a beginner because it's a good starting point for options.
Let's say you have your stock of Tesla and you sell a hundred shares at 335. The biggest downside is when you have a stock, and you get the assignment, and the stock moves past it, then you have your single call which looks like this. Then you combine it. It caps your profits.
The issue is if that stock breaks past that 335, if it's three thirty-five and one pence, well you lose your stock, and then you get back in it, and you keep doing that process.
The downside is you lose your stock, and you pay maybe exercising fee of $30 or $50 or no dollars depending on your brokerage account or what rates you have. Then you get back into the stock, and you keep doing the process.
That's the downside. You still get to keep your premium low, so you always make your $960. But of course, you're putting up a lot of capital for the hundred shares of Tesla. That's the downside other than that.
There's no real major downside. You have to cover calls. You're doing it with stocks and options combined. If you had 300 shares, you could just do two shares to sell the covered calls. That kind of changes your graph and it allows you to keep an extra hundred shares. You don't really have to sell three contracts. If you have three hundred shares, you could just do two or you could even do one so then only 100 of those shares are gone if it moves against you.
Do you use news when deciding to trade a stock? I hear a lot about Ben Zynga as a source for stock trading news.
Yeah. I actually did a review on the Ben Zynga platform. It's decent platform for news. I don't use news at all to be honest with you. I don't read any news thing. I don't read really any articles as far as news goes. I don't watch TV for stock trading picks.
I do have financial channels on to see headlines just to see if there's something sudden that happened or an alert. That's probably the only thing I really use it for. I glance things over because I have another whole computer set up with another six monitors over here to my other side. I'll just quickly glance over and see if things are what's going on is. There are some issue because they'll report on it very quickly but otherwise I don't really look at the news. I don't really watch anything like that.
Even earnings reports. Nowadays, I don't also listen to them because I'm not in the earnings when those earnings reports come out. Usually, I'm getting into them after the earnings. If it's a stock which nowadays I'm trading more options and sometimes more indexes as well because just with the market the way it is.
But the point is I'm looking at the movement of the stock not necessarily what the news is. The news is just there for entertainment. They always have a bull and a bear and they have that thing to attract viewership.
It's not always useful for investing, and it clouds my judgment personally, which is what I found over the years.
I just signed up for your critical chart service, where should I start with using your videos to enhance my trading skills?
Start with the start here section, go back. I would recommend you watch all the videos there in the critical charts. If you just look through charts, it's great to just look at the critical charts. To just go ahead and learn some technical analysis skills. Not every chart is going to hit perfect and it's not always going to work out but it just gives you some train of thought to to see a different perspective.
Your opinion might be different about specific charts, and that's perfectly okay. I'm sharing you my insight. If you have a different way to analyze things and it works for you, there's nothing wrong with that.
Start putting those things together - multiple forms, multiple factors, and start thinking about it. Either get a buddy or a friend to piggyback off of you and make you feel about those things to say you're wrong here. Or start second-guessing yourself so that way you can involve yourself to that next stage.
Today we'll cover your questions, and I'll give you some answers and insights.
Keep in mind there are no recommendations to buy, sell or trade any of these vehicles. It's because I don't know your risk tolerance. I don't know when you're reading this. You need to consult your financial advisor that can look at your account and your risk levels before trading.
But I will share with you some insights into what I see in the marketplace. And that way you can get some personal ideas to know what you want to do in the future.
This Is What I'll Be Using Here
Here I have a thinkorswim platform. I'll be using TC 2000 as my charting platform to show you some insights. I find that this chart platform is high-speed and efficient. Trading view also is a good charting platform, and I use it periodically as well. But I like TC 2000 because it's lightning fast.
That's what I'll be using here in this example. What we'll do here is go down the list. I'll start backward and jump around depending on putting a few things together.
Quick Look at The Market
Look at the Standard & Poors (S&P). Also, I watch COMPQX. These are the two main ones. I check the VIX when you look at market volatility to see how violent the market is bound to move.
If we evaluate these things so looking at the S&P, we've had a couple of down severe drops in the past recently. But they've been getting bought out, and that's what usually has been happening since January.
Things are pro-business like. They say it's not always the case. But that's what's being said. The market still buys into the hype. Think of the market as being as gullible as possible. They will buy anything. They will believe anything. And there's a reason for that which we'll get into.
That's because if things do work out well, then it'll continue going higher. But if they don't work out well at least, you rode the wave up, and then you can sell it at that point.
Most of the time these dips have been bought out. We continue on the uptrend. When we get a couple of panic moments, they still get bought out.
The critical difference here on the last couple is we were making a lower high. This is a pullback that we've had, but we still did get bought out on those dips. You can see this trend line potentially is starting to make its way upward.
The problem here is this crucial level. It's a level; it's never a line. Even if I draw a line, it's always a range. It's like three to five points depending on a specific stock. It could be 10 to 15 points if it's a more extensive stock. It's always a range.
Your friend doesn't show up at six 3.00 p.m. for dinner. It's going to be within three to five minutes — the same thing with this.
If I draw a line, it's a range within that. Anyways, this is a crucial level of resistance right now in the marketplace. You notice as we got into that we had a significant enough sell-off. And our sell-offs have been with volume. The volume is easier to see when you go to the SPY. It's traded more heavily so you can take a look.
And the volume has been rising to the bearish side. Usually, when we get these sell-offs, we get a major bearish bar. Then we get huge bullish bars that come in.
In this case, it was average. The market has had pullbacks. And it's still by the dip market for now. Until we break that 2400 range and we start creating more lower highs. If we start building more lower highs, you become more negative. Until then still, things are looking ok. You also want to check the leading companies like Amazon. These are the ones that I trade more heavily.
You watch how they behave and react. You look at Facebook. These are the leading companies. People that trade the leading companies are the ones that usually move the markets a little bit more — usually the hedge fund guys.
The same thing is here with Apple as well. As these things start acting weak and you look at this carefully. Where we broke this and managed to hold, we cut it again but managed to stay. And it's like a jackhammer. It keeps pushing down, and if we break below it, eventually we break through that's what rolls a market over. That can get it into some even lower support levels.
That's what pools usually markets lower. If this along with Amazon, Facebook start rolling these things over then the market will go with it as well.
Quick question: Is the preparation of your option class going well?
Yes, I'm finishing the study guide for the iron condors section. I would say maybe another month. These classes courses I've been working on that one for about a year. I'll tell you that much 70 hours or so plus. Options are complicated. There's a lot of material there.
If we take a look at AMD, I always like to start with my process. Start with the monthly. You take a closer look, back check it. And even on some of these the quarterly. I look at what's the overall progression here.
I have a few lines of support resistance. What is it done, what's the stock been doing. When we're getting into AMD, the critical line that I'm watching is that level right here. At least when I look at the longer-term and look at the quarterly. That'll put us at around $16.
Then I go into the monthly. Does the monthly confirm that? You can see as I back recheck it's not going to be perfect. But as I again check it, you could see I have a couple of levels that'll put me around that $16 range.
I'm looking at $16. If I was in this stock and if it got into the $15,45 level I would say take half off or take most of it off. And the more value range depending on how long you hold things around the $10 range.
You want to see that level if you're an active trader. You could say $11,85 could be a value buy and that's only because of this level. But the reality is that the $10, $15,5, $16 is the range.
If I was in it already and I started to see weakness, then I'd probably take half off. Of course, depending on which price I was in. There is another scenario as well. If I'm looking at the shop, I won't get into the shop with stocks. The reason I wouldn't get into the shop with stocks is that it's stretched. The way that I would play shop is through the options.
Look at the VIX and the VIX is relatively even. If we look at this range, that means option prices are neither high nor low relative to the last few months. It's right in the middle.
But are they trending lower or are they trending higher? Well depends how you look at it. You get two traders to look at technical analysis; they have different perspectives.
My perspective is this: I could put on a calendar on this or I could do a vertical on this.
But I'm looking for a directional trade when I'm looking at the shop. Thatćs my way because it's stretched. If I were to do a calendar, I'd put it right in the middle. And my calendar range would be spread right there.
If I were to do a vertical, I would go ahead and sell a vertical depending on the option prices somewhere around that $90 range. I would probably do something around the $90 range. That way if it pulls back to 90 I'm still okay. I probably sell that premium or the calendar. You could do synthetic trades with this as well. Synthetics are interesting, but they're very advanced.
It mimics the stock, but this is way beyond our plan here. This is reasonably advanced stuff because you synthetically manipulate to get a stock. But use less capital, you use it through options. Anyway, that's beyond the scope of this content.
My Favorite Stock
What's your favorite stocks to swing trade lately and why?
I would say it's the big companies and that's because I know them. The second reason is they have options. It depends on which one's moving at the time. I'll pull out my list of favorites. I'll sort by price.
This is the list:
Buffalo Wild Wings
Those are probably the main ones. And anything else that pops up, but I like trading those. The main reason is that I know the clear lines. They make clear patterns, so if you look at Amazon, it's spotless to see things like our ABCD patterns.
Question about Cryptocurrencies
What do you think about cryptocurrencies? What might be their future?
I'm not sure about cryptocurrencies. I have to tell you the truth. I'm not a 100% sure about because they can be manipulated. There's a lot of hype behind it. I always think back to how risky do you want to get.
If you got into them a lot earlier and a lot sooner when it comes to cryptocurrencies I would say ride it. Take half off, take 1/3 off. But if you're trying to get into cryptocurrencies, it's similar to getting into stocks when it was the year 2005, 2006, 2007.
You don't know if you're in the year 2005, 2006, or 2007 when it comes to cryptocurrencies. I have no idea about that.
But if you're in somewhere around this region, there's going to be massive pullbacks. And if you look at cryptocurrencies, in general, there are some seriously huge pullbacks.
It's not something I would want to get into. It's a little way beyond the scope of what you want to trade. The main reason is the risk that is involved with it.
Take a look at World Currencies Exchange. There's so many of them. Take a look at the World Coin Index. You've got Bitcoin, Litecoin, all these different coins. You can also create your cryptocurrency.
Then you have people buy into it. But the fluctuation that you have sometimes they're up a 100%, down 25%. It depends on how much volatility you want. If you're going to make consistent returns, it's much better to stay to something more consistent or regulated.
In either case, that's what I would recommend. Anyway, that's just my thought.
Take a closer look at CYRX
CYRX Cyr is a cheap stock. It's overextended. I would instead look to short it coming up soon rather than buy into it. That's how I would trade it. Mostly cheap stocks they're cheap for a reason.
I would look to see when the weakness comes in too short it. That's the way because the overall trend of it is down. There is a lot of volumes that comes in, so it could run like this for a couple of months, years.
However, I'm too cautious to trade stocks like this — that breakout from a $2 range in a year to $9-$10. The majority of them I will say go lower. There are a few that go higher and stay higher. But the majority of them remain lower.
The Priceline Group
I posted this one in the critical charts - 1800 is the significant level. With big stocks, you always have to give them a lot of wiggle room. That means when you have a stock like at $1,800 there's a thing called confluence.
That's something I mentioned with your friend showing up 6:15 or 6:20. Here with these stocks, you got to give a more wiggle room. And you can see this stock and dipped below that $1,800 level. Even though we had 1800 at this price points, it fell here.
When you look at this, you can see that this price point dipped down this $1774. That's about 25-30 points from 1800. You got to give it at least a good 50 point stop on stocks like these. When I look at Priceline, I definitely would rather trade this one on the option side. The reason is that it has options.
But look for opportunity on how far stretched it gets. The volume right now seems okay. It's not too negative, but the market is acting sluggish this last week or two. Be a little more cautious, unless we break out to the upside beyond that SP higher level that I talked about.
What I would do is look for extensions. You could use a simple indicator like a Bollinger Band. If you take a look at weekly, you can see we're in a lower range. That's okay.
If you look at the daily, you can see that it is tough to read on big stocks. That's why you look at the weekly. You can see where we're at the near the lower range. And this shows you two standard deviation moves on relative to the recent volatility.
Interesting Question about Indicators
Some traders obsess over finding obscure technical indicators. Their "magic bullet" if you will. But aren't indicators only useful because multiple generations of traders have perpetuated certain conventions. Or do indicators have objective significance quite apart from group psychology? In other words, the most commonly used indicators should be the most useful ones.
Useful is depending on you. Is it a pen useful in situations when you need to do some coloring in a coloring book? It's not as useful. It can be helpful, but it's not as useful.
It all depends on you your strategy. When I got into technical indicators, I was looking for what do other people use. What a Sasha put on his chart? Why does he use Bollinger Bands?
I would always try to match myself with somebody else. That's because I always thought that knew better. In the end when I got rid of all those things and simplified it to price action volume, behavior and on one or two indicators. I simplified my life, and it made trading a lot easier. I didn't complicate things.
For you, if you're looking for an indicator, a moving average is good to have on screen. When you're looking at like a 20-day, 50-day those kinds of things. They're handy because a lot of traders watch them. And they break above them, or prices usually gravitate towards them.
Focus on price. The market, that price is the key. That's the dominant factor, and then beyond that, you have the volume that confirms the move. And then the behavior. How's the stock behaving is essential. All these things give you a lot of insight into the overall progression.
The indicators help you see that and confirm your analysis or give you another perspective to double-check things. But can you get the Bollinger Bands from looking at this moving average? Can I do that?
Yeah, you can. That's because I know the price is overextended there. If I look right here on the Bollinger Band right now, I know that's going to be at the higher.
There it is. It's straightforward if you have the moving average and you learn about price behavior. Observe what is overextended, what isn't fully overextended.
You could use more common indicators, but don't make your life more complicated. One or two is all you need or want. You don't want to complicate your life. I am moving average, price, and volume. This is how I look at my charts. From time to time, I will check Bollinger Bands to see how far extended are we. Are we way above it? How far stretched are we? Those kinds of things.
This also tells you overbought or oversold conditions. You can see we're a little bit overbought on this McClellan oscillator. That's just an oscillator. It doesn't mean much you can be overbought for quite a long time.
That's another one I peek at. But you can get a lot of things from price, action, and volume. Keep it simple. It means if you aren't getting stuff from price, volume and behavior you are:
you're unsure about yourself or
you haven't learned how to read the price, volume, and behavior of stocks
You don't know how they breathe. With a human, you know how you breathe.
It's just nice normal breath. When you're running, it's going to be faster. You don't need to see it. You know the difference in the pace. I hope that makes sense and you do the same thing with stocks.
Question about Trading Strategy
When do you start trading?
How long did you trade stocks before you tackle trading with options?
I'd say I stuck around with stocks a couple of years. Maybe 3-4 years, but I started learning options. My third year and I can't remember because things begin to overlap with time like that.
You start to look and learn about options. You might visit it and fine-tuning some things with options. Maybe you notice that some stock has options. Then you place a little trade with options and then it doesn't work out. Then you go more, and you keep learning upon it.
Sometimes you need different tools for the job. Depending on market conditions having different tools allow you to be more flexible. Can I use a highlighter on the glass board? Absolutely, but it won't be highly effective.
You have these specific tools because the conditions are set up in that way. And it makes things better. Can you still trade only stocks? Yes, you can. But the more tools you have in your toolbox, the better. You can coordinate things together.
Question about Quest Trade
Do you know any trusted discount brokers in Canada?
If you're familiar with what do you think about quest trade?
I don't know much about quest trade or Canadian brokers. I visited Canada. I've done some research. TD Ameritrade has TD Waterhouse, so if you want a thinkorswim platform, I know you need TD Waterhouse.
The other thing is I did the foreign account lesson here on the let's talk stocks. That one has a couple of notes and insights about Canadian brokers.
You can go to the TradersFly website, and you go to the blog. There you can go to search for a foreign account, and you can see what's there for you.
One post about that topic: How to Trade in a Foreign Account or as an International Trader
There's a couple of notes here that talk about Canadian brokers. Take a look at that when you have a moment.
Interactive Brokers is also another broker. A handful of brokers that do business within Canada will allow you to trade in Canada. It's a matter of filling out the appropriate paperwork. Unfortunately, TastyWorks don't let you do things. Some regulations go with specific countries.
These are the countries that are looking to expand on. But unfortunately due to restrictions cannot residing in Canada or Australia. They have their own rules and regulations. It's harder to get requirements and set up in certain countries. I know Canada and Australia is tougher on that, but some other countries will be available with tasty works.
That goes the same with other brokers. If they have a thing in Canada, then they're good, or they've got the paperwork. Anyway, I hope that helps. I'm not an expert on it, but maybe somebody else can shine in.
Question about Forex Trading
Do you think forex trading is riskier than stocks?
I don't think forex trading is riskier than trading stocks. I'm not an expert in forex trading. I think I've put on one forex trade ever to tell you the truth.
However, the thing about Forex is this: when it comes to trading and when you look at investing, you make money in trading through volatility. You need movement. Anybody who says you want a crushed VIX or they want the VIX to go lower is a person usually that does not understand trading. Or it doesn't understand investing or how money is made in the market.
It's through movement and fluctuations. The higher the VIX as an active trader, the more opportunity you have. That also means more movement. That's your breath, that's your air as a traitor. You need the Vicks to be higher, and you need movement in the market.
That creates opportunity. As stocks drop, you buy it at a lower price. Then they spiked up, and you sell it, and you do that rotation more frequently. The reason people like Forex is because of the leverage factor. When it comes to stocks, you get the margin account or portfolio margining.
When it comes to Forex, they give you fifty to one, a hundred to one or 500 to one leverage to use. The main reason is that movement is small.
Then you need that extra leverage to be able to make more money. Because the volatility is smaller. There's no blood in there. You're in are mixing with two different animals. And it's not something that I like.
I would instead buy $30,000 worth of the Euro and keep it and hold it. Rather than doing the trading. Anyway, that's beside the point. But that's not my thing; it's not my expertise. Is it riskier? It depends on how much you put on the table and what your experience is.
Question about The Time That Is Required
How many years did it take you to master options?
I wouldn't say I mastered them yet. I always tried to be more humble about the whole thing.
I don't know every single thing. However, I'd say where I was comfortable with options probably 4-5 years. There's a lot to learn. I wanted to first jump into iron condors. That was the main thing.
The first thing that was buying calls and buying puts. That's the classic rookie mistake. Then I got into iron condors. Then I got to calendars. After that, I moved into butterflies, and then I got into diagonals.
Recently I've learned about more synthetic trades and got into gamma and theta scalping. There's always more I'm learning, but I find that you don't have to get too complicated.
You can keep it simple as well. I'd say verticals is the core foundation that you always want to learn. Iron condors are the base because it's the base of selling. But in certain situations, calendars and diagonals are also very useful. That all ties to iron condors as well. You want to have multiple strategies usually put on. Then that way you can minimize your Vega risk and exposure. You need to learn how to cut your Vega risk especially when it comes to options.
The reason is there's no Vega when it comes to trading stock. That's one of the things people have problems with. And it's what I had to struggle with. Three to four years, maybe five years depends on what you study and what you learn.
I'm trying to get more insight on my courses and get those knocked out here this over the next couple months. Hopefully, we'll get more of the option series complete. That should be a good foundation to get you started and to learn a lot.
Question about Low Beta Stocks
What is your opinion about low beta stocks such as AGN or AEE with linear movements?
Do you think that swing trading them is a good strategy to start with (x 10 leverage and R/R ratio 1:2)...any suggestions.
I look at how violently the stock moves. It's not that I know that Apple is a beta of one point whatever or more or less. Some people like to use it. I look at price movement and volatility. That's the way I do it.
I teach about a beta, and I know how it works. Do I look at which stock has a specific beta of what? No, I don't. I will type in a ticker symbol of something like AGN. The next thing I'll do is I'll take a look at how big are the largest bars.
Let me look at some of these bars. How big are they? Whether they're to the upside or the downside. How far stretch does a stock get from a moving average?
If I look at it, that's our volatility. That's what I look at. Swing trading them is like trading any other stock. I'm looking at how clean is the price pattern. Again, I'll start with a monthly. How clean is the price pattern? What am I looking at?
Here I'll start evaluating things like retracements. How do they line up? You can see here these lines up to the 50% level. Almost exactly from our earlier breakout point. Then do we have a counter bounce? Will it come back?
Those are things I look at. How is the volume? Do we have a couple of bearish spikes? Is the volume decreasing there?
All these things you take into account. You trade them like any other stock. Do I care if they're low volatility or high volatility stocks? No, I don't. I care about the price movement. As I mentioned earlier - it all comes down to price.
How would you swing trade them? When you look at this range depending on if your short-term, 220 could be your area.
But if we have bearish volume coming in I ask two questions:
Do I want to wait for a bounce here?
Do I want to see it break through lower and short it?
Then come down to 188. Again, you're looking at the ranges. You're evaluating the charts, and you're putting your risk on the table. If it's moving against you - you're out.
It's that simple. Depending on the stock. Sometimes it's better for options depending on what it's doing.
Take a look at AEE: The same thing. You look at overall. How's the stock behaving? You take it out monthly. Are we stretched? Then you go into the weekly. You start looking at where some fundamental levels. How long do I want to hold the stock? Do I want to buy on the dip over here and see if it catches and bounces? Do I want to get in it? See if the volume is acting the same with the stock. You start combining these things.
If it comes by and bounces and volume picks up - that's great. But you decide at the time because you're looking at this and you're saying how's the volume behaving.
That's ultimately the key.
It's one of the reasons as I looked at spy. A few people message me on this big down day. And I told them and also if you look at the critical charts the volume on the pick up here was a lot lighter.
When we look at this movement, it was acting sluggish. And if you look at that volume bar as well this one very sluggish. And that created our second point. Now I didn't know it was going to be the second point at that time.
I knew the volume was weak and that's learning about behavior. I had no idea that would be our second point. But when it became our second point, now I had the opportunity to create a third point.
You're looking at the volume, and you see that volume is weak or is it strong. You can see that the volume is accelerating. That picked it up, but then again we're dying out at the upper level. It's learning about behavior.
Question about Algorithms
Do market-makers purposely configure their algorithms to incrementally move a stock's price to specific levels that they predetermine?
Or are these nearly perfect angles of ascent and descent occurring naturally, perhaps as a form of group-think self-fulfilling prophecy among all traders of a given stock?
Technical analysis overall is based on human psychology. It's price behavior. How far things are stretched, people are taking profits. A lot of this is psychology group behavior.
But that's why sometimes they can go much further to the upside than you think. And also much lower to the downside then you believe as well.
If you take a look at WYNN, you can see this is a classic A to B, B to C, C to D pattern. You're a movement from C to D should be about the same as A to B.
We can do the measurement from a lower point to the upper position (about 142 points), and then we go here to here you can see about 160 points. Not perfect, but right around the same region.
It's stretched and creates the pattern. The thing with market makers is they usually try to get out when this euphoria starts to kick in. You see these three bars. They may start this final euphoria stage. This last bar is their last leg they'll buy a quick.
At this digestion period, they were buying lightly. Otherwise, they move the stock if they buy like 10 million shares in the day they move the stock.
The primary step is they buy lightly in this range. And then they might buy in a couple of days or a more compressed timeframe. Their last final buy and they play a psychology game.
It could be not always the case. But they play a psychology game to drive the price a little bit higher. It gets people more excited and then what they start doing is as new traders start coming in they start selling.
That's when they start dumping a lot of things. And that's why you get the distribution right here. Finally, they start taking it lower, and then they dump the remaining shares. You can see there's still way above that level.
When you talk about manipulation within a 5-10 point range or 1%-2% range, they do move things. They call it pinning, and they pin it based on option contracts.
Take a look at WYNN (since we're talking about) when we have nine days till the standard option expiration goes through. And when we go to open interest, there's a lot of open interest (here at the 142 level and 145 level). So depending on where the volume is on the option side (let's say a hedge fund has thousand or two thousand contracts around this range) they wouldn't have it at 145.
They may have a hundred at 144, one they may have a hundred or five hundred and 145. They might have another two hundred at 146. If they need those option contracts to be more valuable, they will pump up the price. That way they'll make sure that deal is more valuable because they can move the stock.
That's how they do it. Why wouldn't they roll it up? It gets too expensive. They may want to buy the stock. That's why they pin, and that's why at the end of the option expirations they have triple witching.
Everything coincides on the position. They have so much money that sometimes to roll things up then they need to buy a lot in one day. Whereas instead to move the stock you buy the stock in one day. Or sell the stock in one day. You short it.
Whereas with option contracts you have 5-10 different strike prices. Then you have to get in it; otherwise, you risk theta you risk the movement of the price of the stock. When you're trading larger, that's what happens.
Question about The Influence of The Season of The Year
What do you know about the different seasons of the year and times of the month affect the stock market as a whole?
What specific patterns do you see that a trader should take into account?
The seasons of the year, the best trading times is after September 1st, 5th. It usually tends to become a little bit better. Not always the September month. October tends to be more active. Take a look at stock market crashes which we talked about in the past. The stock market crash in 1929 on October 24th.
Now, take a look at other crashes in the 80s. A lot of them coincided around that October time. Let's take a look here at Black Monday. It was 1987 October 19th. This is when a lot of traders get back in. There's a lot of psychology that's involved around that. Because people are back in their work things.
Your mind as you get into mid-September starts thinking about the next stage, new job, holidays. November, December, January, February are the most prominent trading months.
I would say when you have more holidays be careful with the volatility. There's usually more movement in the stock market. But that's why they're the better trading times. Remember what we've talked about the volatility.
Volatility is high, sell-offs are significant because they create opportunity. A lot of new traders don't like it because it's not moving in one direction all the time. You become more experienced, and that's what you want.
You want to be able to buy those dips or to be able to short things when things pop higher. That's what you want to be aware of is that things usually get a little more volatile.
However, sometimes you get those surprised days where they're much larger than the previous months. Always be prepared for that.
Question about AVH
This stock is very lightly traded. Be very careful on this one. It's only 133,000 shares. If you get a 133,000 shares times $8 a share with just a million dollars. You can move that stock. That's not a lot of money in the market place.
Be very careful. You want liquidity in the stock market. If you're trading this, I won't trade more than one or two thousand shares. Overall when you take a look at the monthly stock is lower. The trend is down. The recent trend as you can see is to the upside.
The question you might be wondering: Is this creating an A to B, B to C, C to D pattern?
Could it be? Maybe. Be careful with the volume down below. That could be more bearish, and now as we're heading higher, you can see the volume under that is bullish. But it's too light. It's so light that there's barely any of volume on the bounces.
What's the volume here? 3.64 million on the monthly, and then we got 1,8 million on the monthly. And to the downside, you got 3,7 million, 4,6 million, 6,3 million. Even this big bar was 6.1 million.
That big bar it sold off. It wasn't able to hold. Too far stretch. Anyway, be careful.
Otherwise, for a smaller time frame trade, you could trade it, but I would look to get out of it by the time it hits the $10 range.
There's some more trouble there. If you're looking for a long, but if you're looking for a short trade, I would watch the 740 range or 630 range. That's what I would do.
How to Start Trading?
When you go to TradersFly website go to Start Here Section and take a look.
Watch the videos, read books, educate yourself. You can take a look at the full list as well. There're recommended reading. Not all of these are my books. I think you should read these books if you want to be a trader.
If you want to be an investor, trade some stocks, it's a great place. It's not going to take a lot of time. Put some time into it; learn these things. Do you have to read all of them? No. but the more you know, the better off you'll be.
Question about FIZZ Stock
Could you explain how a stock like FIZZ can be so dominant on decreasing volume on daily (since three months) and with almost no pullback for a year or more.
The monthly chart of that stock is fantastic. It's never time to jump, but in the end, it's always time because it goes up every day.
The reason is that there's barely any volume. It doesn't take a lot to move the stock. A stock that's trading only a hundred and eighty thousand shares on average is not a lot of volumes.
That's why these stocks can run up high and fast. It's like the Ferrari company as well. It didn't use to trade as much. Four hundred thousand is still not a lot in the marketplace. You can see this one ran up quite a bit — ticker symbol race.
FIZZ is not a lot of volumes, you can see that on the monthly they got a lot of stock splits. That is a little bit of concern, and then as you get into it, it's doing well. You can get in but how far stretched are you? How much more do you have to go?
You'd never know. They can go to 150 but then sell-off. If you're asked for how can it do it like this the answer is simple - emotional buying euphoria. That's what happens. The volume is there at the moment.
Look at the weekly. The volume is still there slightly, but it is decreasing on the weekly. When you look at the monthly, the monthly volume is enormous.
It's been moving up on volume. There is a volume. It's that the amount traded is not a lot. Relative to the stock there's still volume that fuels it. But overall compared to the overall regular stocks it's not a ton of volume traded on the shares. Here you're looking at 8.7 million on a monthly. And when you look at Facebook, you get that in one day you get 13 million. Twice that, so it takes two months of this stock to trade on Facebook.
Anyways, relative to the stock it is trading with good volume, but there's not a lot of volume. That also means when a pullback happens, it can get nasty.
It can because there's not a lot of people in it. Be careful. The way that it does, it is because it doesn't trade a lot of shares. These Spurs can last for a while, but then since you're so far stretched when the pullback happens, it can get nasty. That's my point on that one.
Question about Political Influence
Politics is an interesting thing. It didn't use to affect the markets too much. I think that it does it periodically only because people get unsure. The markets will believe anything any leader or president states. That is because of the hope factor.
Looking at the markets political and rest will happen, and sometimes it affects it more so than others. I would say be careful with more volatility as things grow like a fireball the more likely you'll have snapbacks. And those become opportunities.
America should survive and move forward I would think and so will the rest of the world. It's the market has panic movements. When you look at the overall big picture of the market, it's climbed since the 70s, and you've had some pullbacks.
You might get another two-year downturn. Who knows. One year could take it back to 1500. It could take it back to 2000. It's only 400 points, not too bad.
Then things can continue climbing higher. Anyways, be mindful that's all. With politics whether it's a government shut down. It depends on how the market reacts and behaves. It's like terrorist attacks or school shootings. When the Columbine thing happened. Initially school shootings and things people getting shot were much more affected the markets from what I recall.
When I used to watch the markets during all the shootings and then later with the time that people became more accepting of it, oh, it's just another shooting. We become numb to it. It's sad to say, but that's the way things work unfortunately within the marketplace.
Question about Your Personal Preferences
How are you personally continuing to grow and develop as a trader?
For example, are there specific topics/traders/authors that you're seeking to learn about or from and what are they?
Are there any trading strategies that you're exploring and experimenting with are new to you?
Have you ever sought out a person-to-person mentor for trading or do you think you might do so in the future?
I'll give you some insight into me. I used to be all about studying, reading, courses, seminars. I would say I did that for a good 10-14 years even while I was trading. And I still do a lot of books and things than anything I can get my hands on.
I always like to learn. Education is the fire in me, and it's one of the reasons why I love teaching. When you first start with any subject matter, you want to get things in.
Take photography for example. You want to read a book. You want to learn about the camera, all those kinds of things. As you become better and more professional at it, you want to get things out.
Initially, you're getting things in later you want to get things out. As you get things out, it's about taking pictures and posting those pictures. That's when it comes to photography.
If you're doing videos - same thing, you're learning about videography then you want to get things out. With trading at the beginning, there was always a lot of things I wanted to get in. And now the higher level for me is to get it out of my head.
However, Is there more to learn? I think there's always more to learn. Is there more to improve? There's still more to improve. But what fuels your fire? How much more do you want to learn? How much better do you want to get?
There's always going to be better people than I am. There's still going to be better traders, more successful traders. It's about what fulfills you personally and how much money is enough for you when it comes to trading.
You reach a certain level where you say hey this is enough. I feel good with these strategies, with this consistency and I'll keep doing them. I'll move on to maybe the next purpose in my life. Whether that's to get married, have kids, those kinds of things. It depends where you're at personally.
Question about Advantages in The Market
Is there any advantages to one market in comparing with the other ones (like NASDAQ vs. S&P500)?
Usually, you look at the leaders. The tech companies like the NASDAQ typically lead the market. That's because it has bigger companies there. For like the tech companies it's more tech-heavy the composite the S&P is 500 stocks. Then you get the Russell, or the are UT IWM. That's the overall 2,000-3,000 stocks.
Most of the time they work together if you're looking for a market sell-off. But the composite is always much more critical. I would say, but I like the S&P because it's got about a little more average stock.
Five hundred stocks rather than the composite that's a little more tech-heavy. Anyways, which one you look up to is it's up to you depending on which one you trade more often. The reason I like the composites is that it gives me more like a tech-heavy of view.
And then I look at the S&P because I always trade a lot of option contracts with the S&P. Especially like retirement accounts and things like that.
That's the way I look at things. But can you look at IWM or the Russell? Yeah absolutely. So if you see like the Russell selling off notice how we got into the 61.8 level and pulled back right away.
As you start looking at things and one is coming into a certain level, then you want to be careful. The reason is that maybe the other ones will come back as well.
Question about Reading Companies Balance Sheet
I hope that you will also do a class or video on how to read a company's balance sheet or financial statements. Are you?
That's more business intensive. It's on my list, but it's not a huge priority. That's because I look at the technicals. When it comes to the balance sheets, I look at it in the sense of think about Enron.
What happened with Enron? These companies can manipulate these balance sheets. And you also have to remember what companies do. A lot of times companies pre-ship things in advance. Take for example stuff like water bottles.
Take for example digital timers or something like that. If you're selling digital timers to a store, you might say: Hey I'll go ahead, and every month I ship you a thousand times but I need to sell more inventory this month to hit my revenue for my shareholder. I'll sell you 1500 timers in this month, but I'll trade you the extra 500 at like 10%-20% discount.
Then financial earnings reports come out, and the sales figures come out. Those big companies say: Hey, Walmart bought an extra five hundred units of our timers. We made an additional amount of profit. Even though it's ordered and that is fulfilled in advance that's just the way things are. It's manipulated in a company. It's not illegal, but the balance sheets are a little unusual.
Instead, a better approach would be to look at earnings per share. See if they break by 20% of the previous year. That percentage because that ten percent could be that manipulation. Or it could be they just laid off a bunch of people. Companies are always trying to fire people to call it productivity and reduce their workforce. Especially the bigger companies
William O'Neal talks about this in this book How to Make Money in Stocks. When you look at any order type, you have a limit order — the basic one. There's also a market order if you want to do a market order.
There's a stop, stop limit, trail stop, trail stop limit, and most see I don't even know what that is. I always use limit orders. Very rarely I use market orders unless you're day trading. That you do in volatile days which have been good recently over the last week.
In either case, then you also have advanced order types like:
1st trigger sequence
When you have a 1st trigger sequence, you could stack orders. You could go ahead and put this order in. So when the first one gets filled the next one goes in, and you can go ahead and set up additional orders like that.
You can stack these orders more complicated, but that's beyond the scope of this post. You can contact your broker, and they'll go over these things with you.
Question about Problems if You're Starting Young
Going beyond your experiences of "the curse of the 16s" and your realization of how important volume is, have you had any other especially eye-opening experience or a significant epiphany relating to the stock market that has shaped your approach to trading?
If so, what are they?
Yeah, I had some serious issues when I was 16s. I made a boatload of money when I was young. It wasn't by luck. It was through my web design, business, my photography business. Relative to that age it was a good amount of money. I put that in investing, and I had some key losses there when I was young trading in my mom's account.
At the time with my money and my funds. And then there were some significant eye-opening experiences about trading options. When you get into options, and you don't understand what you're doing, or you don't have a mentor you'll struggle badly.
I think the biggest eye-opener is that people don't invest in themselves. And they hesitate to invest in themselves whether that's to buy books for yourself. Whether that's to take time to stretch your hamstrings for example.
Or you are maybe investing in your coach if you need it. Even just one time. That becomes a lot more valuable. Push yourself a little bit more, look at things more into personal growth and psychology because that's where things start to come together. It's all about the outer game.
The outer game is all this technical analysis all this order entry money management. But the inner game is all about how you react when things go against you. If you can keep those pretty well, you'll have a lot of things together.
Another Question about Politics
Is there any change in your stance about your opinion from what you discussed in the political side of Democrats versus Republicans and Clinton versus Trump?
No, there's not. With Trump when I talked about that, I assumed that we would have a market sell-off when he got elected. We did on the future side. I would have expected a lot more of a sell-off. But I had to switch on my position very quickly on that.
When I saw the market buying in with heavy volume, and you can see the heavy volume right there by day two I flipped my stance.
But I still think overall. Whoever's in an office I still think we stretched on the market perspective. And we're due for a pullback. Whether that pullback comes in another year, two years, five years I don't know. But I still think we're stretched.
If we continue to have little digestion periods as this and we do it again, I think we can go much higher.
We can continue with that process. The problem is when you go too much of a straight line. If we get little digestion here go a little higher and another more healthy digestion. But we need a good flush.
When it comes? I don't know. It'll hurt. You'll have to whip things around. You may not believe it. But you'll have to be quick to recognize it. Sometimes it's tough because the things have been doing the same thing for like eight years.
Question about Pre-market and After-market Order
Stop orders can be executed or not during the pre-market or aftermarket if that box is checked. Otherwise, it will be executed only regular hours. Even if it hits your stop price during the after hours.
I don't know this would be a broker question — something to ask your broker. I'm not a 100% sure on that question only because I always put on market orders during day trading. And then limit orders during the majority of the day and limit orders when I do aftermarket.
But it's rare that I do an aftermarket or pre-market order. There's usually no need.
We've had a Mac-style session for the number of people that registered. I capped it at 75 I think 30 showed up. I'll have to bump that up, later maybe 200 people. And I'm going to check this content and see how I can improve it.
I'll also do some tests, and we try to do one of these free webinars every single month. I hope they're helpful. Especially to those of you that have questions, who are just starting. It's like a consultation, almost like a one-on-one, but with with a group.
Thank you so much, genuinely appreciate it to everybody that came. I'd do this for you guys. I do this because I know how tough it is out there. It's sometimes the information can be confusing. I try to explain them as best as possible.
Today I want to share with you some insights about binary options. I want to show you the truth regarding binary options.
Are they scam or are they legitimate?
My goal is to share with you some insights to protect you. And to give you some insights about these trading vehicles. That way you understand what you're doing and what you're getting into.
First Things First - How You Classify a Scam?
Before you go any further, it's important to understand how you classify a scam. There are different levels. At certain levels, some people get taken advantage of, and they're wiped out financially. That is the case if we're talking about a financial scam.
At other levels, it's possible for you to be able to be successful, but the odds are not in your favor.
For example: If you're starting a business is it a scam if more than 90% of business owners fail?
When you look at a restaurant business, so many business owners fail in the restaurant industry. It's a complicated business, and it's a challenging industry. People still don't classify that as a scam. The reason is that it's a legitimate business.
Binary Options Business - What's The Truth?
With binary options, the same thing happens. Can you make money with binary options?
The simple answer is yes. However, the odds are stacked against you.
Take for example a restaurant business that you start in the middle of the desert. Can it work? It can, but there's no foot traffic. You might get someone running through that desert once every six months to a year. And in that case, it's possible.
You'll make some customers, money because you're the only thing out there. But the reality is the odds are stacked against you. If you have a restaurant in the middle of downtown New York your odds of success now become higher.
When you look at binary options can you make money from them? Yes, you can. But is it favorable for the risk to the reward that you're getting? No, not really.
This is why I don't care for it to say that it's a scam, but I do look at it as its not favorable. The odds are not in your favor and more than likely you're going to lose your money. That's a short and straightforward answer.
However, we'll go deeper and look at understanding how they work. That way you'll get some insight into the whole process of the binary options.
Learn How Binary Options Work
The first thing I want to share with you is how binary options work. There are a few factors involved in the working process. It's not much different than a regular standard trade in the stock market that you would put on.
First, you choose the trade, the vehicle that you want to trade. You pick a direction which is a little bit easier. When it comes to the stock market, there's a lot of hedging and things that you can do. With binary options it's binary.
You have one or the other. You choose up or down. There's no hedging involved in those kinds of things. There's also how long. You choose the time, the timeframe.
Usually, they're short:
They're not ten days or 50 days. They're not a long time frame.
Then you choose your size or your bet. Then finally you select the return to player rate. You check all these things. If we were to take a look at a binary option quote window here is what it looks like.
I drew it out so that I can avoid taking screenshots of any particular company. You have this Euro versus the US dollar. You choose your trade vehicle. This is the trade that you want to do. This is where are you putting on the trade.
In this example, we'll be using oil. But you have your Euro/USD. This is the trade you're looking at. And here you'll have your graph or chart of what's going on and what's happening. Here you have your payout rate (green). This is determined by them what they're going to pay out and when it expires. It would be at 3 o'clock today (for example).
Now you get to choose do you believe that at 3 o'clock today that this is going to be higher or lower. Of course based on the chart at the end of that timeframe. It's got to be at the end of that time frame. That's when it expires. You have now a call which is similar to regular stock market jargon.
You have a call that if you believe it's going to be higher, you buy the call. If you think it's going to be lower, you buy the put. Or you invest in the put.
What Happens After You've Made a Decision
What happens next is if you're right you get a 70% payout. If you're wrong and it went lower at this timeframe, you lose your full money. Take it this way. If you put in $500 and you're right, you take $500 you multiply that times 70% and that's your final payout. But if you're wrong, you lose that $500.
You get that point. You don't have the opportunity of taking half your position off or anything like that. It's either you're right, or you're wrong. That is it.
When it comes to oil, this is the case. You have a payout rate. You have what time it expires. Then you choose the call and the put. There is a little graph. Then you also decide how many shares you want to trade. Or what size of bet you want to put on and that is it.
You are RIGHT - you get 80%
You are WRONG - you lose your whole investment.
Look at evaluating risk to rewards. Here's how binary options work.
You put the risk of $1,000, and the payout is 80% like we've discussed. You're going to get that additional $800. It seems like a great deal of money. When it comes with standard options what can happen if you're still risking $1,000, but that reward can be $2500.
It can be $5,000, and you can also manage and reduce your risk. That's the biggest thing that you need to understand when it comes to binary options. You don't have the leverage or the chance to reduce and manage your risk.
Look at the stock market. When you buy a stock the normal tendency of that stock is for it to go up. A stock should be growing. It's a company, and it should be growing in the future. That's the case especially if you're buying a big company that knows what it's doing. The natural tendency is for it to go up.
You have to look at things moving against you in the stock market. If you want to sell a part of your position you could sell half, a third or a quarter. Let's say you buy a stock at $50. You could sell half of your position if you had 100 shares. A little bit higher a week a month a year later.
With binary options, you have that time. That time is set, and whatever happens at that time you either win or lose. That is it. You cannot sell half, a quarter, a third. You can't hedge from the short side and multiply the positions.
It becomes more complicated because you have unlimited abilities. Think of it like when you're trading blindfolded. You can't hear anything, and nobody can give you information about what's happening with the trade.
But you have to make trades. That's what's happening with binary options. Your senses are entirely blind. The whole goal behind this business (when you own a binary options company) is for them to get you to trade more frequently.
The more trading that you do, the more likely you will lose out. Remember, it's like setting up a restaurant in the desert. They know that with time eventually the odds are stacked against you. The odds are not in your favor. They are in their favor.
Take A Closer Look at Evaluating Risk to Reward
Let me show you here on evaluating the risk to reward what this ultimately means as you look at stocks versus binary options or even standard options.
Take a look at how the binary option plays out when it comes to the risk to reward.
If you're looking at a regular stock or option and you're getting into entry points. When you go into this entry point, the stock can go up, or stock can go down.
One way is that you're doing it on a binary options way. I'll draw this in blue. As this continues to move higher your max profit (we are using $1,000) is $800. The reason is that it's 80% is the payout. That is your max.
When it comes to regular options/stocks, you don't have a time constraint. You can allow this to continue to run in the future. You may have some pullback, but you can let those things to run to a higher level.
What you have to see here is that your risk to reward is much higher. When you look at standard options, look at the reward potential. The reward is huge.
When you look at the reward for the binary options, there's a smaller of a prize. In the first case, you made $3000-$4000. It's a lot on your options, but you could let it ride. You don't have the stress of the time frame, the frequency of getting in and out of trades.
In the second case on your $1,000 investment, you had a potential of a much more significant loss. That's because you would lose your full $1,000 investment.
You're risking $1,000 - to make $800
You're risking $1,000 - to make $3000
The first case sounds excellent for a lot of people. That sounds great. In the second case, you risk the thousand to make three times your money. Maybe it took a little bit longer, but it's a three to one risk reward.
Whereas here it's almost like a one-to-one. But the odds are stacked against you because of the time constraint. And you don't have the flexibility to manage that position.
What's The Main Problem When It Comes To Binary Options
When you start having a stock and you get into entry point you're looking for expansion to the upside. Let's say things go against you. In that case, this stock starts moving lower. In a regular stock, I can get out of this stock earlier. That's great about this stock.
This is what may happen. Out of that $1,000 that I put in I may decide I only want to take a $200 loss. With binary options, there's no $200 loss. It's $1,000. You're losing your full investment. That is the biggest problem. That's the issue when it comes to binary options.
Here's the other great thing with stocks or regular options. Even they are better than binary options you could sell half. That way you sell half, or a third, or a quarter. And when the stock starts heading back down to your entry point at least you took half of your profits.
With binary options, you don't get a chance to do that. You either win, or you lose. That's it. It's a binary system, two-way system - win or lose.
This is the truth: So many people are attracted to this. There's a lot of different reasons. But these companies that allow you to trade binary options they know their statistics. They know whether you're going to make or lose money. And they know that most of the time you're going to lose money.
That's why they can attract you with these higher payouts. They can tempt you in all these ways.
Why Are People Attracted to Binary Options?
There are a few simple reasons:
Binary options are easier to understand than regular stocks or options
Huge marketing push from affiliates
Fast money or suck you in for the 'get rich quick.'
There are more complexities to stock investing, choosing the right stocks, and looking at the dividend. Reading the charts, understanding the charts is possible in much more detail.
Usually, people are frustrated with regular investing. They want to do something different. Maybe they gave up. They start looking at binary options, and they are typically much more straightforward.
There are only a few components:
you choose up or down
you select your size
you look at the payout
And that's what you get. It does seem easier. However, the probabilities are against you. What happens is people get attracted to these things because of enormous marketing pushes from affiliates.
Which means those people that are pushing these things to get commissions. They usually get huge commissions. The reason is that they're trying to make their money back from the losses.
If you get somebody to sign up under your account or your name, then you also will get extra trading credit.
Let's say you put in $5,000 in your binary options account. Now you may have another $5,000 or $2,000, or for every person, you bring in to sign up. That way you get an extra $1,000 that you can trade with.
It's a huge marketing push, and they have to bring more and new people into the system continually. All of this attracts people who want fast money. It sucks you in for the get-rich-quick. You can get rich quick - that's what they teach you.
They show you, and that's how they attract you. They use things like cars, the guy that made $50,000 trading binary options. Or this a teenager can even do it. Here's the car you can own, or the vacations you can take. You get the picture.
You can trade while you're in your underwear. And you can trade while you're on vacation. All these things start to suck you in for the get-rich-quick.
That's the case especially if you don't have a lot of money. If you're a person with less than $10,000 in your bank account and you're looking to grow your life. Then you start seeing these things that you get attracted to.
They show you how easy it is. Because you need to decide up or down, you can see that it just plays on your natural human characteristics - the greed side. That's what it does.
Imagine this scenario:
I can say something like this. I can promise you'll be a stock trading millionaire if you bought all my courses, books and had 50 consultations with me. Go ahead, hit The Buy Now Button. And I can almost guarantee you most people will not. Maybe one or two will, but the thing is if I said something like that it sounds so ridiculous.
That's because I'm pushing you to the sale so quickly. Go ahead and buy everything right now. However, if I start you know doing it a little bit more subtle it can be more successful.
I say buy my video course, and then you can have this Ferrari. Or buy this book and check out the lifestyle that I have. If I did that and started pushing these kinds of things the environment that I would have on my channel would be completely different. And those are not the type of people I'm looking to attract.
For you, if you're able to push these get-rich-quick things away, then that's a good thing. The main reason is you'll start seeing the perspective. And this is what ultimately happens. A lot of people, unfortunately, get sucked into this.
Important note: if you're reading this post, and watching my channel video, you have to know that there are no quick riches in a stock market.
Can you do well? Can you make a great deal of money? Absolutely. But does it take a lot of hard work? Oh yeah, it takes a lot of education, a lot of hard work. And of course, it takes working capital to be able to trade correctly.
Not everybody can do it. The main reason is that not everybody is willing to look at things from an outer perspective. This is what happens with binary options. They suck you into this high of like a cocaine drug, and people don't realize it.
I've never taken any hard drugs or anything like that. That's because I'm already aware of and understand these things. And for you, that's what I want to do. I want to tell you that this is not something you should be doing unless you understand what's going on.
Can you make some money? Yeah, you can.
Can it blow up your account? Absolutely.
I want to let you know that this is something you need to be very careful about. It can blow up your account. There are no quick riches.
How These People Stay in Business?
I'm sure you're wondering something like this.
How do these companies that trade binary options or allow you to trade stay in business?
Here're some ways:
Saving on fees from taking the opposite of your trade
Affiliates and referrals
Well first off they save on fees from taking the opposite of your trade. Saving on taxes is one way that they do it. They don't even put your trade into the system. Because they know the majority of these people are going to fail.
They don't even put your trade in the system. They take the opposite side of your trade, and that's it. Because eventually with time as things expire you're done. You lose all of your investment. Most of the time that's what happens.
For some of the times, they do have to pay out. But then you'll trade more because you've made a little bit of winning. And then again you'll probably lose out on the next one if it's not the first one or the third one.
With the time that account starts to spin and dwindle. Then what happens is if you want to trade more and you want more money in your account this is going to happen. We'll give you another $1,000 if you get one affiliate or one referral and bring us that.
That way you have these people that start sending in these affiliates and referral code. We'll give you that bonus money for signing up someone else. Or what they'll do is this. If you do 30 trades in the next 60 days, then we'll give you three trades or an extra $1,000.
They'll give you bonus money for trading more frequently. There are all these different incentives. It incentivizes you to trade more frequently. The whole goal is that you trade more often. And the more often that you trade that slippage cost starts to happen.
Learn More About Slippage Cost
If you've never heard of slippage cost, think of it this way. Let's say I buy a brand new camera for $700. One week later I say I didn't like the camera. I'll say I want to sell that on Craigslist. How much do you think I can get for that camera?
It's probably not going to be $700 unless I got a fantastic deal. But if I bought it new probably not. I could probably get it for $680. The slippage cost was $20 and let's say I do this time and time again. I buy the next thing - call it a laptop. Then I sell it on Craigslist.
It was $1,000, and I sold it for $900. I lost another $100. So you can see that now I've lost $120 simply by doing a transaction.
The more transactions that you do, the more you lose money. That's why for many people who look to preserve their wealth is they don't buy brand-new cars.
They try to last with the car because the more transactions, the more you lose out. Same thing with laptops, cameras, headphone, speakers...
The more transactions - the more slippage costs
That's what happens in these binary options systems. You do more transactions because they have that time constraint. The more transactions you do in, the lower the number of times the more money that broker gets from you. That's because you're losing more money from these slippage costs. You're slipping on your transactions. You're losing out.
Maybe it's not the first time, but it will be the second time. It's not the second time it'll be the third and the fourth time. What happens if you always lose money and it's called this churn effect that occurs.
That's some insight for you regarding binary options and whether it's a scam or legit. You go ahead and be the decision-maker. The thing is the odds are stacked against you when you look at binary options. It doesn't mean you can't make money, but the odds are against you.
This is what happens with binary options. With time you're losing more and more through slippage costs. When you look at investing in a stock, the natural tendency is for things to grow. When it comes to binary options, it's all about getting you to trade more. It's all about giving you that get-rich-quick exposure so that way you trade more.
Eventually, most people lose most of their money in their account. Unfortunately, that's what's the sad part regarding it because we get so attracted to that get-rich-quick mentality.
Hey, this is Sasha. Thanks for joining me here for another investing or stock trading question by video. By the way, you can see all of these questions and answers in video format at my website tradersfly.com.
Today's question is all about a college degree, so the question is "What is the best college degree for trading stocks or being successful in the stock market?" Read More
Hey, this is Sasha Evdakov and thanks for joining me here for another video lesson about trading, investing in the stock market.
In today's video lesson what I want to do is share with you another frequently asked question, and one of the questions I get is " Is there a minimum to investing in big companies? Doesn't make it difficult for the working class to invest?" Read More
Today we're going to cover a little question that I get quite often regarding options. If you're getting started in options, it can be confusing.
We're going to go through the charts and go on-screen, but before we do that, I want to make sure you understand that all the examples that we use are strictly for educational purposes.
None of this is recommendations to buy or sell any stock, security or option. I think most of you understand that.
Why Would Someone Sell a Put VS Buying a Call?
This is the question.
Doesn't the unlimited downside and limited upside to selling a put make it more risky?
Well, let's take a look at the risk factor. When a person is new to trading, and they look at the absolute risk in a big picture way. They're looking at it from a big point of view.
However, as one gets better at trading, they may look at risks in terms of probabilities or possibilities. What's the possibility of something happening?
Selling a Put VS Buying a Call
If we look at selling a put versus buying a call the absolute risk on a bigger picture - selling a put is very risky.
However, you can define your risk based on the probability of where you sell that put (strike price) and how far out you go in terms of time (the month).
Take a look at this concept on screen. That way you'll probably get a better idea if we use Facebook to give you a rough idea of where we are on the chart on Facebook. We're currently right around the $130 range.
Let's take a look here on Facebook. We go to trading this stock, and we go about 57 days out. I do buy a call, and then I go to a single, and then I right-click and analyze the trade.
You can see that the risk that I have available on this trade is right here. The risk that I have is $160. The way that I can see this is based on the premium that I pay. That is $160 or a $1.6 multiply that times a hundred because you control a hundred shares with one option contracts. And you get your $160 right there at that point.
That's the max risk that you have on this which would be buying a call. And of course, your direction that you have is to the upside. You have unlimited profit potential. But as we know what the chances of that stock getting to 220 in the next 60 days are?
I mean it's been moving and here since June - it moved about 10-15 points. Right now we're in September. That means that the probability to hit 220 is not realistic. But anything could happen in the market.
In general, you're risking $160 to potentially make whatever it is. It could be $3000 in the 170. At the 155 you're making about $1480 or 145 you're making $660.
I think it's more realistic to look at 140 which would be about $360 and that's without time decay. The thing about buying an option you have this thing called a Theta.
There's our theta right there in which case every day that option premium decays $3.26. Now as we approach closer into this range, you can see that theta increases to $4.58.
That decay as we increase the data as well as continue to accelerate. You're losing money every day. If you're a rookie trader, the general thing that happens is that you're losing money every day. Think about it. You're putting on a position, and you're going to lose money every day.
However, you can do something like this:
analyze the trade
go to a PUT
go to 110 PUT
go to sell this PUT
Keep in mind the stock's current price is right around 130. Now we're going to sell this put. The thing is with this stock is it appears like you have an unlimited loss.
Your losses are there only if the stock gets to zero. In this case, if you're selling a put, you're looking at right around $10,000. The thing is there are a few significant differences. You still have profit potential to the upside.
That means you're still profitable to the upside but your decay your option premium. Now as you look at it is a positive $2.12. That way if the stock doesn't move at all you make money. You make $2.12, and that continues to accelerate day in and day out as those days continue to move forward.
Whereas if we buy a single, you're losing money every day. Yes, you have unlimited profit potential whereas on selling a put you don't have unlimited profit potential. You're making your $63. Of course, I could tighten this up to 115 and now would be a bit more.
It's based on what I'm selling. It's just like a business. A business makes money by selling things. Here we're selling something at $1.09 giving me $109. If Theta stand still you're making money.
Looking at these scenarios here's what happens. If I buy a single, I lose money if the stock stands still. And if it goes against me, I lose money. I lose money on a day to day basis if it goes up.
However, I do have unlimited profits. It needs to get past this 141 break-even point which you can see indicated by that little hash mark.
That's the case for me to break-even at expiration. Otherwise, you're losing money day in and day out. But it does look more delicate in terms of unlimited profit potential.
What Are The Chances of The Stock Goes to 80?
You do have some unlimited risk if the stock goes to 80, but what is the chance of that happening?
Take a look at the weekly chart down at 80 it would be at multi-year lows. It would be a significant sell-off.
Is it possible?
What do most traders do?
Well, the professionals will still sell the premium. But if you're worried about compensating for that unlimited risk, this is what you could do.
This is called a vertical. You would sell that 120, and you buy a put at 115, capitalizing on the net difference and now I kept my losses at $421. The maximum risking is 421, but I'm making about $80.
It's looking about 15%, 18%, 14% on my investment. It's not quite 25% because that would be a quarter. But now the stock can stand still. It can move up, and it can pull back.
And you're still profitable, and you'd make your $80. In the other situation, the stock needs to move for you to make money. If it stands still, you're at a loss. Maybe it goes up - you're still at a loss.
Unless it goes up within the next few days, otherwise, you're losing money every day.
Whereas in this scenario all of a sudden since your next seller the stock stands still you make money. If it goes up, it makes money. If it goes down, you make money.
The scenario where you lose money is if it goes down quite a lot in a shorter period. That's why most people are sellers because like a business you want to sell products and items.
Things to Take Into Account
The software that I use on this was the thinkorswim platform. You can take a look at that, or there's other option trading software that'll give you profit and loss analysis pictures. In general, most traders as far as more active ones are looking to sell option premium. It's just like a business - you want to sell products.
You want to be a net seller, and then you buy a little protection there to hedge for those losses. If you're a rookie beginner thinking about it in terms of I'm only risking $100, and my theta is only $2.00 - it doesn't sound like a lot.
But imagine putting on 5, 10, 50 of those trades consistently, and then you're losing every day. Every day you're losing money. That's like basically taking out your wallet, and you take your money and throwing money all the time on these option contracts.
That's not what you want to do. You want to instead collect that money by selling premium. That's what you want to do.
In this post, we've covered a question that is crucial when it comes to options. That question is why to sell a put when you could buy a call.
We've used the thinkorswim platform. Throughout reading this post, you become familiar with terms unlimited and absolute risks as well.
Also, you've learned how to define your risk based on the probability of where you sell that put and how far out you go in terms of time.
I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More
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