Tips & Tricks in Trading

3 Different Ways to Scale Into a Stock to Manage & Reduce Your Risk #201

September 13th, 2018

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Today, what we're going to do is take a look at three different ways to scale into stocks. There are many more ways than just these three ways, but I want to show you three different ways to think about scaling into stocks or scaling out of stocks.

What scaling do?

The whole point behind this is to reduce your risk because you don't know if that stock is going to continue heading higher or continue heading lower. So, you break these things apart from your entry positions that way you hopefully have a better average.

The disadvantage is while if the stock continues heading higher into higher prices and it works in your favor, it would have been better to buy all your shares at the beginning because then you could get out sooner with a much larger profit.

But of course, in the other approaches, if the stock headed lower, it's good you didn't buy that many shares.

Linear Approach

Linear approach is stacking things on a linear level.

Let's say stock increases. I'm going to go ahead and do this 500, 500, and 500.

What you could think about, as you start looking at things in this way, is you could almost break these apart in different trades. This first trade, you don't have to think about saying this is where my out position is. Instead, you could think of your early exit, your second exit, and your third exit.

So, you tie these together to your exits. You're staggering your exit positions as well. So, you could break it apart that way as you start thinking about scaling.

One of the advantages to this is you have a linear amount at every single entry point, and everything's balanced. It's a right approach in one way because everything is working out okay to the upside and it's working out the same way to the downside.

Increasing Approach

This is the approach where you're testing the stock. When you're doing the increase method, you're checking to see that's not going to go higher. If it does well, you'll go ahead and add a little more. That's where you add in 500, and then you could go ahead and add in 800 if it continues and the stock proves to you that it's working out.

The advantage to this is you're looking at stock to prove itself to you.

The problem with this is all give and take. Not one is better than the other. It's just a give and take.

The problem with this one with an increasing method is that you're already at way higher prices and you have a much more significant share amount at higher prices.

The advantage, of course, if you didn't have a lot of risk at the beginning. You didn't have to put up a lot of capital because if that thing actually started to go down, your loss would have been much smaller.

Decreasing Approach

I could go really big at the beginning. Let's say 800 shares, then I might go 500 shares next, and then a little bit less 200 at the end.

This is another different approach. You're decreasing your share amount, and this is good when you're relatively strong about the stock. You have a reasonably stable break out, but you don't want to put all your capital in at once.

The advantage of this, of course, is that I'm getting in on a stable position at the beginning. I can peel off and take shares off much sooner and so I have an excellent position at a lower level.

The disadvantage, of course, is if this thing started actually to roll over it would create much more significant losses than it would if you did the 200 shares at the beginning.

If you're brand new to scaling and you're just trying things out, then I would say a good starting point does this balanced approach.

This is more of a balance where you're even, that's our linear way. Where you're going in 500 shares, 500 shares, 500 shares, and staggering things. It allows you to peel off those things as you move up in strengths or downward.

The increase approach is excellent if you're testing a stock and the decreasing approach is really when you feel right about the stock, and it's got a pretty strong breakout, but then you want to slowly get into it still through this different way of scaling.

If you're wondering how many times should you scale, the number of times I'd say for most people three to four times.

Once you start going into ten or twenty times, it starts to become irrelevant or not necessary or just more work than it's worth.

7 Reasons Smart People FAIL with Active Trading & Investing EP 195

August 2nd, 2018

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Hey, this is Sasha and welcome to another episode of "Let's Talk Stocks."

In this week's episode, we're going to take a look at the Seven Reasons Smart People Fail at Trading.

If you're not doing well with your trades, if you're struggling at trading, and you still haven't traded very well throughout your career in trading and you believe you're also smart, intelligent -- you've gone through college, and you have an excellent degree, maybe you have a great job, so you believe you're smart and intelligent in that space but you're still struggling at trading, here are a few reasons may be that you might want to take a look at inside yourself so that way you can see how you can improve.

I want to share with you these thoughts ideas and concepts to help you get a little bit better

Reason number one is that 'You Got to Start at the Bottom.'

When a smart person comes out, and they go into trading, many of them don't want to start at the bottom because they feel they already have that knowledge. They believe that they already have that gap filled, so they want to start in the middle or a little bit higher up. Why would you want to start at the bottom starting at the beginning? It just stinks because well you got to start from scratch.

In the martial arts, we've had a rule, or you could say a Creed that we went through. Everybody works. Nothing is free. Everybody starts at the bottom. It doesn't matter if you were a black belt in another studio, you still start at the bottom of the new studio.

What you're trying to do is -- you're looking at trading, and if you're trying to approach it with hey I'll I'll be able to go ahead and trade fifty thousand dollars right away, that may not be the case because you got to start at the bottom. Start at the bottom with the amount of capital you're trading. Start at the bottom with the number of contracts or shares you're trading. Start at the bottom from learning technical analysis, money management, your emotions, your psychology. It all starts at the bottom. You need to have that beginner mindset to be able to evolve and move forward.

A lot of intelligent people don't want to do that. What they want to do is they want to start somewhere in the middle, or hey I already know this stuff I already learned about economics in school. Why do I have to start there? Why do I have to trade a thousand dollars when I have three hundred thousand dollars in my bank account? Why do I need to do that? Why can't I just put it right to start actively trading?

That's one of the reasons why they fail -- because they have that overconfidence in their trades and their abilities and they don't want to start at the bottom.

Reason number two is 'They Stop Learning'

Again, if you believe you're smart. You believe you're intelligent. You probably also think you don't need to continue learning, you already have a lot of knowledge, you have a lot of education, you don't want to continue to learn and educate yourself.

If you take a look at some of the more wealthy people -- like for example Bill Gates -- they read one hour every single day at least to continue to grow and evolve and to see a different perspective.

That's about five hours every single week that they're doing, just spending on at least reading and bettering themselves.

You could do this in other areas of life. But if you stop learning, if you stop educating yourself, all of a sudden, you're going to have a little bit of trouble when it comes to trading and a lot of smart people that get into trading, they do this as well.

As they don't want to continue to learn and evolve, you might learn how to trade let's say on the technicals and now all of a sudden hey well I don't want to continue and learn more about options hey or I don't want to stay and learn more about Iron Condors or Calendars or whatever the case may be. You find your spot, and you're trying to stick in that spot, and you don't want to continue, to move forward when in fact just going a little bit, a little bit ahead will help improve your trading.

I'm not saying you need to read every single book out there or watch every single video course out there. But to continue to improve and grow a little bit at a time will help you stay involved and a lot of smart people. They don't want to do this especially the ones that fail within their trades.

So, keep an eye out for that.

Reason number three is the 'Learning Trap and Playing it Safe.'

The other approach to this is sometimes smart people they get into the learning trap where all they want to do is learn, learn, learn, learn, learn. They don't put on trades because they're good at learning. They're good at educating themselves. They got smart, somehow, for a reason because they are learning. This is where you get that learning trap.

When you have that learning trap, you're playing it safe because you don't want to put on trades. You want to learn everything possible. You want to learn everything that you need to know before you put on trades. So, you don't lose money.

This can also be a little bit of a problem because now you're spending everything on just learning, learning, learning without building that experience and putting on real trades. You're trading a little bit conservatively before you even get into trades. You're not also putting on any trades; you're playing it safe.

That's another trap that many smart people get into.

Reason number four you 'Try to Outsmart the Experience.'

What do I mean by this?

Well, if you're a smart, intelligent person, what happens typically if you want to do something better than what somebody showed you. You want to do something more comfortable. You want something that's a lot more simple for you because you already have a lot of this knowledge and experience from your past. You've been successful in the past, so you try to go above it to outsmart the experience part.

Meaning, you don't have any experience trading yet, but you get into this trading business. You're trying to be smart at it. You're trying to be intelligent, witty. You're trying to finesse your way through and make trades successful trades and profitable trades, but unfortunately the problem is -- is you still need to gain experience in trading. Instead, what you try to do is use your intelligence muscle or your brain, your mindsets to proceed and move forward when in fact what you need to do is build that experience.

What happens is, with smart people, you're trying to outsmart gaining that experience.

Ultimately, what you need to do is put on trades and get that experience rather than just trying to be smart about it and move your way through it by thinking you know it all.

Reason number five 'Ego Driven.'

I find that with a lot of smart people that I run into that have a hard head, they are ego driven. This creates failures within their trade, within their trading.

When you look at this ego driven mindset, it's mainly what they're always thinking -- they know better. They don't admit to their faults which is another primary reason. They don't admit to their mistakes of what's the problem. They always want to push it, and they want to do it even better. They got to do it better.

Let's say you have $500,000 in your bank account. What's the point of trading if you can't make fifty thousand dollars every single week. You see those things where it's often your puffs to say hey well I got to make it work, and I got to make more money.

That's how they go about with their ego, and that creates failures because you're putting on large trades. You don't have that beginner mindset, putting on these big trades that you're not ready for, that you don't have the experience for. That ego driven mindset can create a lot of problems and big-time losses. So be very careful with that if you're in that bracket.

Reason number six 'Not Admitting Mistakes'

If you have that ego-driven mentality, you're probably not admitting mistakes.

Many people in general, it's not just smart people but many people in general in the regular world, they don't want to admit to their mistakes. They want to push it somewhere else. Hey, well, it wasn't my fault into the car accident. It wasn't my issue. They ran into me.

It wasn't my fault that I lost a lot of money. The market just moved down, when in reality is you decided to take that investment or that trade. You could have put it into other things like real estate coins or put the money under the mattress.

It is up to you. Yes, you cannot control the market but still hey if you messed up something, let's say you hit the trigger button and it went into the wrong stock or the wrong order type, well that's your mistake.

Yes, maybe the icons were a little too small. Yes, maybe your mouse wasn't working but the person who is trading at higher levels, what they'll say is yes there was a logical technical issue but it's my fault, it's my issue. Whereas somebody who's got this problem reason number six not admitting their mistakes. They'll say -- well, it was the mouse, it wasn't my fault.

It's a different mindset as you can see that you're trying to put the blame somewhere else and not take responsibilities.

So be very careful here because this is a common issue for just about anything. You do whether it's business, whether its life in general, not admitting mistakes can create a lot of trouble. I find that this is one of the main things that separates a successful trader from my failing trader. If you can recognize I made a mistake well what can you do to correct it or hey if you acknowledge that this is where the problem is and what are you going to do to fix it, that can help you go a long way and take you to another level.

I'd say this is huge for most traders.

Reason number 7 'Linear Thinking.'

I find that linear thinking is a problem more for people in technical areas.

Think of this as the engineer thinking. I don't mean to harp on engineers. I don't mean to put them in a segment or a category but what I'm saying is that when you think linearly, you're thinking so roboticly and systematically. That the trades don't have any flexibility or fluidity.

Think of this as a beginner baby tree. When you have a baby tree, and you're starting to grow, well that growth can go in a lot of different ways. You can even put a little stick to shift the growth. Or look at bonsais, you can tweak and manipulate them a little bit to train them to grow in a specific smaller zone or area.

The same thing with trees and bushes. You can guide them in which way you want to grow and train them.

When you have this linear thinking, what typically happens is you're going with a systematic approach and with an old tree which is where the linear thinking happens. It's tough to start bending that tree one way or the other.

So with a person who thinks linearly -- which happens with some brilliant people --, they want to do it this way. It's very mathematical. It's very systematic. And the process has no wiggle room. They're always looking for the reason of well why did my stock go down.

Sometimes you don't have to have a reason. People just panics. People were emotional. It's not linear mathematical or systematic thing why a particular stock sold off at times. Sometimes it's just because of people panicked. Sometimes it's because that's what they wanted to do or they felt unsafe whatever the case may be. It's now become more emotional and not linear.

If you're constantly looking for the causes of how to do something systematically, how do I put on a trade, how many shares do I need -- if you're creating things in an excel file where it tells me the exact number of shares that I need to put on and my percentage of risk, that's all fine and dandy. It's good to create a system and approach to trading. But remember, trading is two parts -- part of it is science, and part of it is art.

You have that combination that you need to work through. You need to understand the science or the linear part of it, and then you also need to see the artistic form behind it where you can get more creative with the risks that you put on or the risk levels that you go in within your portfolio.

So be very careful with that, especially if you're in a technical degree like engineering computer science programming, those kinds of things. I find those people struggle a little bit more because they want to approach that trading as far as A plus B equals C and then I want to repeat that process millions of times.

Instead, look at learning the baseline and then adjusting it to environmental conditions. Just like when you're driving on the road and conditions will change. You might need to make adjustments. Sometimes, you need to go a little slower. Sometimes, you can go a little quicker. Sometimes, you need to avoid things on the road, so you need to be a bit more flexible as you continue to drive your portfolio forward.

Airtable Tutorial: How to Journal Your Stock & Option Trades

January 22nd, 2018

Today, what I'd like to do is share with you a little tool that you can use to journal your stock trades, and it's a tool that I've been experimenting with lately.

If you've used one of the other things that I've mentioned in the past to journal whether that's Evernote or even Trello, you can go ahead and see the links to those videos below the description of this video.

If you're looking to find a way to journal your trades, this tool that I'm going to share with you is a little more like a spreadsheet. So, if you're interested more in spreadsheet type and more calculations and auto-calculations, this tool should help you out because you can rearrange the views more like a Trello view or more like an Excel spreadsheet. There's a lot of things that you can do, and best of all it's free.

Let's take a look at the Airtable tool

When you go into the portable templates, basically what it does is you can use it for a lot of different things. You can set up things like launch calendar for products, for conference planning, job recruitment, art gallery. And you can rearrange the views.

If we look at an example, what it does is you can see right here it's like an Excel spreadsheet right there and you can have months years and even attached images which are not something that's easy to do in the Excel spreadsheets.

As you go through this, there are different views that you can create. That's the power behind it. You can see here it's more like a Trello view or if you go back, you can have just more of an Excel spreadsheet view.

You can do this for a lot of different things, so let's say we go into a kind of a real estate kind of management thing, you could have people like agents the names the email addresses, and you can hop into different areas here in the tables.

These things right here, this big item that this is called a base and then everything within that right there is called a table. Then everything else within that is rows or columns.

The power behind this is what you can do. The views and splitting these different views into different segments.

I'm going to show you how you can use this here within stock trading

In just a moment, as you get into it because that's the power behind it.

Here's the pricing. If you're interested, I've been on the free plan for the last couple of weeks. I've been experimenting with it to see how the Tool Works. You get unlimited basis right here, so that's the key.

The main difference between the free and the paid plans is that the records. You have 1200 records that you could do, meaning the rows that you could put in within your spreadsheet there. Whereas, the paid plan, you get up to 5,000 records and also the attachments. So if you're adding in like pictures and that kind of thing, that's the main difference.

You can see right here. You're going from 0 to $10. If you refer people, then you get credit in your account, and you can use that towards a plan. It's not that you get paid.

What you're getting is if you're on the free plan there's a lot of options and possibilities that you can use to use it as a stock trading tool for journaling. If you haven't journal before here's a good start.

What you do is I'm going to show you here. You start out with a new table. Let 's go into my account, and I'll show you if I go into the bases. You can see I've been using it as a test or a demo for my own overall online business. You can have tasks to do project roadmaps things. You're working on marketing training. We're slowly moving a few things over into this area. These are called bases, each one of these is a base. And what you could do is if you create a new one, you can start with a template - import one, or start from scratch.

If you start with a template, what you could do is go back to this template area. Then, let's say you want a blog editorial calendar. You can take a look at what this looks like and then go ahead and use this template, and it's going to add that template in.

So there, I have my blog editorial calendar. You could see here's a story date, scheduled, status, and just many other things that you could go ahead and do, and then there are some attachments.

What you could do is flip-flop to things that are in progress. You can filter things. You can even create a new view of the calendar, and then you can see okay well where are these things all scheduled and where are those records. So that's another great thing.

You could do things by the gallery right or the Kanban view. It's just like the Trello view which is the power behind it. You can flip-flop the opinions so you can see then I can go back and go back into my list and flip-flop back and forth.

So here's how you use it within stock trading

When we go into this, and I'll start with a new table, this is a new table that I went ahead and started from scratch. So right here, you'll get kind of a basic list of items.

Let's create an empty table. I'll move this over here so you can see they give you a name notes and attachments.

If I want to go ahead and start changing things around, I could go ahead and change this to a ticker. If I want to do it based on the ticker, I could go ahead and create date. When I went into a trade and changed that to date, go ahead, I can move that column over here. So, I'll fill this in, bought shares at a certain price. You're slowly filling out the table.

You could do it this way and slowly start expanding it. You're slowly building out some columns and the types of columns you want to do, and then you're creating these records now here I've already created kind of something based on the date so if you're going to do it date by date by date you could go ahead and start filling this in, and you can even create things like a formula

If you wanted to do calculations, just like in Excel, you could do price times the number of shares. I'll go down to the formula, and the formula is smooth, so if I type shares, you could see there's a shares item right here. Insert field or column, so I'll go ahead do shares multiply that times the price. As I type in price, you can see price comes up and now go ahead, and it auto calculates.

I could also format this to more of a currency with two precision, and now I'm good to go. You could see, as I go ahead and type this in a hundred shares - let's say $45.25 a share, it'll adjust those kinds of prices. If I did 75 shares and then I did $25.65. You can see it automatically does it.

Anyways, you could go ahead and continue to expand this further and further. If you don't need a column, you can delete a column. You can remove a column here if you don't want that and you can continue to make it very, very long depending on your needs.

As you get into further and developing your trading journal, take a look here, you have some stocks. I went ahead and created a few more things. Here's the date I placed the trade for example purposes. Here's the ticker, short and long price shares, total costs. You can see that's a formula closing price and then my P&L made money, lost money. You could see here what I've done is create a little drop-down. I could even create a scratch trade option here.

What I could do is now start grouping things

That's the power behind this tool so here pick a field I want to arrange it let's say made money or lost money so I'll go ahead and group it like this and you can see boom there it has some that are made money right at the top lost money and my scratch trades it all bundled it right there I could sort it again and rearrange it a little bit that's different on this so let's say made money lost money you could resort those things you can even filter things in anything where your long or short let's see short or long anything that's short right there it'll go ahead and do that and

What you could do is save these kinds of views, you could create a new look.

I could go to the regular view - without the filter, and then I can hop back to the short made money.

I could create another view. Let's add another aspect where it's just grouped, let's say long or short, so I want to see my long and short grouped right there. I can even do a double group.

This is the massive power behind this airtable system.

Here's how you use it when it comes to Option Trading

By the way, when you're doing some grouping, here's also the sums that you could go ahead and see. You could see it auto calculates. I can go ahead and do average. Just quickly hop things around.

You could see the average money lost right there would be there. The average for money made also is right there, so you could see how you can switch some of these fields around very quickly. Just hop back in for, and you can see the sum is also right there.

You could do an average if you want to do kind of an average. You can see 226 is the average. You're making on a per trade basis there.

Looking at some options, you could do it even more complicated. You could do drop-downs here for the month. I've set up some single select items for the four that you could say the year. Let me see here. Let's do a regular view. You could see here I've done dates. This is a formula that adds in how many days remaining and whether it's a put or a call. This is days remaining. This is the year, the percentage of risk. Put our call, again drop down, put-call vertical calendar. You could do buy or sell the VIX. If you want to note the VIX on those levels, the strike price the SNP at the current price, your range away from the current price level. The cost of that option contracts, your profit, and loss, how many are buying, in some notes, so you could see how detailed you can get.

If you want to go ahead and do some grouping, you could go ahead and group those things. If I change some of these to let's say a call, and now what you can do is - if I wanted to do things grouping by calls and puts I could do calls and puts group. I'll go ahead and pick a feel to the group, put some calls, so you could see there are all the puts at the top. There are all the calls here at the bottom.

Anyways, you can see the dominant way that you can use this from. Just basic stocks to Options Trading or even for your lifestyle - for to-dos and many other things. I'm experimenting with it for within my business to see how things play out. But you can see, there's a lot of high power behind it especially as you get into multiple views.

Again, if you're interested in signing up, I don't get any financial compensation but they credit my account in the case in the future I decide to go ahead and upgrade my airtable system. If you're interested in that, go ahead and go into this referral link right here and then go ahead and sign up and try it out. It doesn't cost you anything, and all the features that I've mentioned are free.

Ep 163: Vlog on Trading Losses & Hedging Your Trades

November 30th, 2017

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Today, what I'd like to do is do a quick little vlog and give you some insights about:

  • Trading losses;
  • When to take profits; and
  • Market euphoria

When you're looking at overall the stock market, you're trading. If you're new to investing and you constantly see a grind higher, and things are always moving in your direction, and you feel good about yourself, it's usually that exact time when the rug gets ripped out from under you.

The same thing to the upside or the other direction. Anytime you start feeling wrong about your positions, or things seem horrible, it's when things start to go in your favor.

The market likes to fool most people in the least amount of time. That's just what it does.

Here are some of the trading screens and things that I watch.

As you take a look here overall, this is the S&P, and it was up much higher about 30 points at the very peak. We're up still about 21,22 points, but you could see this little bit of a sell-off right here. That's coming up, but this is just the daily chart. That's just for today.

Frequently, also what I have here on my screens is a couple of other stocks.

If you look at the VIX here today, you can see how we had that pretty big significant spike right up here. That's actually at the same time when this market was moving up higher.

To me, when I saw this VIX spiking up to this upside and had me a little bit of a concern. What's interesting is as we're selling off, we have a lower VIX.

Anyways, when you're paying attention to these little divergences and little movements, they can be surprising. You have to take notice, for example, if you look at some of the companies the other day. When we look at Nvidia, how big or nasty of a sell-off, certain moments like this can take out a month's worth of gains?

If you look at Facebook also boom one big down day now.

The question: are we going to go up a little bit for like three or four days and then down further?

Right now, what's moving the markets is this tax reform mumbo-jumbo. You have these things like the banks - like the JP Morgan's. When you look at this JP Morgan, you look at this movement of how far extended we are, and you got these candles like going straight up which is pretty remarkable. I mean I got to give them credit for manipulating the market somewhat. In either case, you know buyers are stepping in, and you really can't deny that.

My point is that if you're looking to go into positions and you just new to trading, and you don't hedge your positions, trading with one or two thousand dollars of five or ten thousand dollars with no hedges. It's perfectly fine, and it's okay because you probably don't have a ton of money on the line relative to maybe a little bit more.

Once you start getting maybe fifty thousand, there are things that you need to do to hedge because what happens is that you get these nasty market pullbacks. When you get an ugly market pullback, then it can wipe out your account quite a bit.

Now the downside with hedging is that when you get market movements like this - when you get these crazy movements to the upside, they can actually stop you out and then within a few moments later they go in your favor because they get so far stretched. And I will tell you that today it took quite a bit of loss because of that movement that we had here.

What is it that you do in these points and situations? How do you know when things are going to work out? When do you decide what to do or take your losses?

The reality is if you're hedging, what I would much rather do is always take a little bit of a hit every single month on a hedge. You're taking hits meaning you're making small losses, but at least you're protecting your bigger overall picture for the longs. That is only because when those nasty down dates come, it can stop you out and it can create some trouble and problems for you.

If you don't hedge, you can get yourself in a lot of trouble. So I want you to be careful.

If you do hedge, you're going to be taking a few losses periodically - time and time again. Just like today, for me on those big up-days be like today you're going high you're moving to the upside, and it moves against your hedge positions while you take those losses.

So how do hedges work?

The way that they work and function is that you're looking to put on some small positions either to the short side or selling call contracts or selling some options or buying options to protect your longs. That way if the market does go against you or against the direction you're betting on, then what happens is at least you make it back on some of those hedges.

The inverse is true if it goes in your favor, but it moves too far too fast against your hedges. You lose money on those hedges.

When you have a small account, it's usually not a big deal. When you have a large account, you need to hedge.

What I'm saying is with a small account, most people don't bother hedging. But as your account grows and as you start trading larger, you'll probably want to hedge because when you get those nasty pullbacks or nasty movements, they can do some damage.

There's always going to be some debates that you'll have internally and mentally: Did I do this right? Should I have waited a little bit longer?

For example on this trade right now, I probably could have said hey I should have waited a little bit longer - an extra 15 minutes, 35 minutes. Probably my positions would have been fine. But in the marketplace, things can go much further either to the upside or the downside then you think or can expect.

So what do you do?

You take your loss. You choose the loss where it's at where you projected it. When you were in a clear state of mind. Because if you're doing this and your mental clarity is off-games over, you're going to take an even more significant loss.

If you do this and you're not on your game, if you do this you're trading emotionally, if you do this without a plan, if you get into a trade without setting up your trade or position or at least a rough estimate of a project, you're going to be in trouble.

So my point here for you in this video is to make a plan. Always have a trading plan for each trade that you take. Whether that's a rough idea, a guideline, a stop - whatever it is create some plan.

If you're not hedging yet and you're trading over $50,000/$70,000, you probably want to start trick a little hedging.

Whether that's taking on some positions that are opposite to your normal positions, doesn't mean you're going to be taking hits on them every single day. But in theory, you may be taking hits on them every month. That's to protect you for when things go against you.

You may think it's silly. You may think it's stupid. But when those days come, you're going to wish you had those hedges because you're like oh they saved me.

In either case, I hope you're having a great trading day even if you're taking a few losses. It's always a learning experience. Brush it off. Tomorrow's another day.

You got this tax thing that's coming out. It looks like they'll pass. Anybody making over $400,000 or $500,000 a year from their regular job should be doing quite well, and the corporations will be making more money. That's a good thing for the corporations. As a person based on what my account said and based on the consultations I had with some financial people, doesn't look like it's going to be too for the middle class, or pretty much anybody making under $200,000 a year.

Ep 148: How to Trade in a Foreign Account or as an International Trader

August 17th, 2017

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I want to share some insight on how you can trade stock if you're living abroad or if you're an international person.

That's the topic of today's lesson - Trading stocks as an international or foreign trader. I typically run into this question a handful of times every single month.

This is one usual scenario: Hey I'm living in Europe, I'm living in India, and I'm wondering how can I trade stocks.

The thing is that those countries and those areas have their stock market. But if you're looking to trade on the US market and looking to trade on our market, there is a way for you to trade. But you do have to file and get the right paperwork in order. It is a lot easier if you're a US citizen. That's a lot easier.

Right now I'm going to share with you some insight into how you can trade on the stock market. I mean when you're living abroad when you're a foreign or an international person.

The simple answer: You can do it, but there are more complexities.

Disclaimers - Be Aware of These Facts

I am a US citizen here, so I do not have first-hand experience as far as getting and going through all the paperwork.

What I've done to give you the right information is I've contacted a couple of different brokers. I do that to get their insight and talk to them as far as the paperwork that you need to fill out.

I found out everything you need to go ahead and go through the process of setting up an account. Keep in mind that every country has different rules and regulations. Every broker also has specific rules that they follow in practice.

That's because they're associated in certain countries, or they have a brokerage in another country. If they have that with your country, then there might be some different rules and regulations.

The best bet is always to go ahead pick the phone give them a call and explain your situation. Tell them your case based on your documentation, your government IDs and where your country of citizenship resides.

Not every country is going to be accepted for trading. The reason is the rules, the regulations, the risk factors that are involved. I know a couple of countries (Nigeria, Iraq, Iran) that may have a little bit of trouble.

As far as many other countries go, you shouldn't have too much trouble. However, it's best to call your broker or contact a couple of different brokers to see their policy. That way you'll see their rules and their regulations.

This Is What I've Found Out That Is Necessary

You're going to need some of the paperwork. There're some examples of that paperwork. Let me share with you some insights and wisdom of what I found out by contacting and calling these brokerage firms.

These are the questions you might want to know:

  1. What do you need to get yourself started?
  2. What are the key components?

You will have additional paperwork that I mentioned earlier. One of those main things is the W-8BEN form. This is for tax purposes so that you don't have to file US taxes.

A passport or some government ID is also necessary. And you'll also need to verify your address, country of residence and things like a utility bill, gas, water bill or electric. Maybe even a bank statement.

Important Note: This paperwork not only ensures that you are who you say you are, but it also protects the brokerage firm from the frauds. Also, it protects the brokerage firm from things that may happen since they may not reside directly in your country.

Which Countries Can Trade?

You might be wondering if your country qualifies or if you qualify to trade.

Most countries can trade on those US markets except a handful that I mentioned:

  • Iran
  • Nigeria

You'll get an idea of which countries are going to be okay. Also, you'll find out which ones you may have trouble with getting approval. If you live in one of those high-risk countries, it's important to be aware of that.

One of the best places to sign up and get an international account is through Interactive Brokers.

Keep in mind they do have some conditions:

  • Account minimums $10,000
  • You have to trade a certain number of trades every single month. Otherwise, you get charged a small fee

There are a few minimums and other requirements that you will need to hit. However, you can take a look at some of the locations and client services that they have.

They have plenty of locations which means they're very friendly for international clients. It allows you to trade easily if you're international.

You get support in those foreign countries with those international phone numbers. When you open an individual account, you go through this process of application. After you give your email address, and your username it's going to ask you for which country or residential country you're in.

This is going to give you an insight into some of the countries that are covered. There is no Iran listed here. If you look at the map, you can see that Niger is accepted, but Nigeria is not.

Those are some things to keep in mind as you go through this application process. I'm not sure if they left those countries out specifically or there is some other reason.

Application from TD Ameritrade

What I've also done is get the application from TD Ameritrade for an international person. There's a lot of PDF documents that they sent me.

This is a different broker, but it will give you some insights into some of the paperwork that's required. Let's start through the top and work our way down. If we look here at a foreign account opening, you can see here's our form.

When you go through this process you can see things like this:

  • A completed account application (the application is enclosed)
  • W-8BEN form (please include your country's tax identifying number)
  • Passport (must be current)
  • Proof of residence
  • Completed letter of explanation for a U.S. address and U.S. phone number

You can see they give you a lot of other things that you're going to need. You're still able to do it if you have a foreign address. And then what you'll do is you'll send these documents and forms.

There are also some basic things like a client agreement. This is a standard. Usually, they give this to you anyway to anybody if you're signing up.

Here is a standard account as well. This is a general account application. In this form are things like your investment objectives, whether you're conservative, moderate, aggressive or speculative investment time horizon for this account. There're things like that, and that's standard stuff.

There's going to be a transfer form if you need to make any transfers from any other brokers. If you're opening up a new account, you probably won't need that. Then you have a welcome letter that you also get.

Here's the W-8BEN Form

This is a certificate of foreign status of beneficial owner for United States tax withholding.

I'm not a tax professional or a tax expert. You may want to reach out to an accountant specifically and get more insights about this.

But what they do is withhold tax before they make payments out to you. That means that before you're able to withdraw things they do the fees ahead of time rather than in the United States.

What happens is you make trades, and you make your profits, you can take your money out. Then you pay taxes at the end of the year. Here before you go into that account and can withdraw money they make those taxes even ahead of time for you.

That's my understanding. It could be a simplified version of that, but that's what this form appears to be all about. Anyway, that's another primary form that you'll need to fill out.

You may have the Commission's and fees that you'll get. That's a standard starting point, but you can negotiate those rates as you do more trading.

Deposit Slip, Margin Disclosure (Non-IRAs)

You may want to take a look at this. There's a deposit slip if you need to deposit sending a check, funding your account. And there are a margin disclosure forms.

This is something standard for their protection. You need to look at this as a foreign person who's setting up an account in an international way is looking at this foreign account opening checklist.

Make sure you follow all these items and do your best to fill out that form. When you go through W-8BEN, you'll need to fill this out as well. Go through this process, and these are the two primary forms that are a little bit different.

In either case, you can also set up entities if you want. I that case it would be W-8BEN-E form. That's the primary starting point of what you need to get an international trading account.

Summarizing The Facts About Documentation

You can see that the process is not overly complicated. There are a few additional forms that you'll have to fill out. Next, it's a little bit of extra work than if you were just a regular US citizen.

However, you can get it done, and you can get it completed. And then you'll have a trading account that you can use and trade stocks. Whether you want to do it actively or a little more passively. That's going to be up to you.

What's The Next Step To Do From Here?

You'll probably want to do pick up the phone and call these brokers or call multiple brokers. That's the case if you have any additional questions.

I would always say call a few rather than just one. And call multiple times because sometimes you get some additional knowledge and information that is shared with you beyond the first person.

It's always good to call multiple time and that way maybe you get a second person. That person might be more knowledgeable about international traders, investors and foreign accounts. They will walk you through any additional paperwork that you may need to be compliant depending on your situation.

Keep in mind there may be a few hoops that you need to jump through to get things set up. At least once you're set up, you should be good to go and that the end of setting up your account.

Some of the other additional problems and maybe issues you may experience is if you have account changes. Or if you're moving from one country to another. Instead of filling out the forms online you may need to call them to make those changes.

I find that a lot of Internet services forms, the web things that you do adjustments with especially when things are more complicated.

It doesn't function precisely 100%. When you have to report at the end of the year for taxes that may also create some other complications, that's because of the paperwork that you may also need to submit.

Quick Note: In either case that is some insight that I gained between talking to a few different brokers and getting the knowledge and information. This is just research that I've done. I don't have any experience doing it. But maybe this will give you a starting point to going out and opening up your account.

Something Practical For Canadian Citizens

You have things like Quest Trade. They have self-directed investing, and this is what they have for you:

  • Trade stocks for 1cent a share (min.$4,95)
  • Powerful trading platforms
  • Buy ETFs for free
  • Advanced active trader program

There're certain brokers out there that are specific to your country. Here with Quest Trade, this is one that's great for Canadians.

You have option trades. It's a little bit higher price just merely because you're in Canada. There's also some active trading. That's a little bit cheaper there for options which $6.95. The stock trades still basically $4,95 a trade.

Investing at TD, Qtrade and RBC Direct Investing

You could also do things like a TD Waterhouse. This is TD Ameritrade. It was TD Waterhouse in the past - they merged. A little bit more expensive on the pricing than the US. Then you have Q trade here as well, and then you have RBC Direct Investing.

You can see this is a broker specifically for Canadian. And if you go through the process of doing your research to finding a broker that you can work with locally, then you can do that as well.

Final Word

Go through the process of doing your research to finding a broker that you can work with locally. That is also one option. It may simplify your life and make things a lot easier to be able to trade on the stock market.

Sometimes they're only able to trade directly in the market that you're at. Meaning their geographic location and other times they could do an international market.

The best practice is to contact that broker and see what it is that they can do. Take a moment to do some of your research. Pick up the phone, call a few of these brokers and see what's possible.

Ep 145: Tax Basics and Tips for Stock Market Traders & Investors

July 27th, 2017

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Today I want to scratch the surface about taxes when it comes to trading, investing in a stock market. For those profits that you're making in the stock market, you're going to be taxed on those profits. It doesn't matter if those profits are from dividends, short term or long term profits.

The way that the tax system is written it's very complicated. If you know some of the angles of where you can reduce those tax bills take advantage of those.

Knowledge is power. The more you know, the better you can set yourself up for the future. You can manage that your tax bill could save you 5%, 10%, 15% in the future from paying those additional fees.

If you compare a regular business, you're going to be paying different tax brackets. In different situations, you'll be paying more or less depending on how you structure and run your company.

How Things Works In The Market

It's all about understanding how much money you're making. Also, it's important to know how much money you're funneling in one area to another area.

For example, donating things to charities allows you to deduct things from your taxes rather than throwing those items away. It's crucial that you know how the tax systems work. You need to understand how things work within stock trading if you plan to trade stocks.

Here and now I'm sharing with you the surface level stuff. I'm not an accountant and expert when it comes to taxes. I haven't read the tax manual of the IRS code. These are some insights that I've learned over the years. I learn all of it by reading about stocks, learning about my investments and finances through my accountant.

I'll share with you some wisdom that I've seen over the years.

This is what I've worked on:

  • active trading
  • basic stock investing
  • dividends
  • option trading

You'll see some of those critical insights right here in this post.

Learn Few Things About Dividends

The first thing you'll want to be aware of is a dividend and how they are taxed.

Dividends are taxed at:

  • 0%
  • 15%
  • 20%

This depends on the tax bracket that you fall into. If you fall into the 10%-15% tax bracket, your tax rate on dividends is zero. You must include the dividend income with your other income to determine your tax. Then if you fall into the 25%-35% tax bracket, you'll be paying a 15% rate on your dividend or 15% tax.

You might fall above those then you'll be paying the 20% on your dividends. That means if you're in the 39,6% bracket, you'd be paying a lot more in tax. It's 5% more if for those dividends.

This is the way dividends are taxed. It's 15% is basically what most people will be paying. But if you're in a very high-income bracket, then you'll be paying that 20 percent on dividends.

Be Aware of Long-Term Capital Gains Tax

The next thing that you want to be aware of is the long-term capital gains tax. It works similar to the dividend basis. There're brackets, but there is one thing you need to understand about long term capital gain tax.

If you hold a stock for an extended period, you get a tax break a lot less than you would if you kept things for the shorter term.

Quick example:

You hold a trade for 390 days or 450 days. Then you sell it, and you take your profits. Now you're classified as a long term capital gains tax.

Whereas if you hold it for a shorter period, you'll be charged at the short term capital gains tax rate.

Short-term Capital Gains Tax - Must Know

The short-term capital gains tax is when you're making trades. If you're a day trader, you're going to be paying short-term capital gains tax.

The thing to know: Short-term capital gains tax is much higher than long-term capital gains tax. It's going to depend on the bracket that you're in, and it can depend on the current year.

Those things may change from year to year. You may want to review those rates with your accountant. Pick up the phone and see what they are currently. Because if you're reading this post at some future date and time, they may have changed.

In either case, short term capital gains tax at this point is charged a lot higher. The reason for that is they look at it as not gambling income, but it's more active.

If you're more active in something and you're churning over money and financials, then you're going to be paying a higher income. Or a higher tax on that income or profit and loss.

That's what happens with many people who are a day trader, swing traders. If you're cranking out trades any time that they're less than a year you're going to get charged that short-term capital gains tax rate.

And yes, that's unfortunate especially if you're trying to move more into the full-time trading income side. Also, it's unfortunate if and you're trying to trade full time. The reason is that you're going to be charged that short term capital gains tax.

I know it sucks, but that's just the world that we live in. You can hold some of those trades out for a little bit longer and get that longer-term capital gains tax. That way you can fit into that bracket. If you do so, you can be in the long term capital gains tax.

Maybe you didn't make a $10,000 profit. Perhaps you only made a $9,000 profit. However, you made up for it by holding on to that stock for just a few more days. That way you can get into the long-term capital gain tax bracket.

Keep in mind when you're looking at the long term capital gain tax you're looking at that the rate that you hold the trade.

It's the amount of time that you're holding on to the trade.

That could be from:

  • January 1st of 2018 to January 1st of 2019
  • August 2018 to the end of August of 2019

It's based on your whole time. It's not based on the calendar year. That's what it's based on it. The amount of length of time that you're holding it for. Because that's what's considered a longer-term investment.

You Taxed on Your Net Gains - Focus on This

The way that you are taxed when it comes to your investments in your trading is that your tax based on your net gains. This is your final net gain. If you don't understand what a net profit is, pay attention to this example.

Quick example:

Let's say you made $50,000 on multiple trades. You make $50,000 trading in and out of stock. But then you also lost $20,000 on other trades.

$50,000 - $20,000 = $30,000

That means that $30,000 is what you are taxed on. It's the final difference whatever your profit is. That's what you're taxed on. Think of it like the income and expenses balance sheet. It's not necessarily that exact way which I'll share with you here in a second why. But it's the big difference between your total income and your total expenses or your losses.

Your profits - Your losses = That's what you get taxed on

That's what it is when it comes to the IRS as far as investing goes. However, here's a few little differences that go along with this if you're able to get classified as a professional trader. This is what I was referring to. It's based on the 429 rule of the 429 trader status which can save you money.

The way that this rule works is a little bit differently. For example, when you have an LLC Corp for regular business, you're saving through payroll. You can do this by funneling money into an entity, and then you pay yourself a salary. That's one way that you work up business.

You're funneling money one way, and then you're going and paying yourself a wage. You don't have to pay that Social Security and Medicare and those kinds of things. You save some of that additional taxes that you would have to pay.

429 rule it allows you to break things down as a trader. Now that you have a trader status rather than just a regular investor it shifts the needle for you. Getting this status is difficult. But it allows you to start deducting some additional things.

See what I mean: If you purchase one of my books or products if you're classified as a professional trader, you can deduct those as an expense.

Usually, you wouldn't be able to do that because it doesn't fit along your business. It doesn't fit along your business of conducting and handling money. You can't duck those things as far as educational material goes from books, seminars, hotels...

Those things don't they don't work because they don't apply. It's not ethical, and it's not legal. That's not what you should be doing.

When you have trader status you can have things like this:

  • attend a trading seminar
  • buy a course of mine
  • purchase books about trading

And you can deduct it because you're running a business. That's what this does. It allows you to classify this as a business. The other thing is that allows you to get away from that additional social security and the Medicare tax that you'll be paying the extra fees on.

There's a lot of other perks behind it. They're more subtle depending on the way that you're running the business. And depending on the way that you're trading but those are some of the main significant differences in that trader status.

The main focus is on that you're saving a considerable percent (14%, 15%) on those additional Social Security taxes that you don't have to pay. In other words, it's the rich get richer through these tax breaks.

They make the law so complicated. If you're able to get through and you're ready to get classified as a trader you can save a boatload of money.

Quick Look at IRS website

If we visit the IRS website and we go to topic 429, we can look at the sections as:

  • investor section
  • dealer section
  • trader classification section

You can read through this rule and see more details. You can see that for many regular investors who profit it off of dividends or interest, or just appreciation is not going to classify you as an active trader. You need to be making money from day-to-day activity.

Your activity must be substantial. They're going to judge you this. It's going to vary from whoever looks at your form at one point or another.

And you must carry on with the activity with continuity and regularity. You have to be probably doing it for quite a bit of time, and they like seeing those histories. Typical holding periods for securities are bought and sold. That's what they're going to look at.

Let's say you're spending six hours a day trading and then studying and researching then you can maybe also get that as a little bonus. Think about it. You get a small check mark for each one of these things. Then the more check marks that you get, the better off you are. It's something like a point system.

You can continue reading through this. There's a lot of additional benefits that go with this beyond just making the deductions for trading education. It comes down to saving also on Social Security and Medicare taxes that have to be paid on those incomes. In that case, you can also set up some special retirement accounts that are more tax friendly as well.

It's all about knowing the right accountants that are going to do this setup. The first things first are you would have to be classified as a trader here by the IRS.

Sometimes it's not favorable for you to do this. In certain situations, it may be not as beneficial depending on your situation. It's important to recognize how you like to trade first and then see if you can get that classification. And if it would benefit you.

One of the things is if you're looking to deduct books, educational material, seminars, or personal finance coaching you can probably deduct some of that education.

The reason is that you're learning more about investments. You're learning more about books, and now you started getting into that gray area. This is being used for your business and not just trading or investing. You're still attaining the knowledge and information, or you're going and attending into these trading seminars and events. If that is the case, you can deduct them because you still have a business that's for your growing business.

Look at it from that standpoint, but get some insight from your accountant depending on your tax situation. I don't know which position you're in. I'm not an accountant, and I'm not an expert in these kinds of things. I'm giving you some insights and areas that you can go out and do some more research. The primary goal for me is to provide you with some ideas into directions that you can attack and make things work for you.

Wash Sale Rule Can Hurt You Tax-wise

Keep in mind that the wash sale rule can hurt you as far as taxes go or tax-wise. Let's say you got into stock at $40 and you went ahead and took a loss at $30. Now you took that $10 a share loss. Then you can deduct that from your taxes.

If you get back into that trade at $32 or $33 less than 30 days from when you close it all of a sudden it negates that loss that you had earlier.

This is the wash sale. It forces people not to take a loss to reduce their taxes right away and to get back into trades. There's a lot of ways that you can manipulate those things by taking a loss in specific stocks and getting back into them. The IRS didn't want you to take advantage of those deductions and constantly accumulate loss after loss to reduce those taxes.

This is what some people do:

That way you had no income whatsoever. Some people do this in a funky and weird way from the stories I've heard. I don't think this is legal. What they will do is have multiple brokers, and when they go in on one account/broker, they buy shares. Then another broker they're taking losses on those shares.

They're going in the other direction, and they'll take the loss. I'm not exactly sure how they plan to manipulate the system. However, I know that they're trying to work their way on these losses and work through that.

There's a lot of weird and fishy things as you get deeper into understanding the tax rule. I'm not advising you do this because I'm pretty sure it's illegal. You have to realize that things can get very problematic for you if you're trying to avoid your taxes.

Talk to your financial accountant/planner about all these things. However, you need to understand that as far as taxes go, you don't want to sell a stock and take a loss in it and get back in it within 5-10 days. And all of that because of trying to make up those games.

The main reason is you're going to hurt yourself from being able to deduct that from your losses.

Options Are Taxed The Same As Stocks

If you're an options trader, options are taxed and the same as stocks. You're not going to be getting option dividends. But if you're looking at short-term versus long-term a capital gains tax, it's the same thing.

You can buy options for three months, six months out. You can sell them three months out, six months out as well. Of course, you can do the same thing for leaps. Longer-term options (300 days, 600 days out) can also work in the same way. They're taxed in the same manner as the stocks are.

The thing to focus on:

There's one significant advantage though when it comes to options. That is the 1256 contract rule. It can help index options traders. If you've never heard of this rule, pay attention. It allows you to get in and out of these index options very quickly. Not only that. It also will enable you to take only 40% a short-term capital gains tax. And then 60% is long-term capital gains tax.

Take for example a $1,000 profit on the SPX: 

  • 40% of that profit is $400 - is going to be taxed at the short-term capital gains tax
  • 60% of that profit is $600 - is going to be taxed at the long-term capital gains tax

It allows you to save a few percentage points on your taxes. You got almost more than half at the long-term capital gains tax simply by trading index options.

A weird rule that allows you the rich folks or people who have money to slip by. I hate the way that the IRS structures these things. They make it very complicated to where you got to know people. You have to pay people to understand what's going on and how best to trade to maximize and save money on your tax.

It's all convoluted. They're trying to make up rules for different situations. If you're trading index options like the SPX, the MDX these are all index options.

If you're trading the SPY, the IWM or the QQQ those are ETFs. Those would not be considered index options. It would be more tax. Depending on the if you are doing options on them again short-term or long-term capital gains tax. You have to be trading the SPX, the RUT or the MDX where they're indexes to be able to classify it as a 1256 contract rule.

Get more insight about 1256 Contract:

  1. Wikipedia
  2. IRS website
  3. Talk to your accountant

You could also trade the VIX. That's also an index option that you could trade and take advantage of the 1256 contract rule. There's a great deal.

You can save:

  • 40% short-term gains
  • 60% long terms capital gains tax

That's because your training needs future contracts. It makes things a lot better when it comes to these index options. It saves you about probably 10%-12% on your taxes. That is depending on how much trading you do. But it does save you a great deal of money if you understand how this works in the marketplace.

This is the final disclaimer about these taxes and these tax rules and implications. What I wanted to do was share with you some insight into what I've learned over the years.

Also, I'll share with you things I've heard, I've dealt with and researched. Here're things I've overheard other people doing and trying to manipulate the system. Whoever knows more they're going to pay fewer taxes. If you know more about them, you'll pay fewer taxes. Sometimes it's worth it to pay an accountant $200-$300 for an hour or two of their time. Going in detail about over all these different rules is essential.

Remember this: It's based on the type of trading that you do. Don't email me and ask me what's better for your situation. I don't know your situation. I don't know which tax bracket you fall into. I don't know the other things that are going on in your life. That's why it's best to contact an account that can spend a couple of hours with you. He will diagnose your situation.

Then you can get some insight into where it's best for you to invest in. Or how its best on a tax basis. Don't look at taxes as far as investing goes. Usually what I say is stop worrying about taxes.

This is how I look at it:

I want to pay more in taxes. Because the more that I pay, the more I'm making. If you have that tax mentality, you're going to be more profitable in the long run.

However, many people change the way that they trade based on the taxes that they're going to pay. If you do that you might be trading in ways that you don't like. Or in ways that don't fit your trading style, risk style or your personal goals. Don't focus on the taxes. Instead, understand the fees to where maybe you can adjust your trading a little bit and save on the charges in the long run.

Get some insight from the accountant that understands the tax rules and the tax codes. Then tweak your trading a little bit. But don't completely change it. Don't focus on trying to reduce your tax bill or reduce your tax book. That's going to hurt your trading if you're not trading correctly.

The Final Word

Some people fit on a day trading basis, and they're very active and trading 6-8 times a day for six hours at a time. They're investing a lot in their education, and they could be classified as the 429-trader. They can also get that classification, and it might be beneficial for them.

For other people, if you like trading index options then do it that way. You don't need the 429 trader status because you're doing things a little bit differently. You're saving it over there. Is it worth the extra headache?

Maybe, maybe not. It depends on so many things. Talk to your accountant. Don't reach out to me and ask me questions about it. I'm not an expert on tax situations. They make those rules and laws just so complicated that you have to be a lawyer to understand.

I'm not a lawyer. I just did my research, my due diligence and shared it with you. That was my whole goal and purpose right here and right now. Sharing with you some knowledge and insight was my goal. That way you can start learning and taking things deeper down one road or another.

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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