I’m a pretty conservative investor  – with the exception of my last post – The Debit Spread – and I look to basic fundamentals when it comes to the market. Well over the course of the last year and a half, I’ve had to release my mental hold on the belief that the market moves based on economic fundamentals.    I think the market has changed, and I think it has changed for the long haul.  I totally get that although the US stock market is made up of US companies, most of the companies making up the DOW are global companies with an increasing percentage of their profit coming from overseas.      I’m not referring to that, I’m referring to a market that now moves with much greater volatility on emotion.  Emotion often times a result of NEWS!     We seem to have gotten away from the fundamentals of how our American companies are prospering and seem to trade with what gets reported by CNBC.  Now don’t get me wrong, I love CNBC, it just seems to me that the market is overly bullish without the basic fundamentals to back it up.

We are in a new era of the US stock market – low volume, electronic trading, flash crashes, and emotional trading.  I’m trying to get used to the new world, adjusting my strategies along the way.  Having said all that, there is one thing I’m sure of, even though the rules may have changed, there’s still money to be made!

Happy trading!

The one trade that I’m experimenting with (read, it’s a gamble so don’t necessarily follow my lead!)  is the debit spread.  I believe the market will go down sometime in the near future – (clearly a directional trade, which I usually avoid, but in this market I’m willing to take my chances) – so I BUY a debit spread – I’m trading the S&P, a 10 point spread expecting the market to take a down turn and when it does, I sell the position for a profit.  Warning!!!  This only works when you are predicting the direction of the market and you are correct!!  What I specifically like about this strategy, which by the way is a 360 degree turn from the iron condors I usually trade, is the cost to get into the trade is small, your losses are finite, limited to only the amount it cost you to buy into the position and your profit is huge if you call it correctly.    Okay, I’m becoming a glorified gambler – and I like it.

Happy Trading!

I’ve been silent over the last month, for a number of reasons.  I, like many I’ve talked to in recent weeks got caught in the unexpected (and as I’ve blogged, unsubstantiated) market rally and lost some money, but more importantly have found myself questioning my strategy in this volatile market.  I’m back in the game with a different attitude and a more conservative strategy.  I’m still trading the iron condor but I’ve diversified my strategy and have moved to a more conservative ROI expectation.  I have found that in the current market, you can’t count on what has worked historically to continue to work now.  The market is changing.  Once upon a time the market reflected the performance of  American based corporations and reacted accordingly.  More and more the US stock market reflects global economic conditions and even more concerning is the market movements that are a result of electronic trading.  Now I am not against electronic trading, I like other investors depend on it.  But after the “flash crash”, you have to wonder, can that happen again.  Going forward it one thing you can take to the bank, the market has changed and it would behoove you to recognize that and trade accordingly.

Happy Trading!

What is a Mastermind Group?
The concept of the Mastermind Group was formally introduced by Napoleon Hill in the early 1900′s.  In his timeless classic, “Think And Grow Rich” he wrote about the Mastermind principle as:
“The coordination of knowledge and effort of two or more people, who work toward a definite purpose, in the spirit of harmony.”
He continues …
“No two minds ever come together without thereby creating a third, invisible intangible force, which may be likened to a third mind.”
In a Mastermind group, the agenda belongs to the group, and each person’s participation is key. Your peers give you feedback, help you brainstorm new possibilities, and set up accountability structures that keep you focused and on track. You will create a community of supportive colleagues who will brainstorm together to move the group to new heights.

I initially thought the benefits of our mastermind group was to share information as we were all pretty new to trading.   Ha! what a misconception, while our group started off sharing the basics, I find my mastermind group more helpful to me today then when I first started trading. We have all advanced to a new level of strategy trading. We have graduated from the basics to more sophisticated strategies.  We all have very busy lives and often need the support of others to stay on track.  Or to find the time to stay committed.  I often fall on my Mastermind group to give me support and sometimes even confidence to keep doing what I’m doing.

In total I actually have 3 mastermind groups, each with a specific focus.  I am a member of one group that focuses on growing our businesses online.  I have another that goes back over  5 years, and while we no longer talk every week, we still hold each other accountable to being the best entrepreneurs we can be and sharing our gifts with others.  The third is my trading mastermind.

So regardless of what you want to be, have or do in your life, I’m guessing participation in a mastermind group will help you get there faster.  So google masterminding and learn more about it, then go out and start inviting folks to join you on your path to success.  To learn how to start a mastermind group click here.  One word of advice, a mastermind group made up of all like individuals will be less effective than mixing it up with different personality types.  Find a group of 5 -6 individuals who are similarly motivated, but somewhat diverse. Good luck and check back and let me know how its going.

Many traders, myself included look at the market and determine trades after the market has closed for the day and place trades before the market opens, hoping to catch that dip or rise that ofter happens at the opening bell.  What if there were an indicator that could tell you what direction the market might open on any given day?  What if that indicator were readily available?  Guess what, it exists and is readily available and its called futures.

I primarily trade the Nasdaq 100 Index (NDX) and the S&p 500 Index (SPX).  There are futures indexes for both the NDX and SPX, and I’m sure many more.  I watch the overnight futures almost everyday to give me some clues as to where the market is headed.  Specifically I monitor the following:

/NQ is the symbol for the E-mini Nasdaq 100 Index Future ETH

/ES is the symbol for the E-mini S&P 500 Index Future ETH

So what are these futures and where are they traded?  As you probably know, there are financial markets open all over the world at any given time, so when our US markets close, there are markets overseas the continue to trade.  With our global economy, what happens in other financial markets effects our economy and our markets.  In addition, people place orders when the markets are closed that get queued up for execution at the opening bell.  All these things and I’m sure a number of other factors effect the value of these futures.  So I monitor these mini futures as another small indicator of market performance.  One more tool to add to the tool belt.

Your money rules not withstanding, how much should you hold back and why? Hopefully these are lessons better learned while paper trading, but a few of us have learned the valuable lesson of holding some percentage of buying power in reserve. There will at some point I suspect be the need to vertical roll as I have personally learned this month. Luckily I knew enough to know when to vertical roll (click here if you missed that post) and I made money on my vertical roll, but others waited too long and had to pay money to roll.   There may come a time when you just decide to take your losses and move on and it could cost you money to close out a position.  There is nothing wrong or bad about this, we use stop losses all the time, they are a very smart part of any option trading strategy.  Better to take some losses and live to trade another day than to wait until you are under the bus.   You may want to really take some risk and implement a two stage butterfly up like strategy, if you’ve got the guts for it.   That will cost buying power.

So how much is enough?  I’ve heard the suggestion of 10% as a good number.  I, being the conservative one keep 20% buying power in reserve.  Once again this plays into your money rules and your risk tolerance.  At the very least the amount of buying power you hold in reserve needs to be a conscience decision, not a random one.

Happy trading!!