Sell Now or Wait for Spring?

This question, about selling in the “off season” for the housing market, came in from a new fix and flip student:

The way the timing worked out on my project (3 bed 2 bath 1350 sq. feet house in a nice working class neighborhood) it will be ready to be listed this week.  Not the best time of the year to list a property, correct?  Should I wait until spring (the holding costs are about $1000 a month). What would you do?

I thought it would be a great time to explore this question and some things to consider.

How the seasons affect the housing market

How much inventory is available in your local market?

I would suggest you ask your agent or broker to run a report and see how many homes are currently on the market.  How does this year’s inventory compare to this same time last year?  Sometimes it can be an advantage being the only girl at the dance.

Are people in your area engaged in looking for a home?

This is another area your agent or broker can help you with, as they should have data. For example, how many hits are they getting on their websites?  They also have a network of agents they work with and, trust me; the number one question is always, “Are you busy?”

Showing the property: Will weather keep people away from seeing the property?

Weather! Funny, we had to deal with this issue last weekend. Here in SoCal we had a huge storm (OK if you are from the East Coast or Midwest, it was big for us), We had already scheduled an open house and full-page ad. So what were some of the things we did to make the place appealing for those who braved to go out?

free real estate investing workshopOutside curb appeal:

  • Used potted plants that gave it color
  • The walkway was clear (if you are in an area where it snows or it could be icy, make sure it’s cleared and safe).
  • Put out a front mat for people to wipe off their shoes.

Inside cozy feel:

  • The house was warm and heated; the fireplace was going all day.
  • ALL the lights were on and drapes were open. The house should be bright and appealing.

The holding costs: Did you plan for enough margin?

If you are doing a fix and flip, one of the biggest considerations is the amount of time it will take to flip the property.  As a professional investor, you should already have holding costs figured into the profit. What if you have to hold the property longer?  What does that do to your profit?  My suggestion would be that if you are flipping a property in the winter, you should estimate your holding cost for a little longer.  Also, your utility costs might also be higher since you are going to need to keep the property heated at all times.

Don’t hesitate to sell your property in the off months, just be proactive.

Great Fortune,

Diana D. Hill – dhill@tradingacademy.com

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Tips for Trend Trading

Many people have the misconception that trading has to be complicated since so few people are truly successful at it. Truthfully, people fail at trading because they over-complicate trading. Trading is not easy by any measure. However, it is simple. Online Trading Academy’s core strategy depends upon a simple, proven approach that works by trading the way that institutional firms trade.

Free Trading WorkshopTake the trend identification for instance. Successful traders are aware of the importance of identifying the dominant trend for your trading time frame as well as the larger time frame. In our courses, we use the definition of a trend to help decide the direction in which trading would be most profitable. Identifying and trading in the direction of the dominant trend will put you on track for more profitable trades and reduce your risk.

Looking at the chart of the Qs, you can see that the trend was easily identified as downward as prices plummeted at the open. Price opened at a supply zone offering an opportunity to short. If you did not exit as prices started to turn upwards from $100, the higher lows and higher highs signaled a trend change that would have told you to book your remaining profits.

How to identify market trend on a chart
The day’s trend had changed. The introduction of higher lows and higher highs changed the direction to bullish. Traders should not have looked to short again until the trend told them to. That trend change did become apparent later in the morning when prices made lower highs and lower lows. This made it possible for the trader to look for shorts. If you had identified this, you would have been able to short the mid-day supply zone for an additional $1.00 per share profit.

Learn to chart stock market trendsSome of you may have been worried about the larger daily trend and how it would affect the intraday trends. In our courses, we also teach the proper way to use multiple time frames in trading. Even though the daily trend may not change, the smaller time frames can experience many fluctuations throughout the day.

This same technique can be used on longer term trading or investing. Looking at the S&P 500 index on a weekly chart, using the definition of a trend would have helped to identify major changes in the market trends and also protected your money in times of economic downturn.

Identifying a change in trend on a short time frame chart
Looking at the current trend of the S&P 500 on a monthly chart, the bullish trend that began in 2009-2010 has not only appeared to have ended, but the lower highs and lower lows suggest a new bear trend beginning. This has not occurred since the market crash in 2008.

Identifying a change in trend on a long time frame chart
Trend trading like this will not allow you to enter at the extreme tops or bottoms. To do that you will have to practice at identifying supply and demand zones in conjunction with multiple time frame analysis. To learn more about this, come take one of our courses at Online Trading Academy.

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Forex From A Different Perspective

Firstly, I would like to say a very sincere thanks to every reader who took the time to vote for my fellow trader, Rick Wright, and I in the recent FXStreet Forex Best Awards. Our article won the Best Educational Content Award for the 3rd year now and it is a great honor to win once again. Many thanks to you all.

Free Trading WorkshopThis week, I would like to discuss a recent economic news event which occurred on Feb 2nd, namely the RBA Cash Statement for the Australian Dollar. As you may know, FX traders worldwide tend to work themselves into a frenzy when it comes to major economic news, especially when interest rates are concerned. They sit by their computer eagerly awaiting the news to be released and then attempt to guess which way the market is going to move based on the numbers. Let’s say, it is not for the faint-hearted! Yet who can blame them when every major currency broker and textbook on trading FX tells people to trade the economic news in FX because it is fair and transparent and it gives you a level playing field to trade the news as it comes out.

You then try that in real life and things suddenly do not seem quite as fair. You scour the news websites looking for the latest data figures as they come out, clicking the refresh button on the web browser so as to get a glimpse of the numbers only to watch the market move away from them. Another option is to simply wait for the price to start moving before doing anything and then try to jump on board for the ride as it happens, hopefully catching the momentum in time to make a quick return. Again, this tends to pay off on the odd occasion but never consistently enough to make a real strategy out of it. Most of the time, news traders find themselves getting stuck with a ton of slippage and frustrated as the market gives many false signals. Let’s take a look at the aforementioned example of the AUDUSD currency pair as it had the all-important interest rates announcement recently:

Trading with economic news is high risk.

The actual figures stated that the RBA wanted to hold rates where they were; this information was released at 3.30am on Feb 2nd. Now, for a start, it is impossible to determine which way prices are going to go when the rates are being held at the same level, so any guess on direction going up or down is nothing more than that, namely a guess. As we can see form the chart above, in the first 5 minutes of the economic news being released the AUDUSD spiked up violently, only to then reverse and drop almost 100 pips lower throughout the rest of the trading day. If you had been a news trader in this case and clicked the buy button at market as the news event came out and the market started to rally, you would have likely been filled at a pretty poor price with some nasty slippage. This is one of the downsides to using a market order as it will always fill you at your price, or likely potentially worse, in a very volatile market. How then would you feel buying at the high price only to watch the price fall rapidly to the downside?

Another perspective is to think and act like the major banks and institutions instead. Ask yourself what they were doing at this time? Do you really think that they were waiting for confirmation or do you think they already had a plan? Do most businesses have a plan? In fact, maybe they had already been attempting to sell the AUD a few days prior and not gotten all of their orders filled, resulting in an imbalance of sellers and buyers, thus creating a supply level? Take a look at the screen shot below:

Learn where banks and institutions buy and sell

Notice how price rallied from the economic news announcement straight into the level of supply, where the banks were originally selling the AUDUSD. Price moved sharply up but could not breach the level of unfilled orders and came crashing back down for a drop of almost 100 pips. The major difference between the novice news trader approach and the professional institution approach is that the former like to chase the opportunity while the latter allow the opportunity to come to them. Who, therefore, takes on the lowest risk and higher overall reward?

Since this event the AUDUSD has gone on to rally much higher, causing even more frustration for the people who bought it high hoping to see it move higher still. They endured a loss on the trade, only to be proven right on the direction much later and have only a loss to show for it. Proper trading is about knowing your entry, stop and target ahead of time and using these rules to approach the market systematically. The idea of Market Timing is alien to many but logical to a few. In two weeks we will explore the concepts of Market Timing further and its application in the world of FX.

Be well and thanks again for your ongoing support,

Sam Evans – sevans@tradingacademy.com

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Price Gap, a Deeper Understanding

sseiden-20160208-pro-price-gap

A price gap in markets is an event that successful traders understand very well. This is because when you really understand gaps, why they occur and how to trade them, you realize how powerful and opportunistic these events really are. At the same time, those who don’t really understand price gaps tend to lose money when trading them. Gaps represent the ultimate supply and demand imbalance which is key when attempting to identify market turning points. Whether we are talking about Stocks, Futures, Forex, or Options, the logic and rules for gaps don’t change.

Free Trading WorkshopA price gap occurs when there is a significant supply and demand imbalance. Specifically, when there is more demand than available supply at the prior day’s closing price, the market will gap higher the following day as those buy orders need to get filled. When supply exceeds available demand at the prior day’s closing price, the market will gap down the following day. Let’s take price gaps a little bit deeper so that you can have an edge in the markets and profit from key price gap opportunities.

While we have a big lesson on gaps in the our Extended Learning Track (XLT) that covers all the significant price gap opportunities, today I will share one set of gaps that you may want to pay attention to, Professional Gaps vs Novice Gaps. Later in this piece, I will explain where these gaps get their names. For now, here are the definitions and proper actions.

Professional Gap: A gap that occurs after a move in price, in the opposite direction of that move is a professional gap. These gaps occur at the beginning of moves and ignite them. They represent bank and financial institution significant buy and sell points.

Pro Gap High Probability Action: Join the gap on a pullback in price to the origin of the gap so long as the opportunity has a significant profit zone.

Pro Price Gap Chart

What is a professional price gap and how to trade it

Novice Gap: A price gap that occurs after a move in price, in the direction of that move, and brings price into a fresh demand or supply zone is considered a novice gap. These gaps tend to be found at the end of moves and lead to reversals.

Novice Gap High Probability Action: Trade in the opposite direction of  the gap when price reaches the supply/demand level so long as there is a significant profit zone.

Novice Price Gap Chart

what is a novice price gap and how to trade it

There are other types of gaps to consider when trading around the open of a market. Typically, it is at the open of a market that prices are at levels where supply and demand is most out of balance. I witnessed and facilitated this handling of institutional order flow at the Chicago Mercantile Exchange. Translating these areas of imbalance onto a price chart helps attain an edge over your competition. Only put your money at risk when the odds are stacked in your favor and the risk is low, which means identifying novice action in a market and taking the other side of the novice trade.

Lastly, trading the open of a market is not for a beginner or novice trader. However, once you have attained the ability to quantify demand and supply in any market and any time frame, you are likely to find trading the open a very opportunistic time to trade.

Hope this was helpful. Have a great day.

Sam Seiden – sseiden@tradingacademy.com

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Hard Work and Skill Building Hone Your Talents

“Talent is cheaper than table salt. What separates the talented individual from the successful one is a lot of hard work.”
― Stephen King

In the world of sports, talent is a great thing to have. It often sets the tone for an awesome career, but only if you also work hard. You’ll often hear sports announcers commenting on the “athletic ability” or the “talent” of a player. However, in trading as in sports what matters in the long run is the player’s level of skill and their persistence (hard work) that makes all the difference. Additionally, building skill has a formula that is applicable in any endeavor where performance is based on how well you can execute. That formula is P + ER + FL + H = SB. From the medical operating room, to the courtroom, to the stage, to the professional sports playing fields, to the trader’s office the ability to win dependably rests with hard work and building skill with every challenge.

Tips for skill building

Let’s take a closer look at this formula P + ER + FL + H = SB.

(P) is for Protocol. A protocol is a series of sequentially ordered steps toward an aim or a goal. In trading, these steps would include strategies (for identifying levels, entries, targets, stops and trade exits to name a few). Protocols would also include procedures, set-ups and, of course, your rules.

After the protocols are established, you would add (ER) which stands for Effective Routines. Routines help to bring consistency to your behavior and help to neutralize behavior as a variable in your trading. Inconsistent or erratic behavior is difficult to manage and leads directly to doing something that is not in the interests of your highest and best trader. The “effective” aspect of routines means that you are choosing your routines deliberately in order to ensure that you are moving closer to the goal of actual follow-through in every part of the trade. It is essential to write your routines down and to prioritize them in a checklist. This process helps to ensure that you will remember to employ your routine. Even more importantly, when they are prioritized in a checklist the need to “think” about each item is eliminated which paves the way for improved follow-through. Furthermore, every time a routine item is crossed off the checklist, a sense of accomplishment settles in and you feel better about doing what is in the best interest of your trading. This positive energy then helps to form the “habit” so that this activity drops into automatic control. In other words, doing the right thing is positively reinforced.

Once you have your routines in place, it is crucial to add a Feedback Loop (FL) to the mix. Anytime you take a trade action there is an outcome, a consequence, a result. This constitutes a system of feedback. However, for feedback to be useful you must pay close attention and track the data. Feedback loops allow you to measure, verify and document what is working (positive feedback) because you want to embellish or increase this behavior as in rule follow-through and keeping commitments. By the same token, you want to measure, verify and document what is not working (negative feedback) because you want to decrease these incidents as with rule violations and breaking promises. In this way, you can compare, for example, the anticipated hit rate of your protocols and routines with the actual hit rate and make adjustments. You must measure and keep a scorecard of anything that you want to get good. When you memorialize what you did and how you did it, you can then replicate positive implementation and execution as well as eliminate poor execution.

After the feedback loop is established, you must Habituate (H) this process. In other words, it is critical to repeat and train yourself in this procedure in order to assimilate it into your core. When you habituate using strategies in consistent ways and writing down what happened, you are actually creating a new “program” in your brain/mind that will become a deliberately designed default pattern, which is a new “skill.” In one way, you are reducing your psychological resistance to a new process, which is habituation and on the other hand, you are forming new positive and powerful habits as you habituate.

Free Trading WorkshopSkill Building is something that you’ll want to maintain across all trading processes. This is how you grow as a trader; that is, by creating consistency in your thinking, preparation, planning, implementation and execution you will build capacity for strength and endurance in the trade. This also relates to “changing” bad habits, patterns and faulty programming. If you want to change your bad behavior, you must first change your thinking; and since your unconscious drives much of your thinking, you must become aware of your underlying self-sabotaging beliefs that drive thinking, emotions and behavior. Trading is arguably one of the most difficult ventures on the planet. Why? Because we are talking about money, and with every tick while in a trade you are either gaining or losing money. This is one of the most compelling reasons to develop and nurture a skill building mindset; that is, to ensure that you are focused with a laser precision on what matters most as you aim to follow through and “hit-the-target”.

So, a key element of your trading success is your fierce focus on skill building (SB) in each and every trade. As you move forward, keep a sharp eye honed on your strategies, rules, set-ups and procedures. Make sure that you are refining your behaviors so that you bring the consistency that you need in the trader trenches. Document your process in order to track the erratic issues that negatively impact your results. Then do the same thing over, and over again so that you make a strong habit of the method. This is how to develop your highest and best trader. In Mastering the Mental Game, we teach you tools and techniques to support you in skill building. For more information about XLT and on-location classes ask your Online Trading Academy representative. Also, get my book From Pain to Profit: Secrets of the Peak Performance Trader.

Joyful Trading,

Dr. Woody Johnson – wjohnson@tradingacademy.com

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Options – Picture This (Part 2)

My last article was the first in a series on the Option Payoff Graph, or Risk Graph. Today we continue with that.

Our example was a neutral-to-bullish option trade on General Electric stock. We actually began this example in an article on types of options expiration dates a few weeks ago and, so far, GE is still hanging in there.

Here is what the GE chart looked like on February 4:

Tools for options traders

We expected GE to reverse out of the demand zone created last October in the range from $27.48 to $28.03. A week ago, we could have sold the GE February puts at the $27 strike price for $.39 per share, or $39 per contract.

In last week’s article, we showed the option payoff graph for that option trade. Here we update that to show it as of now, with some additions:

How to use the option payoff graph

Last week we only showed the one gray line, which represents the profit or loss on this trade at the displayed stock prices if we held that position until the puts expired.

Today we’ve added three more lines (the blue, green and red ones) which show the profit or loss at different dates in the future. The red one is as of today, February 4, at which time there were 14 days to expiration. The green line is as of February 10, when there will be nine days to go. And, the blue line is as of February 14, when there will be just four days to go.

The straight gray lines, as stated above, represent the profit at any stock price on the expiration date. At that time, the option will have a value exactly equal to its intrinsic value – the amount by which the stock has fallen below the $27 strike price, if any. If the stock is not below $27 at that time, the position will be worthless. That is what we want since we have sold the option short. We would then not have to pay anything to extract ourselves from the option trade, and we would keep the $39 we received for selling the put. That is why the gray line is horizontal at a height of $39 at all stock prices at or above $27. It slopes downward to the left at stock prices below $27, which reflects the fact that if the stock is lower than $27, the puts will have value and we would have to pay that value. That reduces our profit.

Free Trading WorkshopThe red, green and blue lines show how the profit picture changes from day to day. At the time this graph was drawn, GE stock was at $29.14. If we were to close out the position right now, we would have to pay $.205 per share for the puts, or $20.50 for the contract. The option still has that $20 value because in the remaining 14 days of its life GE could still drop below $27.

With every passing day that gets less likely; and so the value of the option declines. At four days to go (the blue line), if the stock were still at $29.14 there would be virtually no chance that it could drop as low as $27, so the value of the put would be next to zero. The blue line indicates that the option would be worth just $.0225 per share at that point, giving us almost all of our profit.

The table at the bottom of the graph allows us to specify different stock prices and/or different future dates so we can evaluate how our position’s profit will evolve.

The graph and its P/L estimates are an essential part of an option trader’s toolkit. Take the time to learn how yours works and it will pay you back many times over.

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Gaining Market Perspective to be a Better Trader

Every morning traders wake up looking at their charts in an effort to find opportunities. They are faced with making decisions on whether to go long or short the particular markets they trade. This can be challenging as the markets are in a constant state of motion. One day up, the next down, and on some days the market can change direction intraday. So, with markets constantly changing it’s important that a trader gain the right perspective to start every day.

Free Trading WorkshopOne way to do that is to look at the big picture. This means looking at daily, weekly or monthly charts. The objective here is to identify the environment a trader is going to encounter. This will enable them to be better prepared to tackle the day’s trading challenges.  If you think about it, the markets can only be in two types of environments: trending or in a range (sideways market).

A common misconception many traders have is that they think the markets tend to trend more often than they’re in a range. Regression studies have actually shown that this not the case.  Markets generally have larger spells were they are range bound. In looking at larger timeframe trends (weekly and monthly) in the stock index futures or currencies, what you will find is that these markets spend weeks, sometimes months going sideways before they resume the next leg of the trend. Look at the charts and you will see the sideways market for yourself.  If this is indeed the case, then traders need to know where the lowest risk trades are found in this environment.

Recently the Euro Currency futures contract has been in a large range for about a month.  We can see this on the daily chart below.

You need to know how to trade in a sideways market.

In this type of environment the lowest risk, highest probability trades would be at the top and bottom of the range. In other words, look to buy at the bottom of the range and short as we near the top of the range.

Implementing this strategy, I recently took a trade look in the Euro Futures near the lower part of the range. As we can see from the chart, I took the entry at the origin of a strong move in price (demand) and achieved the profit target right below a supply zone identified by the strong move lower.

Finding trading opportunities in a sideways market

Also of note is that the demand zone was located near the lower extremity of the range.

In the next example, we see the Nasdaq mini futures also in a daily range.

Sideways market trading opportunity

Similarly, an opportunity at the lower part of the sideways market presented itself and I took that trade as well. As we can see from the lower chart, the demand zone (highlighted by the two horizontal lines) was the entry and the target was achieved at the opposing level of supply.

Learn to trade in a range market environment.

As we can see, having the right perspective can assist us in finding low risk trading opportunities.  This requires learning a rules based strategy that is consistent in its approach. In this missive, we focused on range-bound or sideways markets. In the next one, we’ll tackle trending markets and how to trade those. Stay tuned…

Until next time, I hope everyone has a great week.

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