Author: Online Trading Academy

Healthy Body, Healthy Mind for Better Trading

In order to be successful in futures trading one needs a proven low risk high probability strategy.  That is something most of you already know. Learning the core strategy here at Online Trading Academy, at least in the initial stages, requires plenty of hours in front of the screen. This is because the core strategy is simply a chart pattern that is made when banks and institutions decide to buy or sell a big position. The footprint they leave is where Online Trading Academy students find the lowest risk entry points.

Using a set of rules we call odds enhancers, students learning our core strategy can discern which levels have the highest probability of success.  Many students will tell you that this is the easier part of the process, as once students train their eyes to identify what the picture of supply and demand looks like they simply look for that specific picture day in and day out. The most difficult part for most traders however, is sticking to the rules.

Since discipline is the most challenging facet of trading, what can a trader do to improve in this area? For starters, ask yourself how disciplined you are in your personal life.

  • Free Trading WorkshopDo you usually accomplish what you set out to do?
  • Are you a good planner and organized when it comes to achieving a task?
  • Do you push yourself outside of your comfort zone?

If you answered yes to these three questions, then you’ll do better than most in the trading arena. If, however, you’re honest with yourself and find that you’re lacking in these areas, there is some work to do.

Following rules does not come easily to most of us, that’s why we have rules imposed on us in every aspect of our lives.  Politicians often have to write new laws to protect us against ourselves, usually after something bad happens.  The penalties for transgressing those laws can be stiff depending upon the severity of transgression. This also holds true for trading.

So, for those of us that need some help with discipline, one recommendation is to start a workout regime.  In the Trading Plan classes that I teach, I actually have students incorporate some type of workout routine into their daily trading plan.  In case you haven’t figured it out yet, trading is largely an exercise in mental exertion; as such, without a health body the mind will not function properly.

Developing the skills to become a better trader sometimes doesn't have anything to do with trading.

Studies have shown that regular exercise improves mental acuity and gives people who routinely workout a positive outlook when faced with adversity. This is attributed to the exertion producing chemical changes in the mind that make people feel better. Do you think as a trader you will face adversity? At some point all traders do. How traders handle the inevitable set-backs is what separates the winners from the losers.

For those that think this doesn’t apply to you because you’re already thin or already routinely exercise, think again.  If you’re currently running 2 miles, then how about 3 or 4? If you workout 3 days a week, how about 4? The point is that to get better, we need to stretch our boundaries, face our fears and conquer them.

With the Summer upon us now is as good a time as ever to start making those changes that will improve your trading results.  One of those is to improve the way you handle the challenge of sticking to your rules; having a clear, concise plan will help in that area.  Starting a workout regime can also help with discipline. So start making small positive changes in every aspect of your life and perhaps your trading results will be the best you’ve ever produced!

Until next time,

Gabe Velazquez

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Types of and Uses for Real Estate Contract Contingencies

First let us define what a contingency is.  According to Investopedia:

A Contingency Clause defines a condition or action that must be met for a real estate contract to become binding.

In other words, it’s a term that must be met before contract can proceed, if it isn’t met then the contract becomes void.

I look at contingencies as my friend when buying property and an annoyance when selling.

Why are Real Estate Contingencies Our Friend When Buying a Property?  

Because contingencies give us a get out of jail free card on a real estate contract.  If, for the reasons defined in the contingency, we don’t go ahead with the deal, our deposit is safeguarded.  This allows us to tie up the property without risk.

Real estate investors should be familiar with these contract contingencies.

Why Are Real Estate Contingencies an Annoyance When Selling a Property?

For the exact same reason. With a contingency in place, a buyer can back out of the deal based on the terms of the contingency and your deal doesn’t close. However, once contingencies have been removed and the deposit has gone hard, it will then cost the buyer their earnest money deposit if they don’t complete the contract.

As investors we have a few standard contingencies that we utilize regularly. There are many more available, but they are dependent on the transaction.

Types of Real Estate Contract Contingencies

Inspection Contingency: The buyer has a right to have the property inspected within a defined period of time – typically 5-7 days.  The buyer typically has a professional home inspector examine the property.  For a standard 3/2, 1500 SqFt property it takes about 4 hours for the inspection to be completed, after which a report will be generated and provided to the buyer.  The buyer can then use that report to cancel the contract, request that all or some of the items be fixed or a credit given to assist with the repairs.

Financing Contingency:  This gives the buyer the opportunity to obtain financing for the property.  Most sellers will request proof of funds and a pre-qualification letter with an offer, however, that doesn’t eliminate the need to have a financing contingency.  A typical loan, even if the buyer is prequalified, will require an appraisal and possibly an inspection of the property before official loan approval will be provided.

Free Real Estate Investing WorkshopAppraisal Contingency:  This is used to ensure the property is valued at what the buyer has offered. Lenders want assurance that the property is worth what they are loaning on it.  An appraisal contingency could include a term that allows the buyer to still proceed if the appraisal comes in below the specified amount, often this is an opportunity for the buyer to renegotiate the price. This contingency, as with the others, has a time frame associated with it.

Verification of Income and Expenses Contingency: This is used in a commercial or rental contract.  The buyer requests a reasonable amount of time to verify the official books on the property.

Other commercial contingencies include things like a legal survey, zoning and permits, as well as environmental cleanup liens.

Contingencies are an important part of any Real Estate contract. I hope this has provided you with a little insight into the types of and uses for contingencies used by real estate investors.

Good Fortune,

Diana D. Hill –

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Guidelines for Deducting Business Expenses While on Vacation

We have passed the mid-year mark and by now we are all ready to hit the escape button and go on a nice vacation. Are you dreaming of relaxing on a white sand beach? Maybe you are a ski lover? How about visiting a big and exciting city like New York? No matter what your dream vacation is, if you are self-employed or a business owner you have the ability to write off that vacation. Who said you can’t mix business with pleasure?

If you are mixing business with pleasure on your vacation there are some business travel tax deductions you won't want to miss out on.

What You Need to Know in Order to Expense Parts of Your Vacation:

Business/Pleasure Ratio

In order to deduct business travel expenses while on vacation, the primary purpose of the trip must be business and the expenses must be ordinary and necessary for your business. If you are traveling for more than a week, then at least 75% of the trip must be business related.

As a general rule of thumb, you should count up the number of business and personal days in your planned trip; the majority of days must be for business activities. Keep in mind that your travel days can count as business activities, and so does a weekend that’s sandwiched in between workdays on Friday and Monday.

Plan Your Business Ahead of Time

Be aware that you can’t just take off to Hawaii with some business cards and hope to trip on some business. The IRS requires that you establish prior set business purpose. In other words, you have to have at least one business appointment scheduled before you leave.

You will be able to deduct your transportation costs, like airfare, taxis, airport parking, rental cars, your lodging, baggage fees, dry cleaning, tips, 50% of your food costs, internet connection, conference fees and any other business related expense.

Don’t Be Extravagant

When deducting business travel be careful with lavish or extravagant expenses such as renting a Ferrari or staying at luxury suite as those may not be ordinary and necessary expenses when traveling for business and may trigger an IRS probe. Also, avoid claiming personal expenses such as shopping, personal grooming, etc.

Access Free Financial EducationYou are also able to expense your travel to a convention as long as you can prove it’s directly related to your trade or profession. In addition, the IRS also considers the location of your conference or convention. For example, did you really need to attend that conference in Paris when there was a similar one held in Boise? If you are considering attending or expensing travel to a conference (particularly one outside of North America/the Caribbean), you should speak with a tax advisor or take a close look at the rules outlined in Pub 463.

Traveling with Family

If your family is coming along on a business trip, it will not disqualify you from any write-offs. You can still deduct a substantial portion of the trip’s cost. The cost of a hotel room will still be deductible, but only up to what a single room would cost. For example, if a single room at a hotel would cost $175 and a family room costs $200, then only $175 would be deductible. The cost of a rental car for the family will be fully deductible since the cost is the same regardless of how many people are in the car. Meals can be deducted only for you and for your spouse if the spouse is an owner, an officer or an employee of your business.

Compile the Proper Documentation

As with any write off, you will need to keep track of your deductible expenses and maintain accurate records. Save your receipts, invoices and any other document showing what you purchased, the amount and when you purchased it. Don’t co-mingle personal expenses with business expenses. Use a separate card for all your business or job related expenses.

Finally, don’t push the rules and try to claim personal expenses or purely social vacations. However, there is no reason your kids or spouse can’t join you on business trips so you can tack on a few extra days of fun.

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Skill Building is about Process Management

To bring your A-Game to the platform you must consistently and continuously remain in a skill-expansion orientation.  What that means is that it is in your best interest to always aim to implement and execute just a little better each time you venture into a trade; to plan, follow all rules and keep all commitments; to construct and hold sacred a standard of excellence that you unerringly maintain.

To some of you this may sound a little over-the-top; but rest assured that trading is serious business and when you put your hard-earned money at risk, for many of you, it means that you are placing your family’s future in your ability to not only protect your capital but to grow it. This is one of the major reasons why people trade; that is, to become financially independent in order that they can provide for their family’s wants not just their needs.  To do this, it takes a proficient and highly effective process that gets stronger and stronger with every trade.

A formula for consistency and focus when you trade.

This kind of fierce focus on what matters most ensures that you create consistency in using the core strategy tools and the mental game tools to develop capacity in emotional strength and endurance in the trade. Your ability to tolerate the myriad distractions that come from triggered emotions caused by unforeseen events in the markets and in the price action – like a market surge or the price action inching toward your stop – can mean the difference between a profit and a loss. You’ve got to have an iron-clad, highly effective process that is also flexible, feedback sensitive, and habit forming.  Let’s look a little closer at what this entails.

It begins with a formula for building skills; not only in trading but in any endeavor from medicine to machines and from technology to trading.

SK (P + ER + FL + H) =SB

At the beginning of the formula is SK, it stands for Specialized Knowledge.  Without knowledge that is specific to the endeavor, you are and will remain incompetent and unable to achieve the goals (the results) that you seek.  For traders, specialized knowledge has to do with the strategies that provide the edge; that small but powerful calculated advantage that makes all the difference and takes what otherwise would be gambling and transforms it into trading.

Online Trading Academy’s edge is their Core Strategy and its components.

This specialized knowledge becomes a multiplier of the variables in the parenthesis, the first of which is P.

P stands for Protocols.  A protocol is a series of sequentially ordered steps toward an aim or a goal.  The sequence here is very important and it involves the procedure, rules and stages that are necessary for reaching the objectives. For example, the 6-step process of preparing to execute a trade.

Next, we add the ER or Effective Routines.  Routines are the things that you do to maximize the protocols impact in getting the results that you want.  They are called Effective because they are well chosen, written down, prioritized and used as a checklist.  When you employ effective routines, you take the thought process out of the equation for moving forward.  This is important because thinking is fraught with danger, as errant thoughts can distract and distort your perceptions of what the data in the markets and on the screen are saying.  Also, ER supports your behaviors to become consistent. You do not want to be inconsistent and/or errant in what you do. You want your behaviors to be methodical.

Then there is the FL or Feedback Loop. Feedback is a part of any behavior, but first you must pay attention to the outcome so that you can use this data as feedback.  Here is where you verify, measure, and document the data to tease out what is not working against what is.  The feedback information is used to identify and track the patterns of thinking, feeling and doing that highly impact your ability, or lack thereof, to achieve the results that you want.

Free Trading WorkshopThe last variable in this formula the H which stands for both Habituation and Habit Formation.  Habituation is what happens when you both mentally and physiologically acclimate to a situation or set of circumstances. An example of this is when you do something repeatedly or are stimulated over and over in the same way causing your system to set up internal loops to handle the stimuli without thinking. The result is that you become less and less sensitive to it; it has become habituated.

Additionally, repetition causes the actions to drop into unconscious control.  This is also called a habit.  In fact, the habit that is formed in this type of condition not only is positive, productive and powerful, it is also how you can re-program to go from doing those things that are not in the interests of your highest and best trading self to doing those things that are. If you follow this formula in earnest you will experience a substantive increase in your skill building capacity which will equate directly to your becoming a consistently successful trader.

Trading is a process-oriented endeavor for those who are serious about becoming and remaining a consistently successful trader.  In any one trade it is not about the outcome, it’s about how well you implement and execute.  You must reserve all your focus to be honed on what you are doing and how you are doing it.  This is what we teach in Mastering the Mental Game online and on-location courses.  Ask your Online Trading Academy representative for more information.  Also, get my book: From Pain to Profit: Secrets of the Peak Performance Trader.

Joyous Trading

Dr. Woody Johnson –

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Is Your Ship Sinking?

Ships don’t sink because of the water around them, they sink because of the water in them. There will always be many challenges happening around you, many financial experts trying to give you advise that often is better for them than it is for you. There will always be global events and so much more that happen around you that are certainly out of our control. Like the ship, the key is to not let any negative influences enter your world. Instead, create a bubble around you and your family so that whatever happens around you, and whether markets go up down or sideways for whatever reason, that for the rest of your life the negative impact on you and your financial well-being is minimal to none.

For trading, the separation in your mind needs to happen at the level of the influence on price and its relation on the movement in price itself. The number one challenge people have is that they think they are one in the same. What you need to really understand is this…

Any and all influences on price are reflected in price.

When you really understand that concept, you realize that all that needs to be considered is supply and demand to make your trading and investing decisions. Why the supply or demand is present is irrelevant, yet that is where most people’s focus is. Let’s take a look at a recent live trading session I delivered where we traded Oil Futures, a market that always has reports coming out and is always in the news.

Live Trading Session: Oil Futures – 6/5/18
Trading oil futures using supply and demand.

At the end of May, Oil prices rallied into a strong supply zone where we took action, selling short and planning on a downside move. June 5th, price reached the profit target (blue line), moving from $72.00 a barrel to $65.00. This trade took about a week to play out and during that time there was plenty of news on Oil, plenty of reports that came out on inventory, production, etc. For us to plan and execute this trade, there were two key areas of focus:

  • We had to properly quantify supply and demand by analyzing the price chart.
  • We had to completely ignore any and all outside influences on price (news, reports, data, opinions…)

In other words, the ocean of influence is massive, but our trading ship is very healthy as long as we keep the water out of the ship.

Free Trading WorkshopWhy is focusing on news, reports, and other influences on price a problem? Here is how it works… When news or reports are good, most people get bullish and buy. What they don’t realize is that by the time the news and data is positive, the price of the market in question is at or near supply (retail prices). When the news and reports are bad, most people get bearish and sell. What they don’t realize is that by the time the news and reports are negative, price is almost always at demand (wholesale prices). This leads to most market participants taking the opposite buy/sell action as they should at key turning points in the market. This is the primary reason most traders and investors never come close to achieving their financial goals; they let the water into their ship, on purpose.

Instead, make sure your strategy to buy and sell in markets is exactly in-line with how you make money buying and selling anything in life. That means making sure you focus on price and price alone, not any of the other influences on price. This will have you consistently buying at demand (wholesale) and selling at supply (retail) which is key in achieving your financial goals and ultimately living the life you choose to live.

Live the life you choose.

Sam Seiden –

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Protecting Your Portfolio Against a Crash

With the recent rise in volatility, there has been a lot of talk about a potential equity market crash.  Many investors are nervous about when, not if, this crash will occur and are looking for some protection for their stock portfolios.  Closing out your stock positions is an option, but many stocks pay dividends that the investors do not want to relinquish even when facing the threat of or during a crash.  Another reason for holding on to a stock position is to avoid tax ramifications on profitable sales of securities.

The most common protection that traders/investors seek is to buy puts on stocks they are holding.  The value of the put will increase as the price of the underlying stock decreases thus covering the losses in the stock position.  This is easy but also very expensive as you will have to pay a premium for every put you buy for every stock that you insure.

Free Trading WorkshopFortunately, there is a less expensive way to protect a portfolio. You can use the index futures contracts as a hedge for your stock holdings.  Selling a future is easy if you know how they work, and selling futures is also allowed in certain IRA accounts.

Before you go out and sell the ES (the S&P 500 E-Mini futures Contract), you need to know how many contracts are needed to hedge your account.  The ES is the equivalent of trading 500 shares of the SPY but at a fraction of the margin cost.  At the time of my writing this article, the SPY is trading at about $277 per share.  500 shares would cost $138,500.  Comparatively, the overnight margin requirement for the ES is only $6160.

You need to analyze your portfolio and determine the Beta Weighting.  Beta is a measure of volatility versus the S&P 500 Index.  The index has a Beta of one.  If your stock’s Beta is 1.5, then it is 50% more volatile than the index.  On average, (though not every day), when the index moves one percent your stock should move about one and a half percent in the same direction.

There are several easy steps to Beta Weight your portfolio:

First, you can multiply the amount you have invested in each stock by the Beta of that stock.  Let’s take the sample portfolio below.

What is a hedge?

When you total the portfolio, there is $49,055 invested.  Adding the result of the individual Betas multiplied by the individual investments we have $48,605.55.  Dividing that by the total amount invested gives us a Beta Weight of 0.99.  This portfolio has nearly the same volatility as the S&P 500, so when the market moves in a particular direction, this portfolio should move the same and in the same direction.

Using your analysis of the S&P Index, you could determine how much you expect the markets to fall to their demand.  When you figure out the expected return, you could sell futures contracts to cover your losses in your stocks.  In the sample portfolio, the 1300 shares have a 0.99 beta.  To cover the potential losses, the investor would sell two or three S&P 500 eMini contracts to be market neutral, (1300 shares x 0.99 = 1287 and each eMini = 500 SPY shares). Two may be sufficient and three would actually profit when the market drops.

Even mutual funds have a beta, so the same can be done for a portfolio or 401k that contains mutual funds.  This can usually be found on most financial websites.

How to hedge futures positions using options

Once you have found the individual betas, calculate the portfolio’s total beta using the method I mentioned previously.  I have selected several mutual funds from different companies to create a hypothetical portfolio below.

How to protect your investment portfolio.

As you can see, this portfolio’s beta is 1.22 and consists of 3150 shares.  This means that the investor needs insurance for 3843 shares.  If they were to sell S&P 500 eMini futures, seven contracts would provide insurance for the portfolio.  The problem is that the margin requirement for each contract is $6160 so the insurance would cost $43,120 to insure a $137,226 portfolio.  This hardly seems efficient.

Fortunately, there are additional ways to trade the S&P futures that will offer a more cost-efficient method with similar protections.  I had previously mentioned that most investors will trade options to hedge a position.  Specifically, they will purchase puts on shares that they own.  This works for individual stocks as they are optionable.  Mutual funds do not have options available however.

Since we were planning to use the S&P 500 derivatives to hedge a portfolio, we can instead use the options on the futures.  This will greatly reduce the cost of the insurance for our portfolio but still provide the same coverage.

Looking at the S&P 500 eMinis options, I am using a strike price below the current price level of 2770 for the start of the hedge.  You will also notice that I am using the March 2019 contract and options instead of the current July one.  This is because when you trade options, you must be aware of time decay and also want to have enough time for the position to cover your hedge.  If you do not buy enough time, you will lose premium and also may be forced to roll over your position which results in additional commissions.

How to hedge against a drop in the S&P 500

So, the puts would cost approximately $27.50 for each eMini we want.  This would be a total cost of $9,625, or 7% of the value of the portfolio.  For the cost calculation, you need to understand how the futures and the options on those futures are priced.  Remember that the S&P 500 eMini futures contract equals 500 SPY.  This portfolio would need to cover losses in 3800 shares so seven contracts should work.

This hedge is still less expensive than buying individual puts on stock, shorting the SPY, selling the ES (S&P 500 eMini), or simply holding on.  As you can see, there are several additional factors that you must be aware of.  You need to know a little about options as you may want to buy a different put option due to pricing.  You can also look to do the hedge in a retirement account such as an IRA so that there are different tax ramifications.

Even more important is knowing when to put on the hedge and when to remove it.  You will need to know Online Trading Academy’s core strategy of market timing to learn when your portfolio is vulnerable and when to remove the hedge to let your portfolio grow.  Come see what we can do to help you move out of the fear zone and become a successful investor.

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