Author: Online Trading Academy

Trading Basics: Define Your Trading Process

Speculating in the financial markets can be extremely challenging; this is due to all the unknown factors that are continuously present in the markets.  The nature of markets is that nothing is certain and everything can change quickly. For us mere mortals, the concepts of risk and uncertainty can be extremely hard to deal with as most of us are not hardwired to accept these as a part of  daily life. As traders, however, these factors are indeed the reality of everyday life and as such a tested trading process is of critical importance.

In this week’s article, I’m going to go through three basic steps that should help traders formulate a trading process.  Obviously, going through the particulars of a strategy is beyond the scope of this article; nonetheless, putting a trading process together can possibly help get a struggling trader on the right path. So, let’s get started.

The first step in a well-defined trading process is to identify where to enter a market with the lowest risk, highest probability, highest potential for your desired outcome. To do this, we must look at a price chart looking for both supply (where the unfilled sell orders are likely to be found) and demand levels (where the unfilled buy orders are positioned). This has to be done in various timeframes as we don’t know in what timeframe that formation will reveal itself.  The purpose in finding these areas of supply and demand is so that we can anticipate when the market we’re trading touches either one of these levels and will reverse direction. At supply, we expect the market to turn down, and conversely, at demand it should rally. These are considered the lowest risk entry points.

In the chart below, we see a supply zone in the WTI crude oil contract that was created on February 25.  We expect (no guarantees) that the CLJ19 will turn down when this zone is reached. This would be our shorting zone. How far it might fall is a function of where the opposing level is determined.  This constitutes our potential target.

Stock chart for crude oil trade example.

The first step allows us to quantify risk and reward.  In this example, the entry at the supply zone, the stop (above the supply) and the target slightly above the opposing demand zone (the blue line). A key point is that the distance between both levels should be far enough away so that even if we’re right only a small percentage of the time, we could still be profitable.  Below is the chart of the what transpired after CLJ19 touched the level.

Stock chart showing the supply zone, stop and target for a trade on crude oil

A given in our trading process should be that low risk entries always take into account the fact that we’re not always going to be right, and therefore, if we’re wrong we will lose very little (which very well could have happened here).

The next step once the levels are found and the risk to reward is assessed, is simply to place the orders in the market.  This can be done very easily on most professional level platforms. These allow us to simultaneously place (in the above example) a sell limit order to enter the trade, a buy stop, and a buy limit order to exit.

Free Trading WorkshopThe final step in the trading process is to manage the trade once it is triggered. This can be done by simply moving the stop to break-even once a certain target is achieved, or not do anything by being comfortable with letting it hit the target or stop out. The most important element in this step is to be as emotionally detached as possible from price movement. To achieve this, it is preferable that the exit strategy is well defined BEFORE the trade is triggered and that it is simple and comprised of a few adjustments.

That is a good starting point for a three step trading process that can be replicated and put into plan. Of course, it’s not as simple as I describe here because learning how to identify the highest quality low risk zones requires training and time.  If you have the motivation to learn, at Online Trading Academy we are here to help.

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

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Money Market Accounts vs Savings Accounts – Which is Better Suited for Your Personal and Financial Needs?

In today’s economy every penny counts, which is why it is so important that you do your research ahead of time, and always endeavor to invest your money in higher interest-bearing accounts that will provide you with larger returns.

red watering can watering plant sprout with change around it

Interest Earned on Savings Accounts

Sadly, according to the FDIC (Federal Deposit Insurance Corporation) the national average savings account interest rate in the U.S. is only .08% for all balances. The standard interest rate is .04%  on checking accounts, though some banks do offer higher-interest checking accounts, which do offer unlimited check-writing, debit cards, online account management and perks such as reward points and free overdraft protection. However, to qualify for a high-interest checking account you must:

Accept direct deposits and electronic statements, incur at least 15 debit card transactions per month (most require 10) and transact at least one bill pay or transfer from your account per billing period. Failure to do so could jeopardize your higher rate for that statement period.

Finally, most banks cap their high interest checking account balances at $25,000, and any deposits that exceed the cap can earn a much lower interest rate.

Interest Earned on Money Market Accounts

If you are planning to put aside some money for a short period of time, or you don’t wish to actively manage your personal savings, one alternative to bank savings and checking accounts are higher yielding Money-Market accounts. Like Savings accounts, Money Market accounts are FDIC insured and usually pay a higher interest rate to the account holder (around 1%). In addition, Money Market accounts also give the account holder the best of both worlds; by combining the benefits of savings and checking accounts. However these accounts usually require the account holder to maintain a higher balance in exchange for the higher interest rate.

One other important fact about Money Market accounts is that they are not only offered through your banks, but other financial institutions as well. For example, most brokerage firms tend to offer higher interest yielding money market accounts because the majority of these firms operate online and have lower overhead than banks. And just like with banks, your money market account with a broker is FDIC-insured.

What You Should Know About Money Market Accounts

Here are some important considerations to keep in mind before you decide to move your savings into a Money Market Account:

Access Free Financial EducationMany banks and institutions require a higher minimum deposit, and some accounts require a minimum balance be left in the account in order to receive the higher interest rate. In addition, the interest rates on Money Market accounts are variable, which means they will often rise and fall along with the interest rate market. Finally, federal regulations limit the number of check writing and transfer privileges to only six per month. Therefore, if you are someone that may need access to your savings on a more regular basis, a money market account might not be the right decision for you at this time.

Your next step is to sit down and write out your short-term savings goals in order to determine if you can comfortably open a Money Market account, and abide by the federal requirements associated with this type of investment account. If not, you should seriously consider creating some immediate actionable steps that will allow you to free up enough disposable income that you can start to take advantage of higher interest-bearing accounts for the future.

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Strategies for Choosing the Right Stocks

Image showing different sectors of the stock market.

Knowing how to trade is only part of the battle. When tackling the equity markets, we also need to figure out what to trade. There are a lot of stocks available on the NYSE and the Nasdaq, so how do you choose the right stocks? Traders need a set of rules to filter out dangerous stocks and find stocks that will offer the highest probability for success.

In our Core Strategy and Stock Trading Course, we set out a detailed set of guidelines for finding stocks that are acceptable for trading and those that should be avoided due to factors such as: low volume, extremely volatile price swings, non-correlation with the broad market, etc.

Once we narrow down the list of tradable stocks, we need to identify the ones that will offer us the best chance for success during our chosen trading timeframe. There are two ways of doing this: the first way to find the right stock is a top down approach to and the second is bottom up.

One thing that both methods have in common is that we want to identify the trend of the broad market. Which, in our case, is the S&P 500 Index and/or the Nasdaq Index. Trying to trade against the larger market trend is likely to spell disaster. Even if we are able to make a profit, it is likely to be extremely small in relation to the profits we could have made by trading in the same direction as the markets.

How to Choose Stocks Using the Top Down Approach

Starting with the top down approach to finding the right stock, you will want to identify the broad market’s trend and its probable future direction. This is done by viewing the charts of your intended intermediate time frame and the Curve. These are concepts discussed in the Core Strategy Course to increase your probability of success. You want to properly recognize the trend direction and then identify the supply and demand zones that are likely to cause a pause or reversal of the trend.

Free Trading WorkshopOnce you know the broad market’s likely direction, you can then look to the sectors that are likely to outperform the others in that market environment. Not all sectors perform as well in bullish markets or bearish markets. Some are seen as risky and excel in overall bullish moves while others are defensive and may do well when the bears take hold. Knowing the characteristics of the sectors themselves offers an advantage to the stock trader.

Many traders will stop there and invest and trade in the Exchange Traded Funds (ETFs) that track the markets or sectors. This is a good idea for many investors as ETFs are baskets of many stocks in a sector and your investment in these securities automatically diversifies your portfolio, unlike buying individual stocks. Owning a basket of many stocks can be less risky that owning one or two stocks. If there is bad news on one company, owning just that company could prove disastrous. If that company is one part of an ETF, the entire portfolio may not suffer as much if the price of that one stock drops.

Working our way down from the sector, we are now ready to select individual stocks in those sectors. There are many market maps that will allow you to search stocks for free, or you can look at the lists available on your software.  You want to find strong stocks in strong sectors to buy at demand zones when the markets are bullish. Conversely, you want to find weak stocks at supply in weak sectors when the markets are bearish.

Image showing different sectors of the stock market.

How to Choose Stocks Using the Bottom Up Approach

The bottom up approach works well too.  Using a stock screener or even just looking at a small group of individual stocks you like to trade, you would identify both long and short trading opportunities. Creating a list of long and short trading opportunities may be better for the intraday trader since the markets can often swing both directions and you will be ready to trade wherever the market tells you to go. Once you have your stocks chosen from the scanner, you would simply wait for direction from the broad markets to tell you the trend for the day and then execute your plan.

For more information on how to select the right stocks to trade, come join us in one of our Professional Trader courses and online in the Extended Learning Track. We teach you how strategies to combine the knowledge of how to trade with the skill of finding the right trade.

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Option Prices and Stock Prices

In an earlier article, I wrote about the change in an option’s value due to time decay. I mentioned then that there are two additional influences on the price of an option. Today we’ll talk about one of them – the change in price of the underlying stock.

Let’s look at call options. A call option gives its owner the right to buy 100 shares of a specific stock (the underlying stock, or just underlying for short), at a specific price (the strike price), on or before the close of business on a specific future date (the expiration date). Let’s jump right in with a concrete example. On February 19, the stock of IBM closed at $138.19 per share. On that day, there were call options to buy IBM shares at $135 per share, expiring in 120 days on June 21, 2019. The price of the call option was $7.90 per share, or $790 per 100-share option contract.

Anyone who bought that call option was expecting IBM stock to go up in price. Since the option owner had the right to buy IBM at the fixed price of $135, the higher IBM went above $135, the more they could make, with no limit. It would not even be necessary to exercise the option to make a profit if IBM went up; the owner of an option could plan simply to sell the option itself at a higher price.

For example, say that by the expiration date, IBM went up to $150. That is $15 higher than the call strike price of $135. So, the option at that point would have $15 per share of intrinsic value. If it was in fact the expiration date, with no time remaining in the option’s life, then there would be no extrinsic value, also called time value; so, in that case, that $15 of intrinsic value would be the option’s total value. The option owner could sell the option at that time for $15 per share ($1,500 per contract), making a nice profit of $710 on the $790 per contract original investment.

Notice that in this example, the stock price would have gone up from $138.19 to $150, an increase of $11.81 or 8.5%. The option, meanwhile, would have gone from $7.90 to $15.00, an increase of $7.10 or 89%. That’s the power of leverage in option trading – an 8.5% change in the stock led to an 89% gain on the option.

What about that increase in the option price? It was not a one-to-one match with the stock price. Is there a way to estimate how much an option’s price will change when the stock price changes? This would seem to be necessary to calculate potential profit or loss.

In fact, there is. At any moment in time, the ratio of option price change to stock price change can be calculated. It is called the Delta of the option and is readily available. It is normally displayed in the list of options (the option chain). Below is the partial option chain for those IBM June options:

Chart of IBM stock prices

Note the number in the Delta column for the 135 call above. The Delta reading of .64 meant that for the first one dollar that IBM’s stock price went up, the call’s value would go up by .64 cents per share.

Also notice that the options at other strike prices have different Delta values. This shows that Delta is not static. After that next $1.00 move in the stock, the Delta of an option will be different. In fact, as the stock continues to move, for each additional dollar it climbs, the value of the call option will increase by a larger and larger amount. If the stock climbs high enough above the option’s strike price, the option’s delta will reach its maximum value, which is 100%, or 1.0. If the stock continues to go up even farther, then from that point on the option’s price will finally change in a one-to-one ratio with the stock. In that case we say that the option is at parity. In the above chain, the call at the 115 strike is at parity.

Whew! It appears that calculating an option’s price change due to stock movement is not so straightforward, with the Delta constantly changing. But there is help for that. Modern option trading software has a feature called the option profit and loss graph, which can tell us what an option’s price would be given any stock price. The software also knows the current option price, so it can calculate for us what our profit or loss would be given any particular stock price. The profit/loss graph allows us to estimate our profit should the stock hit a target price.

In the graph below, the blue line shows what the profit or loss on this option would be at different stock prices, given the original purchase price of $790 for the contract. The stock price is on the bottom axis; profit/loss is on the left axis. We’ve put in a marker, the gold vertical line, at our target price of $150.

Options graph showing profit loss on IBM trade.

We can see in the boxed table below the graph that at a stock price of $150, the Value of the option would be $1,500, and the theoretical profit or loss (Theo P/L) would be $710.00. We could put in other markers at any stock price we wanted. For example, to calculate how much we would lose if IBM should drop to some predetermined stop-loss price.

Free Trading WorkshopTo wrap this up, we know that option prices change when the underlying stock price changes. We now know that we can estimate just how much an option’s price will change when the stock reaches any desired target price or stop-loss price. This is the information that we need to calculate reward and risk on our trades. The option P/L graph is our most important tool.

We’ve now looked at the effect on option prices of two of the three forces that move options – time decay and underlying stock price change. Next time, we’ll see how the option graph can tell us the effect of the final one of the three forces.

Until next time, good trading!

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Real Estate Newsletter – March 2019

Thoughts from Diana

Well Punxsutawney Phil couldn’t find his shadow, so they say we are in for an early spring (sure doesn’t feel that way at 39 degrees in SoCal). As we look toward spring and the peak retail selling season for real estate my article might help you better evaluate the agent you’re considering adding to your team. Joe Russo is back this month with a follow up article regarding ways to increase the bottom line on your rentals properties.

Remember we are here to provide guidance and support – contact us.


By Joe Russo

Ever heard of an add-on? Think of these 6 strategies as add-ons that can increase rental income. Some are optional, some are an added convenience for tenants and others are a smart way of managing business. One thing to keep in mind, though, is whether the market will bear the add-on.



By Diana Hill

In this article we’ll explore the many reasons you should have an agent/broker on your team, in spite of the fact that in our real estate classes we spend a lot of time teaching how to find off market deals which don’t require an agent/broker. We will also discuss how to get the right real estate professionals on your team.


Upcoming Classes

In-Center Classes

Rental Investor with Jason Tom
Woodland Hills, 3/26/2019- 3/29/2019

Online Classes

Fix and Flip with Ron Fields
3/1/2019 – 3/4/2019

Real Estate Tax Strategies with Michael Atias
3/11/2019 – 3/12/2019

Real Estate Foundations with Chris Heffer
3/25/2019 – 3/28/2019

Commercial Investor with Jason Tom
3/21/2019 – 3/24/2019

Wholesaler with Joe Short
3/29/2019 – 4/1/2019

RECC 4:00PM – 5:30PM (Pacific Time)

3/7/2019: Deeper Look at LOI’s Purchase Agreements and more – Jason Tom

3/14/2019: Managing Your Properties – Gary Tole

3/21/2019: Design and Your Fix and Flips – Gary Tole

3/28/2019: Special Guest – Diana Hill

Questions can be submitted to and deals can be uploaded for deal review.

Office Hours for Total Solutions Students:
Tuesday 6:30 AM- 7:30 AM PST
Friday 12:00 PM – 1:00 PM PST

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Think Outside the Box to Increase Rental Property Income

A lightbulb coming out of a cardboard box with text Think Outside the Box

Ever heard of an add-on?  Think of these 6 strategies as add-ons that can increase rental income. Some are optional, some are an added convenience for tenants and others are a smart way of managing business. One thing to keep in mind, though, is whether the market will bear the add-on.

A lightbulb coming out of a cardboard box with text Think Outside the Box

6 Ways to Increase Income from Rental Properties

  1. Laundry Facilities Offer Additional Income from Renters
    If you own a multi-family property, adding coin operated laundry machines is a great way to earn some additional income. Will every single tenant utilize them? Probably not, but there will be a good majority of them that will and in a few months your investment will have paid for itself. Things to think about when deciding whether this will be a lucrative move for you as a rental property investor are: do you have adequate space for the facility, your tenant ratio (are there enough tenants to justify the cost), and maintenance costs.
  2. Rent Parking Spaces!!!Free Real Estate Investing Workshop
    I’m sure we all know someone who has said, ‘I love my place, but the parking is becoming such a hassle, I may move’.  This could be an opportunity for you if there is part of the driveway that isn’t being used or garage space that you could utilize as a rental parking space. Even better would be if there were an area where you could maybe create parking.  Here is an example: I had a building with a grassy area that had no parking of its own and street parking was limited.  Now, as a kid I had to begrudgingly cut the grass at this property, a task I still didn’t enjoy as I got older. One day it dawned on me, why not pave it over and make some parking spots? Well that is exactly what I did.  The town loved the idea as it freed up more of the side street parking. When it was done, low and behold, we had 14 spots at $100 dollars a month per spot! I see a lot of multi-family properties that could utilize the space they have much better.
  3. Rent Out Space
    Your ability to implement this rental income idea will depend on the type of building and the state and town laws in your area, but if you have a space you could rent it would be worth investigating. What do I mean by renting space? Does your building have a roof you could rent for events? What about a room that could be used for conferences? Another idea is to approach one of the cell phone companies and see if they would install cell towers on your property and pay you for renting the space.
  4. Yearly Rent Increases
    If you’ve ever rented a place, were you surprised when the yearly lease expired and the rent went up?  Make it a point to increase the rent yearly but keep it reasonable.  Even if it is just $20 dollars a month, it all adds up and yet it isn’t enough to make a tenant think about relocating. Make sure that you know what the market rent is for a similar style rental in your area so you don’t run the risk of overcharging or undercharging.  If your rent is too low, cash flow could be an issue and if rent is too high, the unit might remain vacant for too long. Offer options cause, who doesn’t like options?  For example, offer a short term lease or a month to month lease as opposed to a yearly lease at an increased rental amount.  Or,  give your tenant an incentive to pay early in the form of a slight discount. You might reduce the rent by $10 if they pay 5 days before the 1st of the month.  Wondering how offering a rental discount adds value? Value can be obtained in many ways so, let me ask you, would you sleep better at night and be less stressed if you knew you weren’t waiting for late rents or having to call the tenant or property manager to find out when you’re getting paid? That peace of mind is added value, in my opinion.
  5. Thoroughly Screen Tenants
    An aspect of being a rental property investor that is sometimes overlooked is the screening of tenants.  Whether it is you or your property manager doing the screening, it is imperative that prospective tenants are screened well prior to a lease being signed.  Sometimes securing a better tenant with a slightly lower rent is better than a bad tenant who will end up costing you money in legal fees and nonpayment of rent, etc., not to mention that bad or disgruntled tenants can do some costly damage to your rental unit. We focus on the steps for screening tenants effectively in the OTA Real Estate Rental class.
  6. Charge Tenants Pet Fees
    Something I’m starting to see more and more of in the last few years is people wanting pets and let’s face it, to most people their pet is part of the family.  Please check with your state, county and town regarding service animals as they are protected.  However, if you decide to accept pets you can charge a non-refundable deposit.  I have seen them as low as $250 and as high as $500.  Additionally, you can charge an extra $25 a month pet fee as well.  Make sure to limit the number of pets, type of breed and weight according to your preferences.

As you can see, there are several ways you can add value to your rental properties.  Whether you manage your own property or manage your property manager, the key is to lower your costs, raise your income and hold on to the good tenants as these will all increase your bottom line.

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