Tag: Forex Trading Training

Preparing to Trade Live

Initially, while you are familiarizing yourself with the stock market, the computer system you will trade on, and the trading style you feel most comfortable with, it is recommended that you trade on paper – writing down where you would get into and out of a trade while watching a market window or a chart or both. This way you will get comfortable with what is happening on the screen, without worrying about actually performing a trade.

Some trading systems offer real time demo trading, however, there is a world of difference between that and live trading. It must be clear to the beginner that demo modes are for testing trading styles, practicing execution key strokes, and getting familiar with the software, regardless of whether it is receiving real-time data or not. This is for a few important reasons.

Order filling in demo trading mode is based on random order execution and does not simulate logic much less reality. To get your order delivered on demo may take more or less time than when live and, thus, indicate a filled order at a very different price level. It is very easy to cheat the demo trading system by bidding or offering into a stock that would otherwise be impossible to be delivered at that price on live mode. A trader’s decision-making skills will be radically different when real money is involved. Until you have traded live, not invested, you do not appreciate this human psychological fact.

Laptop sitting on a desk with the word strategy on it.

Demo mode is best used to:

  • Get familiar with all aspects of the software: indicators, charts, confirmation messages, settings, etc.
  • Practice and perfect the use of all execution keys, including those to change share size.
  • Observe the Level II information, the movement of market makers, ECN’s, and prints (time and sales numbers).
  • Correlate price movements on a stock with market or sector movements.
  • Learn exactly what momentum looks like on the Level II screen.
  • Observe the different types of stocks and different ways of trading based on spreads, volume, velocity and momentum.
  • Place realistic orders relevant to the current activity and velocity of price movement. Know when to use market orders and when to use limit orders. Be aware that there are many different trading simulators available, but all of them will provide perfect fills on your orders based on the prints. In reality, a market order, and/or others, may not get filled so ideally, and on a stock whose price is rapidly changing, you should allow a realistic degree of slippage in both opening and closing a position.
  • Observe chart pattern formation.
  • Practice decision-making skills and discipline.
  • Practice simulated trading with the help of the software. Try to set up only realistic trading scenarios. Keep in mind that you will have a tendency to do in live trading what you practiced while on demo mode. Keep demo trading as realistic as possible.

Practicing Execution Methods

  • Because prices change quickly on the NASDAQ, getting familiar and perfecting the use of the execution method is of prime importance in being able to close a trade when you want.
  • Whether it be the keystrokes or the Point & Click operation, execution of the trade is a paramount skill. If you can save an average of only a nickel on two trades a day, by the end of one year you would have accumulated over $25,000 (based on trades of 1,000 shares).
  • Practice the execution paths regardless of your trading style. You must know them cold.
  • Establishing Realistic Short-Term Goals. To expect to make instant money as a novice trader is unrealistic. Give yourself some time to learn your way around the trading world and test your skills. If you are patient, diligent and determined enough (and you stick to the proven rules), the market will eventually reward you. However, just like most successful people in any field, you have to pay your dues.
  • Your initial goal should be to establish a solid trading foundation through constant reinforcement of the proven trading rules. It will be the time to test your discipline, diligence and determination to succeed. The learning process in this field is not easy to cope with.
  • You must organize your thoughts and learn to control your emotions in order to think clearly, and practice sound judgment.

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Gray Market and Off Market Real Estate Acquisition Strategies

Gray market and off market real estate deals could provide investors with an advantage or Edge in the real estate market place, but what real estate acquisition strategies are available for those wanting to purchase these type properties? We’ll discuss that here.

People shaking hands in a real estate transaction

Gray Market Real Estate Acquisition Strategies

These are real estate strategies where a property has limited exposure to the public.

Tax Sales

Property taxes are the way local governments pay for things, like schools, safety and construction.  If a property owner doesn’t pay their property taxes, how does the local government recover the revenue? Answer: by some form of tax sale. There are two types of tax sales: tax lien sales and tax deed sales.

Tax lien sales are where the county/municipality sells their right to foreclose on the property to the highest bidder for the unpaid taxes. This allows the lien buyer to pay the tax debt to the county and then charge interest to the property owner. After a predefined period (which varies from state to state) if the taxes aren’t paid the buyer of the lien can then foreclose.  This is a process that must be followed carefully so that the deed is fully transferable.

Tax deed sales are where the county/municipality forecloses on the property after a defined period of non-paid taxes (which varies from county to county). The property is then sold to the highest bidder.  The buyer now has clear title on the property.

Tax Deed and Tax Lien processes vary by state and county to county.  Here at OTA Real Estate, our Deal Board provides an opportunity to find properties where the owner is delinquent (behind) on their taxes. Investors could then possibly jump in front of the county by buying the property, thereby keeping the owner from losing the property to the county and allowing them to get a good real estate deal for themselves.

REOs – Real Estate Owned (by who – the bank)

This is the last stage of the foreclosure process where no bids were accepted in the amount to cover the loan. In this instance, the bank takes legal position of the property. An investor can now purchase the property directly from the bank.  With the Deal Board, we have access (in some counties) to see the most recent properties taken back by the bank.

Foreclosure

A foreclosure is the legal process where the lender calls the note due for nonpayment of the mortgage/loan.  The property is usually sold to the highest bidder at a public auction.  This is a good way to purchase distressed property, however there are drawbacks. For example, the property must be purchased in cash (no traditional financing can be used) and the property is sold in as is condition with no inspections.  This gray market strategy is best suited to the most seasoned real estate investors.

Off Market Real Estate Acquisition Strategies

Off market properties are only discoverable to real estate investors. They are not being marketed to the public

Pre-foreclosure

Pre-foreclosures are properties where the owner is behind on the mortgage but hasn’t yet received a foreclosure notice. The investors can purchase the property directly from the owner, hence reducing cost and getting the owner out from under the mortgage.  This can help the owner save their credit and move on.  The investor, in turn, gets the property below market value with built-in equity.  This off market real estate acquisition strategy takes knowledge of foreclosure distress as well as the ability to remedy it quickly (meaning access to quick financing).  It also takes skill on the side of the investor to negotiate with the seller and the bank, in some cases.

Bankruptcy

The off market opportunity in bankruptcy will vary state to state, as it relates to homesteading laws and the kind of bankruptcy filed. In some states, bankruptcy will protect an individual’s home.  Purchasing property in bankruptcy may involve court intervention. Purchasing bankruptcy property is an intensive and rarely pursued off market real estate acquisition strategy.

Divorce

Purchasing a property from a divorcing couple is not an opportunity for the faint of heart.  Divorces can be one of the most difficult distress situations to pursue. Often the property is in the name of both married parties and an agreement must happen for the property to be sold, meaning it takes a skilled negotiator to close the deal. Both parties will need to sign the deed and proceeds often are split between the divorcees.

Targeted list

With targeted list, the investor develops a profile of properties with criteria they are looking for. An example of this profile might be:

  • Free Real Estate Investing Workshop4 plexes
  • Within the zip codes of 90002-90003
  • Non-owner occupied
  • 20+ years of depreciation
  • Owner lives out of state

The investor can now use this real estate profile to create a query on the Deal Board to target the exact kind of property they want and that have a high probability the owner will be open to selling the property.

Probate

Purchasing probate off market real estate opportunities involves a process which settles an estate.  Often the process will include the sale of the property because it must be sold to pay debts or distribute the inheritance to heirs.  As investors, our goal is to get to these properties early and offer the estate a price that will allow them to move on.  Being early increases the investor’s odds of getting the property under market price.

These are some of the top strategies we teach and provide data for (on our Patent Pending Deal Board).

None of these strategies are without work, but they give the investor an opportunity to solve a problem or lend a solution that helps the owners.  Win,Win.

Good Fortune,

Diana D. Hill Diana@OTARealEstate.com

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Multiple Time Frames Help Complete the Picture

ES stock trading chart

One of the many challenges a new trader faces is finding the optimal time interval for the candlesticks they plot on their charts. The trading approach or style a trader decides to implement will, of course, have a big influence. For instance, a weekly income trader (one who intends on holding positions for days and weeks) will have little use for a 5 minute chart. On the other hand, a short-term income trader may find a 5 minute chart an essential part of their analysis.

The most commonly used time frames for short-term traders are: Daily, 60-minute and 5-minute candles. When deciding which period to utilize, one must keep in mind that the shorter the time frame, the noisier the chart. In other words, the shorter time frames generate many more zones; however, these zones have a higher propensity to fail.

Free Trading WorkshopTraders that use ultra short-term charts (1 minute or less) are usually what we refer to in the industry as scalpers. These traders are in and out of the market in rapid-fire succession, typically taking 3 to 5 tick profits (futures markets); they compensate for the high commission costs and the smaller profits by having a high win-to-loss ratio (usually over 80%). This type of trading is not something I recommend for the new trader.  This is partly because the approach requires a high degree of skill which can only be acquired through vast experience; and the competitive landscape for this type of trading is very crowded. Scalping is done mostly by high speed computers executing algorithms. The odds of competing successfully against computers is very low.

Those of us that look for bigger moves on an intraday basis observe several time frames simultaneously, which can be helpful to minimize risk and maximize the potential of our trades.

To illustrate this point, let’s look at a recent example in the E-Mini S&P 500. Below is an eight-hour chart of the aforementioned ES. Note that price had rallied into the Supply and started to fall away. The key is that this shorting opportunity had a high likelihood of selling off to the next demand zone.  We must remember that trading is based on probabilities and we never have any certainty of success. What we do with these time frames is simply increase our odds of success.

Futures stock chart showing a trading opportunity

Then, if we drill down to the shorter time frame (ten-minute), we are able to spot a low risk entry within the confines of the higher location (close to the higher time frame supply).

Stock chart on a 10 minute time frame

The ten-minute chart (shown above) gives us a low-risk entry because the basing in the zone is narrower on the smaller time-frame. This is true because the rate of change is less in smaller intervals.

Here’s the setup: The area highlighted in yellow is the entry.  A limit order is placed at the proximal line and the stop is placed 2 ticks above the distal line.

Now that we’ve defined the entry and risk in this example, we need to find a profit objective that comports with a pre-determined risk-to-reward ratio.

For this, we return back to the hourly chart (magenta circled area shown below); observe that once price stopped falling it moved sharply higher from that point. Objectively, this suggests there are buyers there. We want to take profits before we reach the area that increases our probabilities of hitting our target (the blue line).

Stock chart showing the profit objective for a specified trade

As you can see on the lower chart, this trade gave us an extremely favorable risk-to-reward ratio and turned well before the pivot low was reached. Trades like these do not come along every day; nonetheless, the best way to identify them when they do is by implementing multiple time frame analysis. By utilizing the lower time frames as triggers along with higher time frames as filters, you can find more trading opportunities.

Stock chart showing a positive result on the trade example being presented

As a trader, you need to be cognizant of what the market is doing in all time frames, regardless of your style of trading. In my experience, I find novice traders become myopic (short-sighted) in how they view the market; and by doing so, fail to spot good trades and/or make failing trades.

So, try expanding your time-zone horizons and see if that helps you reach your trading goals.

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

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Trade with an Edge

Doing anything that is worthwhile, important and difficult means that you must gather your best evaluation, information processing, pattern recognition and problem solving ( i.e., your A-Game).  The above strengths are neither an exhaustive list nor are they necessarily the most important; but they are very powerful and they can contribute to trading in your highest and best interests with your highest and best trader. There is another name for such resources, both internal and external, that are critical to your effectiveness.  It is called having an edge.  An edge is a perceived advantage and, no matter how slight the advantage, it could shift the probabilities in your favor.

Two businessmen, one jumping a cliff in a race car and the other standing looking over the edge.

Trading is indeed a probability game.  Certainty is an elusive concept that has very little relevance in the trading process or in anything in life.  In fact, certainty can be highly problematic as it fosters impulsivity, false assumptions and a lack of clarity and can greatly reduce the reliability of information, if the filter used to evaluate the information is unduly weighted by thinking that you can predict an outcome. It is much better to embrace the uncertainty and ground yourself in maintaining consistency in your methods and ensuring that you are measuring, verifying and documenting the data gleaned from this process.

Now, in case you are thinking that having an edge is a complicated notion fraught with a lot of moving parts and difficult to implement; let me assure you, that would be an incorrect assumption.  To be clear, an edge can be very complicated, but most in trading are straight forward behaviors that will go a long way to supporting the high probability trade.  One example is Online Trading Academy’s Core Strategy class and using it to determine those variables that contribute to placing the high probability trade. Things like using the placement on the curve to determine direction or using the Odds Enhancer tool to get an objective assessment as to what the probability is likely to be.

The purpose here is not to outline the specifics of any particular edge but to make an argument for ensuring that you have an edge to your trading.  One of the ways to illustrate this is to consider rolling a pair of dice that have been weighted.  Even if you knew what numbers were weighted, could you predict when those numbers will come up? No, you would not and could not because the weight does not offer the ability to predict when those numbers will appear, only that they will appear.  So that the advantage is in the percentage of times that they will show.

Free Trading WorkshopWith a pair of normal dice, all of the numbers on the faces of the dice will present an even number of times across the board, given a large enough statistical sample (say a million throws). However, the statistics become skewed when the weighted dice are, so-to-speak, thrown into the mix.  A factor to consider, though, is that just as with the dice, the weighted numbers must be consistently targeted as coming up so that in the end you will have a higher percentage of winners. If you are inconsistent in the numbers called out, then your edge becomes compromised. For example, if 6s are weighted and you continue to target 4s and 5s, then your edge has been compromised.  The same conditions apply in your trading.  You must implement your edge induced plan methodically and consistently without erratic departures from the strategy.  Therein rests the power of the edge.

This is what we teach in Mastering the Mental Game online and on-location. 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

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Tips for Choosing Stocks that Pay Dividends

Fizviz.com stock data

Stocks offer three ways to earn profits. The first is the most common, buying the stock low and selling it when it goes up in price. The second is also well known, dividends. The third is not as common and involves renting out your stock. Using all three methods, could increase the amount of return you receive for your investments.

What Are Dividends?

Let’s look closer at dividends. When you buy shares of a stock, you are becoming a partial owner of that company. Sometimes, when a company is doing well in its operations, it will share the profits with those owners. The dividend is the sharing of the profits. There are several things to consider when choosing a company to invest in in order to receive the dividends.

How to Get a Good Yield from Dividend Investments

You must buy shares in a company in order to receive the dividend. You want to receive a high dividend in relationship to the amount you are spending on the shares. While there is not a set number you should be looking for, obviously the higher the yield, the better. A dividend yield of 4 to 6% is considered to be good. Finviz has a heat map on its website that shows the dividend yield of many stocks. The dividend yield is the dividend in comparison to the stock price.

Finviz.com stock data

Getting a Good Dividend Payout Ratio

You also want to make sure the dividend is sustainable. The payout ratio is the percentage of earnings that is being paid out in the dividend. If the dividend payout ratio is close to 100% of earnings it may not be sustainable. Therefore, you would like to see a lower number so that the dividend is likely to be continued in the future. A dividend yield under 35% is very low and is not typical for income investing. 35% to 55% is a healthy dividend payout ratio and a good target for many investors to seek.

Companies that offer dividends higher than 55%, may be paying out too much of the profits and that means the company is not reinvesting that money into itself. It may not be focused on growth and investors may not see dividends increase in the future. Increased dividends due to growth in the company also increases your returns and is your goal.

What Are the Company’s Growth Expectations?

Free Trading WorkshopAnother consideration is if the company is truly doing well and likely to continue to do well and grow its earnings in the future? Dividends are a sharing of the earnings, if the earnings stop or even shrink, there won’t be anything to share! When looking for companies to invest in, you can look at the earnings and the growth of those earnings. Many people focus on the earnings per share (EPS) growth. A better analysis could be to look at the return on equity (ROE). This is rumored to be an important number for value investors, like Warren Buffett. Your ROE is the amount your ownership is increasing in value. Do not just look at one year’s ROE as it can be misleading. Instead, look at the average ROE for the last 5-10 years. If a company is maintaining a ROE over 10%, they are likely doing well in their operations and growing the value of the shareholder’s ownership.

In addition to looking at growth as a value of earnings per share and return on equity, you can also look at other factors like institutional ownership when deciding where to invest. The reason for searching growth in earnings is obvious, but the institutional ownership assists in being able to time your entries and exits into the stock itself. In order to capitalize on price movement like the major institutions do, we should look to invest where and when they do as well. There are websites and brokerage software that offers screeners to help you search.

Fizviz.com stock company search

In the beginning of this article, we discussed using leverage and multiple assets. In my next article I’ll discuss how to buy these stocks at a discount and how to rent them out for increased income and protection against price drops using options. Until next time, may all your trades be green and your losses small!

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Pooled Investments: Exchange Traded Funds

The category of investment asset called pooled investments allow investors to more easily diversify their portfolio, thereby reducing risk. The most common types of pooled investments available to individual investors are:

Let’s first discuss how these investment types got started and then go into more detail about ETFs. According to Wikipedia, the first investment trust was the Foreign & Colonial Investment Trust, started in 1868 in the UK ‘to give the investor of moderate means the same advantages as the large capitalists in diminishing the risk of spreading the investment over a number of stocks’ … In many respects, the investment trust was the progenitor of the investment company in the U.S.

Free Trading WorkshopIt appears that the idea was around even earlier than that. A Dutch merchant named Van Ketwich created an investment trust in 1774 whose name translates into unity creates strength. This probably inspired King William I of the Netherlands to launch a similar investment company in 1822. Other similar funds followed in Switzerland in 1849 and in Scotland in the 1880s. By 1893 the idea had made its way to the U.S., where the Boston Personal Property Trust was established.

All of the forgoing were what we would now call closed-end funds, where shares in the pool were issued upon establishment of the pool, and at that time the number of shares was fixed, never to change. More about this type later.

The type of fund that we now know as open-ended mutual funds, or just mutual funds, was pioneered by the Massachusetts Investors’ Trust in Boston in 1924, opened to the public in 1928. These open-ended funds allow investors to buy new shares from the company at any time, and also to sell them back to the fund at any time. As it later turned out, 1928 was not an ideal time to initiate a new stock-market investment vehicle, and the mutual fund industry didn’t really get moving until much later.

Until 1975, stock brokerage commissions were fixed and very high. From 1795 on, the New York Stock exchange (which was owned by its member brokers) had mandated that all brokers charge the same amount for commissions on stock trades, and those commissions could amount to hundreds of dollars per trade. Any broker that tried to compete based on commission rates risked being expelled from the exchange. This would mean losing not only their livelihood, but also most of their wealth, which mainly consisted of the value of their exchange membership. As other exchanges were established in the U.S., they adopted the fixed-rate policy too. This effectively made it impossible to buy fewer than many tens of thousands of dollars’ worth of a stock at a time, without giving up most of the potential profits in commissions. This regime of fixed rates continued until it was abolished by the Securities Exchange Commission on May 1, 1975, ending 180 years of fixed rates and ushering in the age of discount brokerages.

In the environment of prohibitively high fixed commission costs before 1975, pooled investments provided a way for non-wealthy investors to participate in the stock market. Even though the mutual funds themselves charged a pretty high expense ratio of ½ to 2% of fund assets per year, this was still preferable to not being able to invest in the stock market at all.

The mutual fund industry really began to take off in the U.S. after 1954, which was the year when the stock market finally regained the level it had reached just before the 1929 crash (yes, it took 25 years for the market to get even after the 1929 crash!). Brokerage commission were still fixed; but with the public’s horror of the stock market finally fading, Main Street could once again be enticed onto Wall Street through the vehicles of pooled investments.

There is much more to the history of mutual funds than we have space for here. If you are interested, this Investopedia article is a good place to start.

Gears with stock symbols in the representing exchange traded funds.

The latest iteration of the pooled investment idea is the exchange-traded fund (ETF). The units in these funds trade on stock exchanges like shares of stock; and each share represents a fraction of the entire pool of investments. At this time, exchange-traded funds exist that invest in stocks (usually based on a stock index), bonds, precious metals, real estate, commodities and other assets. Around 2,000 separate ETFs exist. For those ETFs that are based on stocks, virtually all are based on one or another of the various stock market indexes published by Dow Jones, Standard & Poor’s and other index providers. Stock ETF investors get the benefits of indexing (diversification and survivor bias) and much lower fees than traditional mutual funds. ETFs also usually have put and call options available, which savvy investors can use to increase their cash flow from these investments. For those interested in a deeper exploration of how and why ETFs work, a good starting point is here.

For many investors, ETFs provide an easy way to create a diversified portfolio very conveniently within a stock brokerage account; and to protect that investment with stop-loss orders or with options, which are not possible with mutual funds. At this time in history, the exchange-traded fund is the most evolved version of the pooled investment idea.

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