Tag: Forex Trading Training

Charting and the Trading Environment

Candlestick chart showing the British Pound in a range bound pattern.

Have you ever just jumped into a trade without understanding the trading environment, meaning whether the market was trending, range bound or close to a major turning point (higher time frame supply or demand) only to have the trade stop out? Of course you have…we’ve all experienced that disappointment in our journey of discovery through this world of market speculation.

To prevent this from happening too often, traders must develop a systematic approach that takes into account the environmental condition on every trade. The objective is to guide a trader into a better decision making process.

Trading Risk, Reward and Probability

Free Trading WorkshopThe three main factors one must focus on as a trader are risk, reward and probability. In my experience as a trading instructor, the one factor that most traders struggle with is gaining a clear understanding of what determines the probability on a trade. In other words, based on the current market conditions, what are the odds the trade will work? Figuring out the risk on a trade seems to be the easiest part of the equation, while profit projections (reward) are another tough one and a topic for another article.

Let’s review two specific trade examples that transpired in the last few days from my early morning spotlight sessions with mastermind students. In these two setups, charting the trading environment gave us different readings on the probability scale. This additional perspective allowed us to determine probability of the trade working out in our favor and to make better decisions in the examples that follow.

British Pound Trade Example

In the first scenario, we identified a buy area (demand zone) in the British Pound futures contract. The zone from a pattern perspective- looked good, but that’s only one piece of our trading process. The second piece is determining whether the Pound was near a larger time frame turning point or range-bound. As seen from the daily chart below, the trading environment at the time was a sideways pattern. This is a lower probability environment as the forces of supply and demand are more or less in equilibrium.

Candlestick chart showing the British Pound in a range bound pattern

I know some are thinking that the Pound has been trending lower; however, when the momentum slows (as is the case in this trade example) this could portend a change in trend. Traders never know the trend has changed until after the fact, however. Looking a bit closer at the buy zone in the chart below, it can be seen that indeed price did pause at that level for several hours before buyers gave way to the sellers and stopped out. Looking at the current trading environment on the daily time frame could have given a trader pause to take this trade.

120 minute candlestick chart of the British Pound

Australian Dollar Trade Example

In the second scenario, we spotted a structurally sound (good looking pattern) supply in the Australian Dollar Futures contract, similar to the prior example. The main difference from our  British Pound example was that the AD (Aussie Dollar futures) had been rallying into a major turning point, as seen on the daily chart below.

480 minute candlestick chart of the Australian Dollar

In other words, this type of trading environment gives a much higher chance that the trade could turn out as the trader expected. This is mainly due to the fact that buyers thin out (demand decreases) as price moves higher in any market. Granted, there are never any guarantees in trading, but by using OTA’s supply and demand strategy and looking at the trading environment on the chart, the risk was reduced and this particular trade worked out pretty well for those traders that executed properly.

240 minute candlestick chart of the Australian Dollar

In closing, markets are in a perpetual state of change and traders must always monitor and adapt to those changes. To this end, this tracking of the trading environment using charts should be an integral part of the process. I hope this helps in that regard.

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

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More than you ever wanted to know about DST – Delaware Statutory Trust

Last month I gave you an overview of two ways to use a 1031 Exchange without taking on the responsibility of the property as with most standard 1031 exchanges. This article will get more into the nuts and bolts of how one of those solutions works; DST (Delaware Statutory Trust) and the history behind it.

Being an expert in the field of probate investing I’ve dealt with trusts over the years.  I recall a conversation I once had; the individual was insistent that probates would be reduced substantially because of a new thing called “trusts.” I was polite but had to giggle because trusts were first developed in the 12th century.  A common law trust is simply a law that was created to allow a person to hold legal title to property/assets for the benefit of another. It became a way to past ownership of assets from one generation to another. Trusts have been historically used by wealth. They became much more mainstream about 50 years ago (I think this is what the individual was refereeing to).

Savvy legal minds have taken trusts a step further and created trust vehicles for all kinds of purposes.  The “Delaware Act”  enacted in 1998, which allowed a business trust (now called a Statutory trust), which is a little different than a “common law” trust.  A statutory trust incorporates the “common law” concept with the requirements of filing with the secretary of state.

Male hands shaking with image of buildings overlayed

Why Delaware you might ask, well it’s known as a great state to incorporate in because of its business-friendly tax law. Businesses formed in Delaware but do not conduct business there do not need to pay state corporate income tax (though there is a franchise tax).  DST has no Franchise Tax and no Delaware income tax.

When considering doing a 1031 exchange using a DST here are some of the benefits and drawbacks.

Benefits:

  • 1031 exchange (defer capital gains)
  • Still, hold real estate with less hands-on management
  • Beneficial owners can have the same limitations on personal liability for the entity as shareholders of a Delaware corporation
  • No State Income Tax on a Statutory trust formed in Delaware
  • May Qualify as a REMIC (real estate management Investment Contract) or REIT (Real Estate Investment Trust)

Drawbacks:

Lack of Liquidity – holding period typically 5-10 years

Due diligency on finding a reputable company (preferable been in business for a decade)

Here are some of the things you should be looking for when doing your due diligence on the company and the assets they hold.

  • Asset illiquidity
  • Area vacancies and the general market conditions where the properties are held
  • Solid operating history
  • What interest rate risks might be incurred
  • Risk of rental rates soften or new supply coming to market
  • What kind of leases do they have: short term, long term, Single Net Lease (N Lease) Double Net Lease (NN Lease) Triple Net Lease (NNN Lease) Absolute Triple Net Lease. Modified Gross Lease
  • General economic risks
  • Leadership

Learning how to use these vehicles is what separates you as an investor.  Always make sure you work with your professionals.

Good Fortune – Diana D. Hill Diana@OTARealEstate.com

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Creating a Personalized Stock Watch Lists

Screenshot of Finviz stock screener

A common question posed by many new and experienced traders and investors is, ‘What stocks should I trade?’ There is never a quick and easy answer because the answer will be dependent on what your goals and risk tolerance are. Traders should start to answer this question by creating a watch list.

Why Have a Stock Watch List?

Traders should have a stock watch list simply to make trading and investing much easier.  There are over 5000 stocks available to invest or trade in making it impossible for a person to try and scan through manually in order to find opportunities. Instead, narrowing the focus to a smaller group of stocks makes the task more manageable. A stock watch list allows traders to focus their attention on stocks they are particularly interested in.

Free Trading WorkshopThere are two types of watch lists that a trader should create, a general watch list and an active watch list. The general stock watch list is used to identify what stocks are in their financial universe. This general watch list should contain all the stocks that they would consider investing or trading in. If the company isn’t on a trader’s general stock watch list, it doesn’t exist in their financial world.

The second list is the active stock watch list. These stocks are exhibiting conditions and patterns that would lead a trader to soon enter a position on them. Stocks move from the general watch list to the active watch list when the stock price is nearing an entry level or a good opportunity is identified on that stock. The active stock watch list contains stocks that are about to be traded.

Most trading platforms have a stock watch list function so traders can create their own watch list and even customize the columns for the characteristics they are looking for in a stock. If a stock watch list feature is not available on brokerage’s platform, there are plenty of free ones.

Screenshot of Finviz stock screener

Criteria for a Good Stock Watch List

Not all stocks are the same. They all have different characteristics which lead to them trading in different manners. A stock with low volume could have gaps that form on the chart intraday, not just overnight. This adds unnecessary risk for someone buying or shorting the stock.

Other stocks may be too expensive or too cheap. Expensive stocks are difficult to profit from because traders cannot buy as many shares. Small position size means small profits. Cheap stocks can also offer problems. While it is possible to afford to buy a large number of penny stocks, everyone else can afford them too. Large purchases can lead to large, unpredictable price swings.

This is where the general stock watch list comes into play. Traders can scan the entire universe of tradable stocks to narrow down their watch list to those that have enough liquidity, volume, and a decent price level.  Those stocks are then added to the general watch list and should be the only stocks they focus on.

How to Scan for Stocks to Trade

Once again, this feature is usually available on brokerage trading platforms. Though every platform is slightly different, the layout is similar.

If a scanner is not available, Finviz, Yahoo Finance as well as other sites offer free stock scanners. Traders will have to determine what specific criteria they want to search for and input that information. In the Core Strategy course at Online Trading Academy, we teach our students minimum liquidity (average volume) levels to look for and also the price range (minimums and maximums) that are recommended. We encourage students to disregard penny stocks (those priced under five dollars) and those that would require a large account to buy any meaningful number of shares. The goal is to be safe while having the opportunity to realize positive results.

Conclusion

Trading and investing can seem difficult and cumbersome but if done correctly, it really isn’t.  Narrow your stock universe by scanning and creating a stock watch list. Simplification of the process is a key element to trading and investing consistency.

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Hacking the Flow State for Better Trading Results

Back at the turn of the century it was called a mystical experience by Wm. James, a ground-breaking psychologist who ushered in critical ideas before their time.  Later, through the work of Abraham Maslow in the 1960s, it was called a peak experience.  Fast forward to the 70s and it was known as the zone, and finally as Flow in the 80s and beyond through the work of Mihaly Csikszentmihalyi, co-founder of Positive Psychology and author of  Flow: The Psychology of Optimal Experience.

Focused athlete kicking a soccer ball in a stadium.

What Is the Flow State?

The Flow State is a state in which people are so involved in an activity that nothing else seems to matter; the experience is so enjoyable that people will continue to do it even at great cost, for the sheer sake of doing it (1990). Csikszentmihalyi interviewed athletes, musicians and artists to know when they experienced optimal performance levels. He was also interested in finding out how they felt during these experiences. Csikszentmihalyi developed the term flow state because many of the people he interviewed described their optimal states of performance as instances when their work simply flowed out of them without much effort.

In his writings, Csikszentmihalyi described the state of flow in 8 characteristics:

  1. Complete concentration on the task
  2. Clarity of goals with reward in mind and immediate feedback
  3. Transformation of time (speeding up/slowing down)
  4. The experience is intrinsically rewarding
  5. Effortlessness and ease
  6. There is a balance between challenge and skills
  7. Actions and awareness are merged, losing self-conscious rumination
  8. There is a feeling of control over the task


As we consider each characteristic it becomes clear that this is a powerful state that truly represents optimal deployment of both internal and external resources. It is a time when you are focused on what matters most while being aligned in body, mind, and emotions going in the same direction and for the same goals.  For trading purposes, we call this bringing your A-Game to the platform, trading in your highest and best interests with your highest and best trader.

The Science Behind the Flow State

In the flow literature, the term Transient Hypofrontality is used to describe how in a flow state your Pre-frontal cortex, which initiates your executive functions, is offline.  Since hyper denotes an increase and hypo a decrease in a variable, hypofrontality refers to the lessening of activity in that part of your brain.

Your frontal lobe is located right behind your forehead.  However, it is important to note that only part of the frontal lobe actually shuts down, the dorsolateral pre-frontal cortex which is responsible for your sense of self.  The medial pre-frontal cortex which is mainly concerned with internal generation of ideas and is quite creative, remains online. So, that combination of the dorsolateral pre-frontal cortex experiencing some level of dormancy creativity of the medial pre-frontal cortex remaining unhindered seems to allow us to enter the Flow State.

One’s propensity for lateral thinking, risk taking and risk management tend to increase while in a flow state and learning was shown in studies to increase by a factor of 50%. In practical terms, if it takes the average person 10,000 hours to become an expert, the person learning in the flow state would effectively accomplish the same in 5,000 hours. That’s impressive!

Herbert Benson, Harvard professor and author of the international best seller The Relaxation Response documented his research on the four stages of flow states:

  1. Struggle with a concept, behavior or problem that has you confused, overwhelmed and frustrated could make you susceptible to falling into a flow state. The brain wave associated with this chaotic internal state is beta, one of the 5 naturally occurring brain waves that are associated with various mind-states.  Beta is, generally speaking, a normal waking state wave with a range of 13cps (cycles per second) to about 30 cps.  The upper extremes equate to being stressed where cortisol – a stress hormone is released along with other brain changes that are connected to lapse in judgment, vague thought structure, lack of adequate recall and an emotional reaction that is often fear based with other feelings of anxiety, doubt, worry and anger to name a few.  A neurotransmitter associated with this state in beta is norepinephrine which is the brain’s equivalent of speed since it engages the Sympathetic Nervous System or Fight/Flight/Freeze response to stress.
  2. Next the system goes into a relaxation response. The predominant brain wave here is alpha, 8 – 13cps which is associated with being alert and relaxed.  Alpha is a very popular wave because it is intimately involved with the engagement of the parasympathetic nervous system which is the other side of the autonomic nervous system that is connected with lowered heart rate, reduction of stress levels, and a clearer more coherent approach to your challenges that could include, of course, the trade.
  3. The actual flow state is next. The brain wave associated with this state is theta…a highly sensitive internal state that is related to REM sleep (rapid eye movement) or dreaming. Theta is also connected to trance states like hypnosis and meditation. As mentioned in the above, there is also the decreased firing of the dorsolateral pre-frontal cortex which reduces your sense of self and a feeling of oneness with the universe is also often reported as well as a heightened intuitive connection with many of the brain’s resources operating through the unconscious.  People also report time slowing down or speeding up along with a substantive reduction in fear, anxiety, doubt, worry or anger.
  4. When the flow state is over, then you recover. Like any intense experience that engages the entire system and depletes dopamine and other neurotransmitters, you must recover. For example, get plenty of rest, eat healthy foods and provide some down time to process the experience.  After the recovery you’ll bounce back stronger and the flow effects will transfer to other activities, making you more effective across all endeavors, likely including trading.

How to Enter a Flow State

Free Trading WorkshopLet’s explore briefly how to get into the flow state.  To experience the flow state, stay away from the attention-robbers common in a fast-paced life. Turn off your smartphone.  Also, you must consider the balance between the difficulty of what you are doing and the ease of it.  For example, when a challenge exceeds your skills, it will pave the way for anxiety and stress. Conversely, when the level of skill exceeds the challenge, the trader becomes bored and distracted.  Also, flow states are intrinsically rewarding.  In other words, they bring you joy. This is important due to the accompanying neurotransmitters and hormones that are released such as dopamine, serotonin, oxytocin, endorphins and others which are connected to feeling good, clear, on target and experiencing metaphorically, a tail-wind that propels you through the challenge.

As this relates to a trading, you will be on target, on task and on purpose as you feel a level of undistracted euphoria and a sense of being consumed by the process with a care-free attitude about the outcome. You would likely be engrossed by the fine details of the trade in the same way that an elite athlete is in tune with the threads on the ball, not just the ball itself.  Those in the Flow are driven by the unconscious, where conscious thought temporarily has gone off-line and they are putting it all on the line.

This is what we teach in the Mastering the Mental Game online and on-location courses.  Ask your Online Trading Academy representative for more information and get my book, From Pain to Profit: Secrets of the Peak Performance Trader.

Joyful Trading

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What Is, and Investing in, an Inverted Yield Curve

What is a Yield Curve?

Interest rates are constantly changing, and those changes are not linear. Factors that impact short term interest rates are often different than those that affect long term rates and therefore usually move independent of each other. In the US, the most common interest rates used as a benchmark for the marketplace are the rates available on US Treasury Securities. Because of the safety of treasury instruments, these rates are called risk free rates.  The US issues treasuries with maturities as short as 1 month and as long as 30 years. When the interest rates on the various term treasuries are graphed, we get a picture, or a graphic representation of what interest rates are. This visualization is called a Yield Curve.

Normal Yield Curve:  In a normal yield curve environment, we would traditionally expect the yields on treasuries with a longer time to maturity to be higher than those with earlier maturity dates. Traditionally speaking, the longer you invest your money the greater rate of return you should expect. The yield curve illustrated below has a positive slope to it and is what we expect to see in a normal interest rate environment.

Normal yield curve graph

Flat  Yield Curve:  In certain economic conditions, we can, (and have) experienced a flat yield curve. In these conditions, investors are not rewarded significantly for tying up their money with longer term investments.  Although these conditions occur from time to time, they are not typical.  Investors should be wary of investing in long term maturity bonds in this environment as they are not being compensated with higher returns for investing their money for longer periods of time.

Flat yield curve graph

Inverted Yield Curve : As the picture below illustrates, in an inverted yield curve, short term rates are actually HIGHER than long term rates. This is certainly illogical. Investors are actually penalized with lower rates of return the longer they invest or tie up their money. This situation is extremely uncommon and has only occurred seven times in US history.

Inverted yield curve graph

The chart below illustrates a number of the points mentioned above. The orange line shows the yields on US Treasury Securities ranging from 1 month (1M) to 30 years (30Y) as of 4/28/2019. At that time the yield curve was normal – short term interest rates were lower than long term rates. The pink line shows the yields on securities with the same maturity but one year later. As you can see, some long term rates have actually dropped below short term rates and the yield curve is now flattened. In fact, not only has the curve flattened, but for securities with maturities from 6 months to 10 years, the curve is inverted – the 3 year security is returning less than the 6 month security!

Line graph showing the yield curve from April 2018 - April 2019

Investing During an Inverted Yield Curve

Whenever an inverted yield curve occurs and short term interest rates are as high or higher than longer term interest rates, it doesn’t make sense to invest in long term maturities. Relatively speaking, with short term investments offering as much yield as longer term investments, why tie up your money for the same or smaller returns?  In short, investors may want to avoid tying up their money for a long period of time. Instead, they could enjoy good liquidity and possibly earn the same (or better) yields with short term investments as they would if they invested long term.

Types of Short Term Investments to Consider

  • Money market funds – A mutual fund which invests in short term investments. It offers the investor liquidity, as investors can sell and receive their funds within a day. The portfolio manager invests in liquid, short term vehicles and strives to maintain a stable value of $1/share, while investing and earning income for their investors. It is worth noting that although these funds are offered by brokerage firms, mutual fund companies and banks, these investments are NOT guaranteed or insured like a bank deposit would be.
  • Treasury Bills – The US Treasury Department offers a variety of short term T’Bills on a regular basis. Weekly, the treasury offers investors T’Bills with maturities of one month, three months, six months and one year. In an inverted environment, the shortest maturities would offer investors the highest yield. These investments are backed by the full faith and credit of the US government. Although they can be purchased thru a broker, T’Bills are also offered to investors directly by the Treasury department, not requiring the investor to pay any brokerage fees or commission. To learn more about this opportunity, and see the schedule of upcoming offerings, check out: treasurydirect.gov.
  • Certificates of Deposit, (CD’s) – Banks issue savings certificates to investors as a way of borrowing money. These instruments are offered in a variety of maturities usually ranging from one month out to 5 years. Again, in an inverted yield curve, the shorter maturities would actually offer the highest yield. When looking to invest in CDs it is important to check with different banks, as the yields offered can range dramatically from bank to bank. Another benefit of this investment is that CDs are insured by the Federal Deposit Insurance Company ( FDIC ) for up to $250,000 per individual / per bank.

Economic Forecasting and the Yield Curve

Free Trading WorkshopMany economist and market professionals (this author included), feel that the yield curve is a very accurate forecasting tool to determine where the economy is heading.  A normal or positive yield curve is one indicator of a strong economy. Accompanying a strong economy, we traditionally experience higher interest rates and a certain amount of inflation. In that type of environment, as investors tie up their money for longer periods of time, they want a higher return to compensate them.

Alternatively, many professionals consider an inverted curve to be a harbinger of an economic slowdown and likely a recession. In the 200+ year history of the United States securities market, there have been seven recessions that started within a year of the yield curve inverting. It is also important to note that the US has experienced three yield curve inversions where a recession did not occur but there was a marked slowdown in the economy. That being the case, the inverted yield curve appears to be an indicator worthy of being watched, especially if other indicators and economic factors are also showing signs of a market correction.

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Real Estate Newsletter – July 2019

Thoughts from Diana

This summer over a 100 million Americans are expected to travel… O Boy (glad I now travel in the off-season ha-ha). I don’t know about you, but when I travel, I can’t but help looking at real estate. It seems that no matter what town or city I visit (from London to Park City, Ut) there is always an office like the one depicted here which grabs my attention.

Store front with pictures in the window
As investor, how do we know where to invest and what kinds of cash flows we can expect from the area? Zani’s article will provide a little insight into some current top markets. The article I’ve chosen to share is more of a due diligence checklist for buying outside your back yard.

Enjoy your Summer wherever it may take you and learn a little about the RE markets you are in – you never know where you might find the “right” deal.

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


WHAT…WHERE…WHY…OF REAL ESTATE INVESTING

By Zani Patasin

Since the dawn of time we have all been taught that Real Estate is all about location, location, location. Respectfully, no it’s not. While location may be an important consideration, on an institutional level investing is all about the numbers, the numbers, the numbers.

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WANT TO INVEST OUT OF STATE – WHAT DOES IT TAKE?

By Diana Hill

I often hear the following scenario when novice investors get into the market. “I found a house for a great price online in Small Town, USA, so excited. I’m going to buy it and turn it into a rental. Then wait for the market to come back and CASH IN.” Good idea Mr. /Ms. Novice Investor, but do you understand the market in Small Town, USA? Do you know how to be a landlord? Have you visited Small Town, USA? Do you have a team in Small Town, USA?

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Upcoming Classes

In-Center Classes

Real Estate Foundations – Atlanta
Instructor: Jason Tom
7/8/2019 – 7/9/2019

Online Classes

Wholesaler with Joe Short
7/5/2019 – 7/8/2019

Real Estate Foundations with Chris Heffer
7/15/2019 – 7/18/2019 Evenings

Commercial Investor with Jason Tom
7/26/2019 – 7/29/2019

RECC 4:00PM – 5:30PM (Pacific Time)
Topics and Instructors subject to change

7/4/2019: Holiday Break

7/11/2019: Choosing a Contract Relationship Manager – Jason Tom

7/18/2019: Benchmark IRR to Track Your Progress as it Relates to Retirement – Ron Field

7/25/2019: Building and Developing an Apartment Complex – Joe Russo

Questions can be submitted to help@tradingacademy.com 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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