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Trading Educators Blog

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Oct
21

Middling the Market

Do you ever wonder why there has to be a spread between what you can buy an option for and what you can sell it for? The simple answer is someone needs to make money and that someone is usually the market maker. Many option traders don't even think about the bid-ask spread. They don't even try "middling." Middling the market means you try to get close to the middle of the bid price and ask price. ...

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  1045 Hits
Oct
13

Risk On, Risk Off

There was a time when investors could diversify their risk by owning several different asset classes, like stocks, bonds and commodities. They could rest assured that if one asset class went down, other asset classes would go up to compensate. This strategy worked well for decades. But over the past few years, things have changed, and I think they've changed for good. So, who's to blame for this s...

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  973 Hits
Oct
07

What a Price Chart Really Represents

Have you ever thought about what a price chart really represents? Is it just the movement of price that is seen there? For every price to actually post, there must be a buyer and a seller. Price charts are actually psychographs that measure traders' beliefs of present and future values. Traders are emotional and the market price is not always right – especially at extreme tops and bottoms, where e...

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  951 Hits
Sep
30

Reverse your Position

Did you know that there are professional day traders who reverse their positions about 60% of the time when they take losses? Why do they do this?? The market should not have technically reached the exit price, which is placed where the intraday market trend may have reversed the short-term trend. Consider a market that moves a three-day average range above the opening price, then breaks sharply t...

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  1208 Hits
Sep
23

Trading in a Trading Range

When prices are in a trading range, count the number of closes above or below a specific price near the vertical mid-level of the trading range. If 70% of the closes are above the mid-level price and the market cannot rally and close above reaction highs, a severe correction may be imminent. If a market breaks and cannot close below reaction lows, then expect a rally to carry prices above the reac...

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  1135 Hits
Sep
16

Getting Credit

Thanks for your prompt reply and explanation Joe. I was thinking to do straight call/put to pre-define my risk. Follow up question please. If I buy a call for 30 days and close out the option in 15 days, Do I get credit for 15 days that I did not use? The answer to your question is no! You do not get credit for the days you did not use. In fact, you penalize yourself. You paid for 30 days, not 15....

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  977 Hits
Sep
01

Procrastination

Many of us procrastinate over making decisions in our daily lives, whether the choices are trivial or highly important. When we postpone the decision-making process, we essentially move back our mental deadline. This bad habit often begins during childhood (I'll get to my homework or chores later), extends into career (there's a better opportunity out there, but I'm comfortable where I'm at), and ...

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  1087 Hits
Aug
26

The Myth of Making the "Right" Decision

We all face big choices throughout the course of our lives. Whether the decision involves career, business, investing, or family, I find that many people place too much emphasis on that one specific choice as the be-all, end-all. In reality, following through on our decisions is the most important step in the equation. It's not so much about making the "right" choice, but instead about choosing th...

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  1059 Hits
Aug
19

Trading and Truth

One of the clear, clean things about trading is that truth is immediately and finally manifested. The price goes up or down or nowhere. Your trade or position is profitable or not. You can't spin it any other way. You're right when you make money. You're wrong when you lose money. That's just the way it is. There are also other truths involved. You just got lucky. You have a robust and proven meth...

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  1106 Hits
Aug
13

What Holds You Back from Becoming Financially Independent?

Let's look at some key factors that stand in the way of many people seeking financial independence. 1. The "Dilly Dally" effect - Too many of us are always putting off the necessary changes that need to be made regarding how we manage our money. I often talk about automating money from your paycheck into a brokerage account each week so you are positioned to get money to work for you in income-pro...

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  1110 Hits
Aug
05

Forcing Things to Work

We've all faced situations in our lives where things just weren't working out. Instead of walking away from the situation, we sometimes choose to try and force a fit. Whether we're talking business, career, or investing, it's often more prudent to cut losses early on -- or to avoid a situation altogether. Imagine you've been watching a certain stock fall in price over a long period of time. You ma...

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  970 Hits
Jul
29

Day Trading is Like Guerrilla Warfare

There are only two kinds of day traders: the quick and the dead. Day trading is like guerrilla warfare. The quick, seize opportunities immediately, move their stops to break even as soon as possible and capture as much money as is possible in the shortest amount of time. Often they are scalpers in for a quick kill, then out with the money! The dead are never quite sure when and how to enter a...

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  1045 Hits
Jul
23

Trading is NOT Investing

I'm writing this from the perspective of a trader. Traders encounter problems and situations quite different from those of an investor. Traders generally do not hold positions for many weeks, months, or years. Many traders do things that aren't in their own best interests—even though common sense warns of the consequences. Why do smart people make such mistakes? And how can they reverse the patter...

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  1256 Hits
Jul
15

Understanding

I trade without indicators almost all of the time. If, when, I choose to use an indicator, it is done so with complete understanding of what the indicator is showing me and what it is good for. There are countless times when I've seen traders looking for confirmation by using multiple indicators that measure the same thing. Can you get true confirmation by using RSI to confirm what Stochastics, %R...

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  1013 Hits
Jul
08

Accumulation / Distribution

What exactly is accumulation and distribution? It sounds simple, but I've never been able to figure out what they are talking about! There are four market phases containing all price action. The accumulation phase has low range and volume and occurs at the bottoms of a prolonged bear market. We saw such a situation in the past in gold, which made a long-term bottom after a 21-22 year secular bear ...

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  1175 Hits
Jul
01

Trading Soundbytes

Sometimes I write a soundbyte that elicits a good response from our readers. A recent soundbyte was one of those, so I blended together the gist of what some of you wrote, and many thanks to those of you who did. The article itself is posted below in blue italics. "Why are losses such a big deal? I can tell you why. In your book Trading Is a Business, you said that once we enter the market, we are...

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  1261 Hits
Jun
24

Mechanical Systems

Here's a question that came from one of my students, "Joe! Have you ever found a mechanical system that really works?" Most traders move from trading system to trading system, and trading method to trading method. Over a period of time, they may find one that suits them--one that is comfortable to run, and tests well either via back-testing, or in real-time. Some traders never stop looking for the...

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  1191 Hits
Jun
17

The Right Place at the Right Time

This is an oldie, but goodie recollection from my trading days. Over a three-day weekend, Waldo received a call from his friend Jim. "Hi Wally, did you take a look at Google last week?" Waldo replied, "It was a rough week for my short positions. I didn't anticipate the buying surge and it hurt me a little. No, I didn't look at Google closely. I was caught up trading my own positions." Excitedly, J...

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  923 Hits
Jun
10

Elliott Waves

I have been corresponding with a mathematically oriented gentleman who is quite brilliant in his approach to the markets but who is very close to going off the deep end. He wrote me the following email: "I have given the 45 degree - phenomenon a lot of thought. I pretty much would like to know how you figure out the inner workings. "What I think is: "(a) The route of the 45 degree cuts the Elliot ...

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  1023 Hits
Jun
10

Is it true that selling a market when it is limit up is usually a great strategy ?

This "brilliant" strategy stems from the idea that selling a market at limit up, may result in the trader gaining two limit moves in his favor while theoretically not losing any money the day of entry. I think is that this is an absurd idea. I don't advise this high risk approach as a trading tactic. Keep in mind that most markets that remain limit up on the close, will open sharply higher the nex...

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  766 Hits

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.