 | ||||
|
| | ||
| ||||
| ||||
By Costas Bocelli - Creator: Channel Trading Secrets
It looks like the Fed is doling out few tricks but plenty of treats during this year’s autumn holiday.In the Fed’s latest policy statement yesterday afternoon, the committee decided to continue its monthly asset purchases at the current pace of $85 billion a month.
No change on interest rate policy or guidance either.
And although the market had widely expected that a delay to any adjustment or QE taper would be put off at the October meeting, it did come down with a bit of a bellyache once the statement was released.
But who could blame the market that’s been continuously pumped like a foie gras duck?
A period of weakness was long overdue anyhow.
Whether it was profit taking or just a “buy the rumor, sell the news” response, the reality is that trading conditions have recently become overbought.
The S&P 500 snapped a four-day winning streak, and with the index up 9 out of the past 10 days heading into the FOMC meeting, some type of selling pressure should not have come as any surprise.
The good news for investors who are looking to put fresh money to work is that the overbought conditions may soon begin to reverse and offer opportunities to buy in at lower prices.
But don’t wait too long, or expect any significant correction, because I’m still sticking to my forecast that the market will remain relatively strong thoughout the remainder of the year. I laid out that argument in last week’s Tycoon Report, Here’s My Outlook for the Coming Weeks.
What’s interesting though is that ahead of the previous three Fed policy meetings, markets rallied. But after the statement was released, some measure of a pullback immediately followed.
If the trend continues, you’re likely going to get one more shot as we move towards the winter holidays.
Looking at the S&P 500, a two to four percent decline is probably the worst it could get, making the next pullback rather shallow.
But just because the broad markets will likely remain relatively calm heading into the final two-months of the year doesn’t necessarily mean there will be a lack of opportunity for the active investor or the “trading community”.
In fact, it’s quite the opposite.
You see, with the Fed still priming the pump at full throttle, the side effects continue to flood excessive amounts of liquidity into many speculative securities that have sent fundamental valuations off the charts.
And with this comes high volatility and plenty of opportunity from all the wild swings in the stock prices.
Many may be totally off the radar for the long-term buy-and-hold investor, but for traders looking for relatively fast triple-digit returns, these stocks can be the ideal trading vehicles.
The secret to success is twofold...
The first is really key -- and it's more like having the proper mindset than anything else.
During my tenure as a professional equity options trader, I had the privilege of working alongside one of the greats in the business. He was once a market maker too, but on the equity side of the trading floor (in fact he never traded an option in his life). He was also a past president of the Philadelphia Stock Exchange, so I was extremely fortunate to learn from his wisdom and decades of experience.
His best piece of advice to me was this:
“If you want to be a great trader, you must understand this...”
“There’s no relation between price and value.”
The first time he told me this was back in 1999 right before the Nasdaq Composite index and many of its components went parabolic during the dot.com era.
Stocks soared months on end as fundamental reasoning was replaced with exuberance. For many of these securities the story ended very badly as a lack of profitability and cash flow eventually caught up with them.
But for traders, the long run prospect of the company is rather insignificant. Instead, the primary focus for them usually lies in the price action of the stock over the short-term. Once the trade is closed out, that’s it -- and off to the next opportunity.
His statement certainly contradicts any traditional approach to investing, but when you’re trading, it’s important to achieve a different paradigm. His words of advice still ring true today, as many stocks are trading with such ridiculous valuations that boggle the minds of many investors, but simply the technical price action is primarily where the value lies.
The second secret to success is also key -- and that’s discipline.
It’s one thing to largely disregard fundamental valuations as the thesis behind a short-term trading opportunity. But it’s absolutely a major mistake to simply throw caution to the wind and not have a defined game plan when it comes to controlling risk.
Clearly defining your risk parameters on every trade is paramount to remaining solvent and prevents an unexpected and potentially devastating monetary setback.
I’ve unfortunately seen too many traders go bust during my years as a floor trader. Excessive leverage and poor risk management were the two most common causes of a floor trader or specialist post to “blow out”. Having traded through the Asian currency crisis, the demise of a systemically important hedge fund that needed an emergency government bailout and the dot.com bubble and subsequent burst, I’ve witnessed plenty of financial carnage among the exchange membership.
So putting those two simple keys together is the starting point to becoming a successful trader, even in crazy volatile stocks that trade with nosebleed valuations.
Take Netflix (NFLX) for example. The stock is currently trading at $320 per share and is an absolute beast with massive volatile price swings.
For the average investor or trader, this type of stock is completely avoided. Just 100 shares of stock ties up $32,000 in capital with plenty of risk to boot.
But if you have the right game plan and the proper strategy, you could structure an easy-to-learn options strategy that risks about $500 to potentially make $1500 in profit in less than seven weeks. That’s a 300% return on your investment and, better yet, your risk is clearly defined before you even execute the trade. To generate the maximum return, you would need about a 12% move (roughly 40 points) in the stock price, which is quite modest considering the stock’s historical price range.
This can also be done whether you have a bullish OR bearish outlook, which is another powerful benefit. And when it comes to managing risk, both trades are completely hedged, even under the worst circumstance.
If this sounds compelling to you and you want to learn more about these strategies -- in a real time setting -- then I’ve got great news for you.
For about the length of a college semester (about 16 weeks), I’m going to open up my playbook and show you how you can trade any type of market, and with complete confidence.
You’ll walk away with the knowledge and experience as we navigate the markets in a live market setting. You’ll see how we find, structure, manage and exit various examples that will become your case studies for a lifetime of trading.
If you want to hear more about my new, limited time service, I invite you to click this link for all the details. We’ll be starting soon, so take a look and see if you want to join us.
I'll only be doing this once, so please keep that in mind. If you find my articles here in Tycoon Report valuable, this is going to be on another level entirely, and you're really going to want to be a part of it. When you sign up here, I'll send you a letter with more detailed information about what we'll be doing.
Happy Halloween!
 |
Costas began his trading career in 1998, at Gateway Partners, an Equity Options Trading Specialist Unit on the Philadelphia Stock Exchange (PHLX). During his successful tenure, and though unprecedentedly volatile trading levels, Costas boldly and adroitly navigated the global "financial meltdown" that saw the downfall of the hedge fund and of Long Term Capital, and the Russian Currency Crisis. Having achieved the coveted Senior Equity Options Market Maker position for his firm, Costas eventually left to join a proprietary trading desk, where he successfully makes markets for large customer and institutional orders. In addition to his more than 7 years of experience as an options market maker, Costas has also trained and educated many junior traders on option theory, risk analysis, and strategy. His passion is helping self-directed investors achieve all of their financial goals through a clear, practical understanding of the power of options and of the many benefits of trading in a proven systematic way. |
| ||||
|
| | ||
| ||||
| ||||
OUR PRINCIPLES |
1. Our Customers
I think it was Frank Sinatra who once said, 'If you think customers are not important try doing business without them for a while.'
Although he was referring to another singer who didn't like to sign autographs, he could have been talking about any customer in any business.
In our offices here in Delray Beach we keep that quote posted on the wall just to remind us how fortunate to have you as part of our family.
2. No Hidden Agendas
Please forgive the populist tone here, but the sheer audacity of what some brokerages pawned off as "research" in the 90's was stunning. As a result, the New York State Attorney General forced many of them to fund separate independent stock research firms.
We here at the Institute for Individual Investors have no interest in the "conflict of interest" business (we've seen what it does to people.) We do what we do because we enjoy it and we're good at it. Therefore know that we will never accept any payment, in any form, to recommend the shares of any company. Period.
Our goal is to not only provide you with our unbiased opinions, but to also bring you behind the scenes and show you exactly how we form those opinions. Knowledge is your best defense in the investing battlefield.
3. Information You Can Understand
In addition to the research and educational courses we offer, we try to present our facts in a way that will help you understand the rationale behind our thinking.
It is our hope that during the course of our relationship you will gain a more sophisticated framework for making investment decisions both as an investor and as a businessperson. We believe that the more educated you become, the more likely it is that you will appreciate and recommend our work.
4. We Will Always Admit Our Mistakes
Only fools never admit and learn from their mistakes. Good investors are not born they're forged. It's that simple.
5. Real Wall Street Experience
Everybody we hire to teach and inform you will actually have real investment experience.
Need I say more? Well, I will. Why?
Because many of our "competitors" aren't real investors - they're marketers and journalists pretending to have the real world experience that separates the men from the boys.
© 2013 Institute for Individual Investors, LLC.
110 E. Atlantic Ave., Suite 200, Delray Beach, FL 33444, USA
North America: 877-489-2666
International: 561-272-2919
Fax: 561-272-6040
Customer Service Email: support@ifii.com
www.ifii.com
Privacy Policy | Disclaimer | Update your Profile, Unsubscribe, & Update Preferences
Whitelist Us
No comments:
Post a Comment
Keep a civil tongue.