Active-Trader - Into the Black

Welcome back Active Traders and Wealth Builders.
This past Friday my E*Trade accounts finally came into the black for 2014.

Recall we had a solid 2013 but then stocks sold off hard on the first day of the year, and for most of the month of January.   Most of this past week gains can be attributed to Facebook which is my largest individual stock position and a monster trend in the making.

Unfortunately, my TradeStation account is still down for the year but staging a recovery.  The above gains are paltry considering the performance of my mentor John F Carter.  Having just completed my first full year as a member of Simpler Option,  I have learned much from my association with Mr Carter, and it well worth the $147 per month.

Here is a quick summary of the key points:

1) Don't expect anything from the market.

Coming into trading with a mindset like "I need to make $1000 a day trading" is totally wrong.  Instead, wait for the market to show its hand before taking any action.   A great JC quote which sums it up is "Don't anticipate, participate."   If you take your time picking trades properly from Tuesday-Thursday, you will most likely get paid on Friday.  See #3 below for more on that.

2) Don't trade all the time.

JC has no problem sitting and watching the markets all day and if he doesn't see any setups, he doesn't take any trades.  It sounds simple enough, but he trades only when he sees a setup in the making.

I read a great quote in my first every edition of thinkMoney (magazine from Thinkorswim):

Day-trading is like owning a Bed & Breakfast.  Most people do it until they run out of money.

3) Most trading takes place between Tuesday and Friday.

Most positions are opened late in the day on Tuesday, Wednesday and Thursday when JC is live in the room.  Friday is mostly for closing out positions opened the prior 3 days or preferably letting them expire worthless. Every Friday is payday in the world of weekly options and you want to be on the receiving end of the transaction.

This one took me a while to finally sink in.  Most of the time, stocks that have great looking charts on Fridays give you a much better entry point between Tuesday and Thursday of the following week.

4) Sell Premium

If you are bullish sell put spreads,  If you are bearish sell call spreads.  If you are really bullish or bearish, use the proceeds from selling the spreads to finance directional positions.

5) Sell Premium at +1 and +2 Standard deviations.  JC does this by treating the Market Maker Move at 1 SD and just multiplies by 2 for the 2 SD.  He will be happy to take in 50 cents on a 5-dollar spread.  That's right, he's making $50 with a max loss of $450!  Terrible Risk to Reward ratio, but highly likely to pay out.

I haven't brought myself to do this yet, but this past week I sold puts in NFLX for 0.80 credit for a 5 dollar spread and it worked out okay.

6) Size properly.

JC has no problem risking 5% of his account on a position that he has some conviction in.  I'm still sizing too small for my account size, but i'm slowly starting to make my way out of 1-lot syndrome.

Also, it was my first full week of trading with 100% awareness if the Voodoo levels. Remember in last week's post I said next resistance in PCLN was the treeline at $1261 a full 65 points away?  Well PCLN did that move and then some! Next targets in PCLN are the snow lines at 1300 and then 1322.  And above that you can see the 423% of the original wave 1 move which would be the top of wave 5 at 1361.

Facebook (FB) also responded well to the Voodoo levels as shown in the graphic above left.  We have a few snow lines to get through at 68 and change and 69.37 with the next tree-line up at $71.60.

Voodoo has changed by whole perspective on price action and i'm never going to look at a chart the same way again.  Using Voodoo I had profitable trades in PCLN and FB.

As for next week, GOOG looks very interesting.  We close above the psychologically strong $1200 price level and for this week, we have resistance at 1210 and support at 1192.  The next major upside target is 1240.

You can position for a move to the 1240 level by buying an in the money call debit spread such as the 1200/1230 call debit spread for as close as you can to a 1x1 risk reward ratio.  For example, you would pay no more than $1500 for the spread (which is your max loss) for a maximum profit of $1500 if it goes fully in the money in your favor.

And thus are my predictions for the future, use them to your benefit and have a great week ahead.

Active Trader - Voodoo Clues - Part 3

Welcome back Active Traders and Wealth Builders.

It was truly an amazing week, not because I made a pile of cash in the markets although I did okay.  The real reason is that after 25+ years of looking at the markets, I see prices in a completely new light now that I know how to calculate the Voodoo lines.

Recall from last week's post Voodoo Clues - Part Two, that I found a video which explains the logic of the Voodoo lines. We got as far as calculating the red lines and ran out of time. In this post, we're going to wrap it up and show some examples about how truly amazing a discovery this really is.

Note that when you draw the red lines, it divides the prices up into 4 unevenly sized regions.  These red lines are called the "fire" lines and are the most significant areas of support and resistance on the chart.

As for an example, check out the way prices first paused at the 281.1% line at 1102 and pulled back.  Later, note how this area, once breached became an area of support which has since contained prices on the downside.  And note how prices are now camped out just below the treeline at 1200 and once they break $1200, the next target is ....  $1261.  How that's for predicting the future?

At first I had a hard time drawing the lines.  But after a little bit of practice, it comes very easy.  Whenever I see a chart on Simpler Options video, I pause the video and make note of where the red lines are.  With as little information as a single red line (and a rudimentary knowledge of Elliot Wave) I can find Wave 1 and everything else is mechanical from there.

Using Thinkorswim charting to draw the lines is a snap. Simply select the top to bottom of Wave 1, then hide all but the 0%, 100%, 161.8%, 2.618% and 423.6% lines.  The graphic on the right shows the configuration for the fire lines.

The next step is to further subdivide the 4 regions between the red lines at the 0.382 and the 0.618 lines.  Those are the green lines which JC calls the "tree" lines. Now sub-divide those regions once again at the 0.382 and 0.618 levels and color them white to get what Carter calls the "snow" lines.

Within a day or 2, I calculated the Voodoo lines on most of the popular charts I look at.  This was very exciting stuff.  Not only did I save the $995 to buy the Voodoo lines indicator, I saved $50 a month in on going maintenance charges for the rest of my trading life!  Now you can understand why I don't like to spend money on indicators!

Using my new found knowledge, I did swing trades in AZO and NFLX on their breakouts to new all-time highs.  Unlike the past, I knew in advance when to take profits!

Here's another one of my favorites, Facebook.  I'm loaded up long.  Use this information to you own benefit and have a great weekend.

Active-Trader - Voodoo Clues - Part Two

Welcome back Active Traders and Wealth Builders.

In this post, I want to delve further into how the Voodoo lines are calculated.  We know from last week's post that Voodoo lines are a very valuable tool for identifying hidden areas of support and resistance.  While I did not purchase the indicator, I have seen it work first hand many times with almost eerie accuracy.

Further research indicates the Voodoo lines indicator was originally called FibGrid and marketed by First Wave Trader.

The name FibGrid in itself gives some pretty good clues as to how the indicator works.  I struggled with some Fib Tools in ThinkorSwim and then did what every good information worker does - they just ask Google!  Using that I came across a marvelous video found here which basically lifts the lid on the way the indicator works.  Its based on Elliot Wave principles, so if you are not familiar with Elliot wave, do some research here.

1) First step is to zoom out to a weekly or larger time frame and look for a major low that corresponds with the bottom of wave 1 in an 5-wave bull market advance

2) Second, identify the point at which wave 1 ends and gives way to wave 2.  In the example above, that corresponds to point 1 on the chart shown in white.

3) Next, use the Fibonacci extensions tool to measure the distance from the low up to the top of wave 1.  That corresponds with 100% of the high to low move of wave 1.  The low itself represent the first red line and the top of wave 1 represents the second red line.

4) Next step (and here's where it gets really cool), configure your Fibonacci extensions tool with these ratios 0%, 100%, 161.8%, 261.7% and finally 423.5%.  Those 5 red lines represent the 5 most powerful lines in the sequence and will act as areas of both support and resistance.

Knowing that, I figured it would be a snap to fire up ThinkorSwim or Tradestation and replicate the results I grabbed from some screen shares from Simpler Options and videos shown by John F Carter.  This is where it got sticky - where exactly does wave 1 begin and end?  Are the intra-day high and low values included, or just the closing values?

With some trial and error, I was able to replicate the red lines for SCTY with about 10 cents or so.

This is a marvelous discovery and probably the biggest revelation about and indicator since I cracked Range Bands earlier in this blog.

Check back later for part 3 where I delve into the green and white lines.

Active-Trader - Voodoo Clues - Part One

Welcome back Active Traders and Wealth Builders.

As you already know, I'm too cheap to pay for indicators, particularly $997 for the Voodoo lines indicator plus $47 per month ongoing.  But in my recent experience, the hidden support and resistance lines expressed by the Voodoo lines indicator are just too valuable to ignore.

One of the reasons why I don't pay for indicators (or any of the training classes from Simpler Options either) is that I don't believe in paying for information which can be had for free.  This attitude may be holding back my development as a trader since I have an inner need to figure things out for myself.  As I mentioned in a prior post, the Voodoo lines present a particular challenge since they are so expensive and don't appear to come included in any charting packages like just about every other indicator out there.

Here's what we know about Voodoo lines so far:

1) They are calculated in part with human interaction
2) They are based in part on Fibonacci and/or Elliot wave principles

The above screen grab of Voodoo lines for the symbol SCTY grabbed from a Simpler Options video provides some important clues.  They confirm my first suspicion which is that Voodoo lines are an algorithmic extensions of a low which is selected by the human interpreter.  Note how SCTY ran up then pulled back to form an important  intermediate low which is the lowest red line.

 From that point forward the Voodoo lines are calculated as a sequence of 4 red lines separated by 2 inner lines in green.  The next questions to be asked are:

1) How is the distance between the red lines calculated?  Is it a proportion of the price level alone or a harmonic of the most recent high to the (human selected) low?

2) What is the distance between the red lines and the 2 intermediate green lines?   This one seems simpler to determine since once the red lines are calculated, the green lines to seem to be a fixed proportion between them?

As you can see, I love puzzles like this and I have made some important first steps here.

Check back later for part 2 in my quest to demystify the Voodoo lines indicator.

Active Trader - Million Dollar Day Trade

Welcome back Active Traders and wealth seekers.

John F Carter continues to amaze when he gained 1MM on a day trade today in TSLA.  Before I started with Carter,  I did not believe that these types of gains were possible.  Some part of me wants to wake up from this dream and ask myself, is John Carter real?

Most everyone has had the experience where you have an amazing experience in a dream and wake up disappointed to realize that you were only dreaming.  With this sobering realization, you go back to your old understanding of reality and re-assess your dreamtime experience in the harsh light of day.

But John F Carter continue to defy these expectations.  In the cold light of day I ask myself, is John F Carter real?  The answer is yes, and I know that because I shook his hand and met him face-to-face at the Trader's Expo back in early 2013 and described in my blog post here.

The screen shot on the left shows just one part of the story when Carter bought 30K shares of TSLA at an average price of 149.2.  When I joined the room at about 3:15 PM, the shares were  at about 160 netting about 350K on the stock.  He put on a number of other option positions as well and he was so loaded up, he got a call from the Thinkorswim trade desk that he had exceeded his day trading margin limit.

As of the close, Carter went out 20K of TSLA stock which went out in the after hours at 166 netting another 100K on the stock alone.

I made a few dollars on this trade, and enough to pay for another month of Simper Options membership.  But its becoming more clear that the difference between me and JC is squarely between the ears.  It comes down to your relationship with money.  I'm nowhere near JC, let alone in the same ballpark. But its well worth the $150 a month to be associated with this man who continues to inspire with his words, his actions and his example.

Sign up for the free videos at www.simpleroptions.com and follow along.

Active-Trader - Voodoo in BIDU

Welcome back Active Traders and Wealth Builders.

In the world of technical indicators, none is more obscure, more arcane and more steeped in mystery than the Voodoo Lines indicator.  The name itself conjures up images of mystery and the dark arts. John Carter of Simpler Options is a big fan of the Voodoo lines and promotes them directly on his site at this link Voodoo Lines indicator.

Voodoo Lines are also marketed by First Wave Software and according to the site originated from methods pioneered by David Starr. In any case, the Voodoo lines indicator puts a number of line on charts, and the lines represent important support and resistance levels for price action.  Like any other tool, Voodoo lines alone will not make you money, but they will provide one more tool in the process.

And speaking of money, the Voodoo lines do not come cheap.  They are not bundled into any trading platform and the base price is $997 plus $47 per month ongoing.  Its clear from the documentation that the lines are not calculated locally, but are transmitted over the Internet from a server.  Its also clear that human interaction is involved in creation of the lines, since they are not available universally for all stocks, rather from a selected sub-group of stocks.  Also, there is human activity involved in updating of the lines which accounts for the $47 per month ongoing update charge.  Carter indicated in a recent video that the lines do not change over time, but based on the description, historical highs are lows are included in the calculation, so they must change when new historical highs are lows made.

Since I'm too cheap to pay $997 for a technical indicator let alone the $47 ongoing charge, so the Voodoo lines represent a particular challenge for me.  In the past, I have been able to reverse engineer some of my favorite indicators (such as Range Bands), but that relied on having the indicator calculated locally, and being able to manipulate the underlying data to understand its affect on the calculations.  That clearly won't do for Voodoo lines, so that presents an intellectual challenge, and I love challenges like this.


In any case, John Carter made a call for higher prices in BIDU on Tuesday 1/7/2013.  Having found support at the fire line (red) area at 167.44, and a TTM squeeze on the daily charts (not shown) Carter was expecting a move up to the first Snow Line at 182.44 and then a move symmetrical to the prior low-high swing to the second snow line at 191.23.  I was able to get positioned at the blue bar by selling the 175/180 PCS for a credit of 2.25.  I covered it the next day for 1.70 and pulled out a quick $55 for a total of $4 in commission paid.

Note how quickly the entire move was thrown back.  I have seen a lot of that lately with another good example being Chipotle (CMG).  Carter made a call on Wednesday for higher prices in CMG.  With the stock at about 536, we bought the 525/545 call credit spread for a debit of 10.0.  Almost immediately the next day the stock shot up and traded as high as 548 before selling off and closing not far above the breakout point at 538.   I was able to close that trade out at 12 for a 2.0 or $200 profit the next day.  Its amazing how quickly profits come and go with options and you have to be able to grab them while you can.

I have some ideas how to calculate Voodoo lines for stocks making new all-time highs so I'm going to start with that and see how it goes.

Have a great week ahead.

Active-Trader - 2013 wrap-up

Welcome back Active Traders and Happy New Year!

Also Happy Birthday wishes are in order since this blog officially turns 4 years old today. Thanks to all my loyal blog readers for joining me on my journey toward financial independence.

2013 ended in spectacular fashion with the Dow and SP-500 closing at new all-time highs 5 out of the last 9 sessions.  It was a fantastic year to be an equity investor with the Dow Jones Industrial average returning 26.5%, and the SP-500 returning 29.6% putting in their best performance since 1995.

The environment continues to be favorable for stocks with historically low interest rates thanks to our friends at the US Federal Reserve.  The Fed has been conspiring in favor of equity investors for a good long time and particularly since October of 2008 when the Fed Funds rate dropped below 1% in the thick of the financial crisis.  And all indications are that the next chair of the Fed will continue the easy money policy well into 2014 and beyond.

As for my own performance,  my returns came in well short of the broader market indexes but still respectable with just over a 19% return in my taxable account and nearly 17.5% in my tax-deferred 401K retirement account.  I didn't do as well in some of my other accounts and I still seem to be afflicted by Small Account Syndrome.  Here are the moves I have made to position myself favorably for 2014:

- All Forex accounts have been closed and funds collected

- My TradeStation account is setup and funded to minimize commission costs and execute The Ultimate Trading System which has been churning out some winners lately.  I will do most of my active trading and income generating strategies in this account.

- E*Trade will continue to operate the bulk of my assets and will be used for more passive investing and indexing with Exchange Traded Funds as well as my tax deferred retirement fund.

- As for personal finance, I opened up new credit card with Capital One which pays 1.5% cash back for all transactions all the time.  If this card performs as advertised, it could result an extra half percent reduction in expenses as compared to the cards I use now which pay 1% cash back.   This will no doubt lead to increased returns for Capital One Financial (COF) a recent pick of the Ultimate Trading System.

Overall, it was an excellent year financially and I and I am well positioned to achieve my long-term goal of financial independence.

Thanks for reading and I wish you all good health, happiness and prosperity into 2014 and beyond.