1. Lets assume a stock opens two cents higher than it closed yesterday. It later closes three cents higher than that. Should we get in? Not necessarily. Because as the candlestick showed us, even though it had a five cent swing from the day before, a long wick was created. This meant that it went even higher then it eventually settled on. That tells us that the pressure to go higher wasn’t strong enough. We will put it on our watch list, and keep a keen eye on it.2.A few days pass with similar results. Suddenly there is a break in the resistance. The stock has formed a candlestick with a long tail. What does this convey? We might put a buy signal for a couple of cents  higher, because the long tail tells us that the bulls are ready to take over.3. Ideally you want to wait for clusters to form. Of course the greatest indicator is a long candle. One that opens and closes with hardly any wick or tail.This synopsis could have very easily taken place over a few hours rather than days, if you were day trading, for example. There are many “characters” in candlestick charting, and those who master reading them become successful.

If you can acquire software that gives you even the slightest edge in your favor, it is well worth the Investment. I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

Make no mistake however, in both strategies as with anything connected with investments, you had better be knowledgeable. Always have an exit plan or stop loss in place and it is essential that you have an excellent technical charting platform.   Knowledge and Training Lead to ConfidenceConfidence Leads to ProfitLet us assume that you have some knowledge or you wouldn’t be researching the market. Any training you receive should be for technical analysis, or you are just wasting time and money. As far as software platforms, the following suggestions I strongly feel are necessary for any software to be useful.1. It must be able to offer live streaming technical data.    (Otherwise the program is merely educational)   2. The platform should defiantly include candlestick charting.3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage’s technical data are too small to be useful) 4. It must be cost effective. (Most good systems can be purchased for between one and two hundred dollars)Let the Candles Light Your WayInclude Candlestick Charting for Even Greater ProfitsFor those of you not yet familiar with candlestick charting, I will try to give a brief but accurate explanation.  The Chinese invented the market concept, and the Japanese perfected charting techniques with the use of the candlesticks. It is easy to understand this complex system, if we simply break it down to the ticks on the chart you follow every day. We know that the lower tick is where the stock opened and the higher is where it closed. Now if we made the two lines parallel and connected them, what would we have? A candle. However, during that movement, the stock might have gone lower or higher then where it opened or closed, So our candle has formed a tail and a wick. Is it starting to make a little sense to you? Can you see the advantage of knowing this information, for getting in and out, and setting a stop loss?I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site  Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

Once a trading account has been designated as a day trader account, you must calculate the day trading power of that account. That formula is fairly complex, and I highly recommend that, as with all online investing, you seek professional guidance. There are many ways to get help with this information, with a minimal cash outlay.For those of you math wizards that love formulas, here it is.4X Maintenance Excess = DTBP. For those of you currently scratching your head, you must also figure what maintenance excess as well. That calculation is: Total Positions + Total Cash = Total EquityTotal Equity-Non-Margin Positions= Margin EquityMargin Equity-Maintenance Requirement= Maintenance ExcessThese figures are based on the previous day’s closing prices. Along with figuring DTBP and knowing what makes a trade account a day trader account, you must understand the minimum equity requirements for such an account. Most brokerages require a fairly substantial amount of twenty to thirty thousand to set up your account. If your day trading account goes below that minimum equity requirement, you will be issued a “call” to bring it up too minimum, if not, your trades left in the account can be liquidated. Your day trading power can only remain operational if you maintain your minimum equity requirement and your trading activity remains within the set limits. I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site  Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

Software That delivers Gives You a Successful PlatformChoosing the Right Program Is like Hitting the Jackpot. As far as software platforms, the following suggestions I strongly feel are necessary for any software to be useful.1. It must be able to offer live streaming technical data. (Otherwise the program is merely educational)   2. The platform should defiantly include candlestick charting.3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage’s technical data is too small to be useful) 4. It must be cost effective. (Most good systems can be purchased for between one and two hundred dollars)If you can acquire software that gives you even the slightest edge in your favor, it is well worth the Investment. I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site  Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro,Market Mentalist offers the online investment resource, you just might be seeking.

In order to determine what techniques will work the best for your particular situation, we have to first discover what you already know. Technique is defined as a procedure that is effective in achieving an aim or goal. Of course we know that your ultimate goal is to make money, and if you are already making money, to increase your profits. How we get there is dependent on what path you desire to take. Is this something that you are planning on devoting all your efforts to? Or perhaps you are planning on dabbling in it while keeping your present job, or enjoying your retirement. This decision will set the tone for your online trading future. Don’t confuse dabbling with having any commitment. Anytime you trade you must be totally committed, which includes be knowledgeable, properly trained, and possessing the right tools to get the job done successfully. Therefor if your plan is to tackle trading part time, you will be a swing trader.

Do you know the difference between day trading and swing trading? To me there is a major difference. Just as there are differences between an option and futures contract. Many so-called experts lump all online traders into the bag of day trading. For the sophisticated observer it is plain to see the obvious differences. A day trader rides the rush of the asset, while a swing trader diagnosis the trends and holds onto it as long as the momentum  last. I don’t know if the term “day trading” ever existed before we had access to the internet. If it did, I some how would picture a broker becoming a bit frazzled, trying to keep up with this mad client who is buying and selling at the speed of light. Because this, is the life of the day trader. They do not care about fundamentals or even for that matter what the company does. They are riding the trend, up or down it doesn’t matter, as long as the asset is behaving the way they have projected it would. Day traders don’t care what markets they are in, be it stocks, options, currencies, or futures, they get in and out with a fast profit. A transaction may last a few minutes, an hour or so, but never more than that day. These rebels of tradition are literally traders, rather than investors, but can reap huge rewards in a relatively short period of time. This is the itinerary of a day trader. If you can’t commit or don’t have the time to pursue this strategy properly, as I previously  suggested  you do indeed have to look into swing trading. Another thing about day traders, are they  must adhere to a set of strict rules and regulations, including maintaining an account that doesn’t fall less than twenty-five thousand. For complete details on all the rules, please refer to the SEC web site. This is the itinerary of a day trader. If you can’t commit or don’t have the time to pursue this strategy properly, I suggest you do indeed look into swing trading. Please don’t misunderstand me, swing trading can be a full time job as well, and for thousands it is. You just can’t do day trading part time. It is important to know what path you are taking because the techniques to travel it are identical. You must be knowledgeable, able to comprehend technical analysis, and possess software that can give you the upper hand. Remember trading the market, no matter which one you chose, is like gambling, make no mistake about it. However instead of just rolling the dice, putting your chips all on lucky 7, or hopelessly watching the little pea spin around, you can learn what is the equivalent of counting cards. Confidence Derives From KnowledgeTechnical Training and Charting Leads to Higher ProfitsLet us assume that you have some knowledge or you wouldn’t be researching the market. Any training you receive should be for technical analysis, or you are just wasting time and money. As far as software platforms, the following suggestions I strongly feel are necessary for any software to be useful.1. It must be able to offer live streaming technical data.    (Otherwise the program is merely educational)   2. The platform should defiantly include candlestick charting.3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage’s technical data is to small to be useful) 4. It must be cost effective. (Most good systems can be purchased for between one and two hundred dollars)No More Meaningless Stock TicksCandlestick Charting Is Technical Analysis For those of you not yet familiar with candlestick charting, I will try to give a brief but accurate explanation.  The Chinese invented the market concept, and the Japanese perfected charting techniques with the use of the candlesticks. It is easy to understand this complex system, if we simply break it down to the ticks on the chart you follow every day. We know that the lower tick is where the stock opened and the higher is where it closed. Now if we made the two lines parallel and connected them, what would we have? A candle. However, during that movement, the stock might have gone lower or higher then where it opened or closed, so our candle has formed a tail and a wick. Is it starting to make a little sense to you? Can you see the advantage of knowing this information, for getting in and out, and setting a stop loss?Take these examples: 1. Lets assume a stock opens twenty cents higher than it closed yesterday. It later closes ten cents higher than that. Should we get in? Not necessarily. Because as the candlestick showed us, even though it had a thirty-cent swing from the day before, a long wick was created. This meant that it went even higher then it eventually settled on. That tells us that the pressure to go higher wasn’t strong enough. We will put it on our watch list, and keep a keen eye on it.2.A few days passes with similar results. Suddenly there is a break in the resistance. The stock has formed a candlestick with a long tail. What does this convey? We might put a buy signal for a couple of cents  higher than it has previously gone, because the long tail tells us that the bulls are ready to take over.3. Ideally you want to wait for clusters to form. Of course the greatest indicator is a long candle. One that opens and closes with hardly any wick or tail.This synopsis could have very easily taken place over a few hours rather than days, if you were day trading, for example. There are many “characters” in candlestick charting, and those who master reading them become successful.

If you can acquire software that gives you even the slightest edge in your favor, it is well worth the Investment. I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site        Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned proMarket Mentalist offers the online investment resource you just might be seeking.

Every day, scores of novice options investors get burned. It’s not because they’re bad investors, it’s simply because they’re not following the rules. There’s no question that options are tricky – it can take years to learn precisely how options work – but that doesn’t mean that understanding the options game is out of reach, or that it’s relegated to the big guys on Wall Street.

Despite their complexity, there’s plenty of reason to pay attention to options. Options provide incredible amounts of leverage with relatively limited downside. That leverage means that a relatively small increase in a stock’s share price can turn into a potentially huge gain in an option for that same stock. Just look at shares of the ProShares Ultra S&P 500 ETF (NYSE: SSO), a 5.3% climb in that stock over the course of just two days in July turned into a 28% profit for investors who bought one strike of that fund’s September call options.

Put these four must-know rules into play, and your chances of booking profitable options plays increase exponentially…

1. Think About Value, Not Just Price

Most people think that options prices (also known as premiums) are tied to the prices of their underlying stocks, but that’s not entirely true. Like stocks, options trade on the open market, which means that technically, options investors themselves set the prices of options through their

bid and ask prices.

That doesn’t mean that you’ll see an option trading way out of line with its underlying, but it’s certainly not uncommon to see examples of options prices that don’t mesh with what their values should be.

That’s because unlike a mutual fund or ETF, which is priced based on the value of its assets right now, options take extrinsic variables, like the time value of money into account. There are a number of ways to value an option, including the Black-Scholes model and the Monte Carlo method, but if you want to avoid the mathematical formulations, most financial websites and trading platforms can come up with an option value almost instantly. Use that price as a starting point when you decide if an option is worth your time.

2. Don’t Get Greedy, Use Goals

“Hogs get slaughtered.” No, that’s not some sort of farmyard to-do list, it’s a phrase Wall Streeters use to remind each other – and themselves – that greed is the fast track to serious losses. It’s all too common for investors to hang onto a winning position too long, hoping for a few extra points, only to see those gains reverse themselves. That’s especially true of options, where a position can swing from a double-digit gain to a serious loss overnight.

Now, that doesn’t mean that you should sell your positions off as soon as you’re up more than 5% — goals are the secret to beating this pitfall. Get a grip on greed by setting your target gains before you enter a position, and stick with them unless something fundamentally changes in the underlying stock.

3. Take One Play a Week

The only way to make money on options is to play them – and to keep making options plays, even if you’ve just picked a loser. After your first bad trade, it’s incredibly easy to give up and just stick to stocks. But that’s a huge mistake. The only way to learn how to use options profitably is to use them often, so always try to make a new trade every week.

If money’s the issue, it shouldn’t be. There are scores of “paper trading” platforms out there – many of them free to use – that let you make hypothetical trades without risking your real-life capital. Trading paper for a while can help build your options investing skills until you’re ready to put your cash back on the line.

When deciding on which paper trading platform to use, it’s best to go with a broker. Many brokerage firms (including Thinkorswim, Scottrade, and optionsXpress) will let you test-drive their actual trading platforms with a practice trading account. Using the real platform means that the gains you get in the virtual world will mirror the gains you can expect when you switch to real money – and it also means that you’ll get used to your broker’s software and tools.

4. Understand Options Greeks

When you hear traders talk about the Greeks, they don’t mean Plato or Socrates.

They’re talking about the series of calculations that are used to determine the value of options. The calculations are designated by various letters of the Greek alphabet, from which they get their name.

On our agenda today is delta.

Every option, whether call or put, has a delta attached to it. Generally you can find this information on your broker’s Web site.

A call has a positive delta, and a put has a negative one.

If an option is at the money, usually the call option will be a delta of +.50 and the put option will be -.50.

Thus, if the GBP/USD is currently trading at 1.6400, the 1.64 call option has a delta of +.50 and the 1.64 August put option has a delta of -.50.

As the pair moves up in value (that is, the sterling appreciates against the dollar), the sterling calls will increase in value. As of this writing, they are trading at $2.51 x $2.63. With the delta at +.50, that tells us that for every penny the sterling increases in value (which would be measured as 100 pips), the option will increase 50 cents. Thus the delta is the measure of the rate of change in the value of the option as compared to the value of the underlying asset.

The reverse is also true. If the spot price fell 1 cent, or 100 pips, the value of the put option would increase by 50 cents.?We also have another inverse relationship to consider. If we are holding put options and the spot price increased, the value of the put option would FALL by 50 cents. Same is true of the call. A 100-pip or 1-cent decrease in the underlying spot price would make the option fall by 50 cents.

So if the pound is at 1.6400, and we are looking at the August 1.64 calls, let’s say we go ahead and we buy them right now at $2.63 ($263). We believe the sterling is going to rise and the options are going up in value. If the spot price goes to 1.6500, we can expect the call option to move up 50 cents in value to $3.01 x $3.13, giving us a return of 38 cents per position.

However, at that level, the delta has changed (actually it always changes as the price changes, but for the sake of simplicity we won’t go into that detail). At this point the delta is nearly +.60. So now for every cent the spot moves up, our option will increase by 60 cents. By the time that the call option is deep in the money, it will have a delta of 1.00. That means that for every 100 pips, or 1-cent move, in the spot, the option will move a corresponding 100 cents. The same is true for a deep in-the-money put. It will eventually reach its maximum delta of -1.00, at which point it will move in lockstep with the spot price.

How does this help us? Mainly in terms of entries and exits that we would like to plan in advance.

You Have Options

There’s no question that investing in options comes with a steep learning curve. That said, profitable options plays don’t have to be a faraway goal. Invest in options using these four rules and you’ll be well on your way to seeing profits from your calls and puts.

Cheers,

Bill Jenkins