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What can Brad Pitt teach you about trading?

Posted on May 29th, 2012 in ETF Trading Articles | No Comments »

I watched Moneyball the other day and the similarities to trading were striking.

It stars Brad Pitt as the Oakland A’s General Manager.

After a playoff season that they lose in, he realizes he needs to think outside the box because he does not have the budget to buy the stars like the Yankee’s do.

He happens to meet a young analyst/economist who shares that it’s all about the players statistics. Based on this factor only (not personality, age, etc.) he can tell if a player is worth the going price or not.

Many players are overpriced and a few are severely underpriced.

Brad Pitt (I forget his name in the movie… just like me to forget names) buys into it, hires the kid and hires all the severely undervalued players.

The coach does not play his new players and they start losing.

Just like if you buy a good trading system and then don’t follow all the trading rules.

I know 99% of those sold are not good systems, so if you are in that boat this does not apply to you, because it’s not your fault. In the movie the system ends up working, but it would have never worked if he did not stick to it.

After the coach “gets on board” the team goes on a 20 game winning streak. Which had not happened in baseball in over 100 years.

It proves that working the statistical system works and in the end he gets offered a job by John Henry (a large fund manager) who owns the Boston Red socks for 12.5 million.

John Henry says, “those who do buy and recruit players the old way are like dinosaurs”.

He should know; he is a statistical trader like me.

And in only two years with the new system the Boston Red Sox win the world series.

I won’t ruin the ending by telling you if Brad Pitt took that job or not… you will have to watch the movie to see.

The main point is once you have a winning system, you MUST follow the trading rules.

Helping you retire on time,

Big A

 

P.S – What I also like about the movie is that it’s based on a true story.

All of us have our own true story right? Well if you’re not retiring on time, it’s time to find a system and stick with it.

Big A Food Market

Posted on May 17th, 2012 in ETF Trading Articles | No Comments »

I believe in correct diversification, but to be clear this is not my gas station in Alabama :)

What grandpa accidently taught me about trading….

Posted on May 14th, 2012 in ETF Trading Articles | 3 Comments »

What did my grandfather teach me about trading when I was 10 years old?

Keep in mind; I was not trading then, neither was he.

He worked for the railroad.

And I suspect many of you have heard a speech similar to this if you grew up when I did (I’m not so sure about the kids now).

He said, ”You know I’ve had a good life, and I want you to have the same when you grow up. Want to know how?”

After another big bit of ice cream, I shouted “Yes” because I KNEW grandpa had it good… he always had ice cream to give me

He went on to say, “I chalk it up to 4 things. First love God, and follow Him. Second don’t get in debt. Third work hard. Lastly work smart and go open a lemonade stand after you are done with that ice cream.”

That last one is why I’ve been a successful trader all these years.

He taught me two things with that last. First; get into the market. That could be with business or trading, because trading IS a business.

And “do it now”.

Because I did not listen, and the next day wanted ice cream, he said, “Just ran out and I’m not buying anymore, if you opened that lemonade stand like I said you’d have money to buy your own already”.

And my students say I use tough love

So right then I got the game plan from him again (he gave it to me before, but I did not really listen), and that day I made enough money to buy two of my own ice cream cones!

I’ll never forget making my first dime.

Just like I’ll never forget making my first trade.

No one ever retires on time if they:

  • Get a lot of debt

  • Don’t work hard

  • Don’t work smart

No wonder 90-95% of Americans are not on track to retire on time.

If that’s you, don’t feel bad IF you get started now.

But if you keep doing what you’ve been doing, guess what… you’ll get the same results.

If your parents or grandparents taught you a great lesson that you want to share with my subscribers let me know below.

Helping you retire on time,
Big A

Why teaching your kids about money is more important than you think

Posted on May 8th, 2012 in ETF Trading Articles | 14 Comments »

Why teach kids about money management (balancing a checkbook, using debt correctly, building wealth, giving, etc.)?

Most people think it’s because, “I want my kids to be successful when they grow up.”

True.

I used to only think that also.

But now that is only half the reason.

But first…

Did you know that money is only a magnifier?

If you are a jerk and become rich, you’ll just be a rich jerk.

If you are already giving and get wealthy, you’ll become more giving.

Money can ruin some people.

So when you trade correctly for years and build a huge estate to pass down to your children at your death (I know we should not talk about death and taxes… but they are a major part of life) that money will:

Enhance your children

Or

Ruin your children.

See, it’s not just about them being able to make it when they grow up. It’s also about being able to handle the money they will inherit.

Side note: If your kids have nothing to inherit, then it’s time to get on the path to creating wealth. I believe trading is the best path.

Sure you can put a date stamp on the money such as; they get 10% at age 25 and 90% at age 35. But time does not always teach life lessons.

Plus it’s a whole lot harder to teach when you are in the grave.

If you don’t believe me that money can ruin people look at the lottery winners. A very high percentage of them end up in debt or broke years later. And many have said they are “less happy” at the very end (when the money ran out), then before they won.

Money is a magnifier.

I’m not perfect, but I’ve been teaching my 6 children (and one grandchild… nothing like spoiling him and sending him home!) about money management for years.

But recently when I realized just how much each of them would get at my death and that it could ruin them if they did not grasp the concepts I was teaching my intensity rose to a whole new level.

I don’t want to set them up for failure at my death when that extra money I earned from the markets was meant to bless them.

Do you agree?

Let me know your thoughts either way on my blog here (I do read every comment):

Helping you retire on time,

Big A

My daughter’s asthma and What, Exactly, IS a Trading System?

Posted on April 17th, 2012 in ETF Trading Articles | No Comments »

And today:

1. My daughters asthma.

2. What, Exactly, IS a Trading System?

——————–

It’s official. My 4 year old daughter has asthma.

But I believe with God’s help, and medicine she will outgrow it. In fact in our house we say, “She is fighting asthma right now and won’t have it long”.

Some say that is crazy, but I don’t care.

Sure I’m negative when I bash financial advisors and trading “gurus” who don’t know how to trade.

But overall I’m a very positive guy. Our statement about my little girl is not so much about “positive confession”, as it is about faith in God.

You might not be the same, and that is fine with me, I can’t change anyone and I know that.

But I believe with God’s help I can change her situation. I’d rather believe that then see her have asthma her whole life.

Plus my wife once got healed a week after a terrible car accident. Threw away the pain medications and everything. But I’ll share that story for another day, you’ll love it.

If you agree or disagree about my approach to this situation let me know on my blog…. Or if you have a story of your own that you want to share:

http://www.etftrendtrading.com/free-blog/

——————————–

What, Exactly, IS a Trading System?

It occurs to me that I talk a lot about having and following a trading system but maybe you don’t know what makes up a system.

So, today, we are going into the details of an effective system. Once you have a clearly defined strategy or system, you can learn to execute it, with the trading rules set in advance.

Of course, an important factor is combining of various indicators and criteria to develop a winning system so I’m going to explain the foundation of a good system – the indicators to use and optimizing them properly.

Basically, a trading system means, "Here's what I'm gonna do and how I'm going to do it."

This may seem overly simple but defining your trading system is the first step toward trading success.

First, the Indicators:

Just like execution, the process used in the formulation of a new trading system, should be standardized. This way, traders don't find themselves wanting a system or indicator to work and letting that skew their conclusions.

For this we assume you are using software such as TradeStation or MetaStock to conduct your tests.

Your first step is to decide which indicators you will use for your system. There are lots of indicators (I’ll have to do another article on most of them) so how do you know what indicators to use?

Some of the most widely used technical indicators are:

  • Moving Average (MA)
    An MA is an average of price over a defined period of time for a symbol or index. The line generated by this formula will signal a trending (upward or downward) or a non-trending price direction of a stock or index.

    You’ll frequently see a combination of two time periods  applied to a chart. Popular combinations are:
    10-day and 30-day
    20-day and 50-day
    50-day and 200-day (better for weekly charts).

    There are two common, but slightly different MA calculations:

    • Simple Moving Average (SMA)
      The SMA is calculated by taking the closing price of a stock or an index for a number of days, adding them up and dividing the figure by that number of days to get a SMA of price.
    • Exponential Moving Average (EMA)
      The EMA is basically the same calculation except more weight is given to the latest data focusing more emphasis on what an index or stock price is doing more recently.
       
  • MACD – Moving Average Convergence Divergence
    A trend-following momentum indicator that shows the relationship between two moving averages of prices.

    The MACD is calculated by subtracting the 26 day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

    There are three common methods used to interpret the MACD:

    1. Crossovers – when the MACD falls below the signal line, is a bearish signal, which indicates that it may be time to sell.

      Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum.

      Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early. I personally don’t like crossovers, because Divergence is a much better indicator.

    2. Divergence – When the security price diverges from the MACD. It signals the end of the current trend.

      And not just MACD, this can also be used on RSI, Stochastics and many more indicators.

    3. Dramatic rise – When the shorter moving average pulls away from the longer-term moving average is a signal that the security is overbought and will soon return to normal levels.

      Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum.

      The opposite is true when the MACD is below zero. The zero line often acts as an area of support and resistance for the indicator.

  • Stochastics – A technical momentum indicator that compares a security's closing price to its price range over a given time period.

    The oscillator's sensitivity to market movements can be reduced by adjusting the time period or by taking a moving average of the result.

    This indicator is calculated with the following formula:

    %K = 100[(C - L14)/(H14 - L14)]

    C = the most recent closing price
    L14 = the low of the 14 previous trading sessions
    H14 = the highest price traded during the same 14-day period.
    %D = 3-period moving average of %K

  • RSI – Relative Strength Indicator – A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.

    It is calculated using the following formula:

    RSI = 100 – 100/(1 + RS*)

    *Where RS = Average of x days' up closes / Average of x days' down closes.

  • Average Directional Index (ADX) – The average directional index rating is displayed in the form of the single black line that moves between a range of 0 to 100, though you will rarely see readings of exactly 0 or 100. It is a non-directional indicator, meaning that the line will rise to a higher rating even if the price trend is downward. The line simply gauges the strength of any trending price move. The default setting for the ADX indicator is usually 14 periods, but it can be adjusted if you trade in a shorter or longer time frame.

    There are two other important components to the average directional movement index rating there's a green line for +DI (positive directional indicator) and a red line for –DI (negative directional indicator).

    These additional lines help by indicating an upward or downward moving trend.

    The average directional movement index rating system is as follows:

    •  Below 25 is non-trending or a range-bound market or stock price
    •  Above 25 is the beginning of a trend
    •  Above 40 is considered a strong trend
    •  Above 60 is a very strong trend
    •  Above 80 is an extremely strong trend

There are many more specialized indicators, but the ones listed above are probably the most popular ones.

I recommended testing individual indicators by themselves.

Beginners should test indicators because they don't know what works and what doesn't.

Experienced traders should test basic indicators because they need to make sure that the indicators they were using 5 years ago still work.

You cannot simply say that you think an indicator works well; you have to prove it via testing.

Once a good trader tests his indicators, he/she will know what a good indicator is. A good rule of thumb is:

Multiply the average win/loss ratio (size of winners vs. size of losers) by the average percentage of winners. If it’s one or more, this is good.

Compared to a 50/50 coin flip, an indicator or strategy with a one reading is twice as effective a tool.

Pick a couple of individual indicators and read about them. Start looking at them comparing the information they provide with how the price moved on a group of charts.

A good book to get started with technical analysis is The Visual Investor: How to Spot Market Trends (Wiley Trading) .

If you read that book (or others) don’t get “analysis paralysis” because you will learn SO MUCH and many times different indicators will be saying the opposite of each other.

That is why my system does not have many indicators, because it’s a Price driven system.

There are two other components to developing a trading system: Optimization and Defining the System Rules.

Since I’ve already gone on a long time about the indicators,

I’ll cover those in a later email.

Helping You Retire On Time,

Big A

800-743-0385

Private Placements For the 99%…. Crowdfunding law gets passed

Posted on April 10th, 2012 in ETF Trading Articles | 2 Comments »

It’s a little off my usual trading topic but I believe in diversifying across all types of asset classes so I wanted to share this with you.

Investing in start-ups has historically been limited to high income and net worth individuals due to regulations designed to protect unsophisticated investors from being scammed.

This meant only very wealthy, accredited investors, or professional venture capital firms could buy into new companies before they went public.

When a company is available for public trading, most of the dynamic appreciation has already occurred and the founders and private placement investors are cashing out at the public’s expense.

 Of course, for every Facebook gazillionaire there are scores of start-ups that went bust or sold-out for a fraction of the gain before hitting the public markets.

Now, the JOBS act on the president’s desk has authorized crowdfunding (also called crowdsourcing) as a way for start-up companies to raise capital from individual investors –  sometimes in amounts as small as $50 or $100.

www.kickstarter.com/ is the leader in the crowdfunding space. They’ve focused primarily on artistic projects.

A number of authors have been successful getting funding for books using their own websites but have run into problems complying with PayPal’s TOS when collecting money for an unfinished project.

As you can imagine, the list of sites offering to help entrepreneurs raise money and help investors give them money, is exploding.

Big but: Before you invest, do your due diligence on both the entrepreneur and the site that’s hosting the fundraising.

Here’s an index of sites and a basic video explaining the process: http://www.crowdsourcing.org/directory

And a list of some of the top sites: http://plantostart.com/10-crowdfunding-websites-entrepreneurs/

Do realize that there is a very real (and statistically high) risk that you could lose all your investment.

But, maybe one of your small investments takes off, and you end up a founder in something as big as the next Google.

Helping You Retire On Time,

BigA

3 Easy Ways to Fail as a Trader

Posted on March 27th, 2012 in ETF Trading Articles | 2 Comments »

These three mistakes will doom your trading day, week, month and career.

1. Not having a trading plan.

It almost doesn’t matter if you have a good plan or a bad plan all that matters is that you have a plan.

Most new traders know so little about trading they figure they’ll make it up as they go along – a big mistake that means most new traders don’t last long.

Before you risk a dime, even before you open an account, you must be willing to spend the time to make a trading plan (assuming you want to be part of the successful minority).

Trading, like anything worthwhile and potentially lucrative, requires learning new skills, practicing and evaluating your results.

You must have a plan to work to or you’ll simply drift with the currents and eventually into the rocky shoals.

Trading requires a certain level of contrary actions – you must zig when your emotional brain says zag.

If you have a plan, you’ll find it much easier to make the right moves, no matter what it feels like. A plan also gives you a basis to evaluate your actions and results – eliminating rationalizations.

Either you followed the plan and are successful or you did not; irrespective of how any individual trade added or subtracted from your account balance.

2. Forgetting that the purpose of trading is to make money.

If you want to be right, instead of rich, play a game like Trivial Pursuit.

If you want excitement, ride a Harley.

If you want to belong to a group, join the Rotary.

Only consider trading if you honestly want to make money.

If you’re desperate for money though, trading isn’t the place to bet your last dime. If it’s a steady income you seek, get a job.

We don't start taking out steady profits until compounding has taken over and 5-10k per month withdrawals still don't slow down the growing account.

3. Taking it personally.

Traders must be able to separate what happened with their trades from their feelings.

Admitting you (or your system) was wrong, making adjustments and moving on to the next trade is just part of trading.

Same when your trades go well. Instead of an emotional celebration, successful trader’s analysis profitable trades, just as they do the unprofitable trades, make any adjustments and move on to the next trade.

Got a good story that illustrates these points? I’d be happy to hear your feedback.

Helping you retire on time,
Big A

800-743-0385

My recent snow trip

Posted on March 27th, 2012 in ETF Trading Articles | 1 Comment »

Some of you know this and some of you don’t, but I grew up in Sacramento, then lived in Lake Tahoe until I was 24. After that I moved to Houston where I met my wife and stayed. That is why my office is in Sacramento, but I trade out of my house in Houston.

I own a second home in Lake Tahoe and go out there for 4-5 snow trips per year. On this last one my wife and girls were sick… 8 out of 8 days! But the crazy thing is, we still all had fun!

You ever have one of those trips or moments where you don’t feel good, but still have the best time?

It’s like that in trading sometimes.

We ate out a lot, played board games, went sledding, had snow balls fights and came back in into the warm house even worse off.

By the end of the trip I was sick too!

But I did not care.

It’s like one of my students told me once (Johnny R, you can hear his testimony on my homepage); that losing 300k with Madoff was the best thing that ever happened to him. Why?

Because if that did not happen he would never have found me and learned to trade himself.

So if my family was not all sick on the trip I know we would not have had as much quality time.

In trading you want to be hopeful when others are fearful, and “fearful” when others are hopeful. I’ll save the breakdown of that statement for another email.

Helping you retire on time,
Big A

Funniest quotes…. Must see

Posted on March 8th, 2012 in ETF Trading Articles | 1 Comment »

A friend sent me this website with some really funny quotes that go on posters, t-shirts and coffee mugs.  They are spoofs on those motivational posters.

Quotes such as:

“Challenges” I expected times like this – but I never thought they’d be so bad, so long and so frequent.

“Economics” The science of explaining tomorrow why the predictions you made yesterday didn’t come true today.

 “Government” If you think the problems we create are bad, just wait until you see our solutions.

Those are just a few. If you have a sense of humor like me, check them out.

If you’ve been on my email list for any period of time you know I’m a pessimist, but optimist (when it comes to individual achievement), so this website was right up my alley. I even bought a few posters.

Here is the site: http://www.despair.com/

——————————————

In case you never got my two videos about my personal thoughts (or want to here them again because they will help you in trading) here they are:

Helping you retire on time,
Big A

Freud’s Biblical Investment Secrets… lesson of the week

Posted on March 2nd, 2012 in ETF Trading Articles | No Comments »

I don’t know how much Freud knew about the Bible. Or about investing for that matter. But one of the theories he “discovered” is actually a 2000-year old Biblical principle.

Freud called it, Transference: where the patient feels all sorts of things about the psychiatrist (hate, love, suspicion, trust, dependence) as they work through whatever’s bothering them.

Freud’s goal was to help people realize it wasn’t the psychiatrist… but their OWN feelings they were “transferring” ONTO him. This is also called projection.

For example, if Mom, Dad, sister, and brother are all watching a kid on a bike:

  • Mom thinks he’s careless.
  • Dad thinks he’s brave.
  • Sis thinks he’s cute.
  • Brother thinks he’s rich…

But it’s the same kid!

It’s OUR OWN perspective and beliefs that shape what we see.

So when you boil it down, it’s all about being honest with ourselves, seeing things more realistically, and that it’s not “those People, or “the Markets” that are causing our missed opportunities and frustrations in life.

It was a BIG lesson for me when I was first learning to trade and working for a large fund.

I saw so many wasted opportunities because the clients believed it was THE MARKETS that did it to them!

They were POOR mentally regardless of their net worth. But it wasn’t Freud who originally figured this out.  A couple thousand years before, in the Bible it was said: Remove the plank from your own eye, before you remove the speck from your brother’s eye.

Now you may be wondering why the heck I’m even talking about all this, but it’s because of the questions people ask me.

They wonder how I’ve become successful in trading, when so many others have tried and failed.

But it’s so simple, it’s ridiculous… and certainly not some kind of “secret” (although some people never seem to have heard of it).

You just learn the rules of a winning system, how to read the charts and take the prescribed trades without trying to project your views on the markets.

You think gold is overpriced? So what. If it shows you a long entry indicator you buy to open and set your stops according to the charts, not by transferring your beliefs unto the trade.

Anyway, excuse today’s preaching, but frankly, if you DO make a lot of money but can’t sleep at night, what’s the point?

So I can only help with the money part… you do the soul searching.

Today’s trading opportunities are right there, waiting for you in the ETF, Stock, Options, Futures markets… and more.

The indicators will continue to flash, with or without you.

Don’t be left on the sidelines watching, as the opportunities pass you by.

Don’t project your beliefs about the markets or a stock into your trading. Just trade your system.

Helping you retire on time,
Big A

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