With the economy coming out of a long recession (that may still continue for years) I’ve gotten a lot of emails from people wondering if they should still consider options trading anymore.

Most people are scared to risk money and are more interested in just keeping what they have for the time being. They want to leave options trading for “better days” I guess. Not me…

Options Are Your Best Friend In This Market

Any paper or article you read will undoubtedly have some dire predictions. I just recently posted a video about the possible Perfect Storm that could keep this economy in the dumps for the next couple years. Believe me things are not looking good long term – but options trading is STILL your BEST friend in this market!

You Can Profit In Any Market Condition

Many people are still successful in the area of trading options, you just need to be smart about it. Don’t try wild and crazy strategies that you have never back tested or paper traded. Since strategy is everything when making good trades, particularly when the market is looking bad – you really need to take the time to completely understand what can happen with your trades.

Learn to be consistent – in the long run it’s much more important that making home run trades. A consistent 1-2% per month will add up over time and take your portfolio to new highs. This is something I learned a long time ago and has helped me stay profitable after all these years.

Learn non-directional strategies that help you trade in any market: Bull, Bear, Neutral. Actually the times when I have made the most money trading are during bear markets! You’ll find that there are ups and downs even in the worst economy and there are ways to take advantage of that.

Are You Waiting For A Better Opportunity?

Honestly, what the hell are you waiting for? Now is the perfect time to get into options trading. We all know that the best time to get into a trend is early and at the bottom. There are plenty of opportunities right now and if you have the right strategy, you can easily make successful trades month after month.

Stop making excuses for yourself – sure it will be hard work at first but did you ever get anything worth having that didn’t require hard work? Of course not. The sooner you recognize this the better. What would you have given to buy more stock at the bottom in 2009? The same thinking applies…start now and not tomorrow.

Focus on spending a couple hours each week analyzing the market and expanding your options education. Learn how to avoid beginner mistakes now and you’ll be on your way to trading success.

I wanted to try something new today with a bunch of these commodity charts. It’s a stupid little game called “LONG OR SHORT THAT COMMODITY!”

Here’s what you do – look through these charts and support/resistance lines I’ve put up (or you have on your own chart) and decide which chart you would go LONG and SHORT for the next month.

Gold – GLD

Silver – SLV

Sugar – SGG

Coco – CC1600

What’s Your Pick?

Pretty interesting charts lately right! Big moves in a short time frame. So let’s hear which commodities you would go long or short for the next month (without the possibility of exiting) via the comments section below.

Great month for all our strategies. With the market rallying higher (subsequently falling more than 5% this week) we have fared very well. This month we did not close out any trades early nor did we close out any trades at a loss.

For more information on this month’s portfolio as well as my thoughts on OIL and the recent SELL-OFF, please watch this important HD YouTube Video:

As it stands right now we have a few very good March positions already working hard for us – but with the recent spike in volatility there will be great opportunities to sell options at higher premiums later on. I actually prefer volatile markets like this because it allows you to get further from the market and still make money!

Credit Spread Strategy: 9.49%

What a great month for the Credit Spread strategy – very profitable and back on track from last month. I think we did a really good job this month selling spreads below the market and letting the market rise which helped our positions. Our one Call Spread did get a little close at expiration but expired safely and profitably. Next month we will look to add more Call Spreads with the market falling.

To re-cap this month’s income, let’s look at what we made in premium vs. our required investments (in margin). Here are the positions we had with corresponding PROFIT/INVESTMENT and RETURN:

RUT 705/700 PUT SPREAD – $40/$460 = 8.70% Return

RUT 845/850 CALL SPREAD – $70/$430 = 16.28% Return

SPX 1,200/1,195 PUT SPREAD – $20/$480 = 4.17% Return

With regard to TOTAL INCOME and RETURN, the February portfolio produced $130 of income after investing just $1,370 in margin. That means we saw a total portfolio return of 9.49% this month.

Naked Puts/Calls Strategy: 2.34%

Well as you can see our “Put Heavy” portfolio during February was very profitable and posed little risk. As the market rallied each position lost value fast which turned into profits for our members quicker than usual. Not always the flashy return, but it sure is consistent don’t you think? Still more than a year and a half without a losing trade!

To re-cap this month’s income, let’s look at what we made in premium vs. our required investments (in margin). Here are the positions we had with corresponding PROFIT/INVESTMENT and RETURN:

SPY 111 PUT – $27/$1,100 = 2.45% Return

IWM 69 PUT – $18/$690 = 2.61% Return

QQQQ 50 PUT – $9/$375 = 2.40% Return

IWM 66 PUT – $12/$660 = 1.82% Return

With regard to TOTAL INCOME and RETURN, the February portfolio produced $66 of income after investing just $2,825 in margin. That means we saw a total portfolio return of 2.34% this month.

Iron Condors Strategy: 11.11%

Really solid trade for the Iron Condor portfolio this month. Since these are a little more complex, our members know that we will tend to only enter 1 or 2 of these per month. Ignoring the recent volatility following expiration, this was a great trade for the non-directional market. Next month we should see higher returns as volatility has spike considerable which helps stretch premiums.

To re-cap this month’s income, let’s look at what we made in premium vs. our required investments (in margin). Here are the positions we had with corresponding PROFIT/INVESTMENT and RETURN:

IWM  69/70-85/86 Condor – $20/$180 = 11.11% Return

With regard to TOTAL INCOME and RETURN, the February portfolio produced $20 of income after investing just $180 in margin. That means we saw a total portfolio return of 11.11% this month.

As we usually point out, our calculations assume that you enter just 1 (ONE) position for each trading alert. Those members with a higher capital base should be entering multiple contract positions each week to fill their respective portfolios.

If you want honest and straight-forward trading then please keep us in mind. Hey, you might even want to join in on all the fun by signing up for a 30 Day FREE Trial!

Facts are facts right? The truth is that most people who trade options fail miserably and lose money each year. But if you’re reading this blog I think it’s safe to assume that you could be one of the people who prosper from options trading.

Let’s be honest though, most beginner options traders are not professionals by any stretch. In fact, most of them don’t even have a background in finance and don’t understand why things happen the way they do in the stock market or the economy.

For traders like this, learning to trade options and analyze the markets can be a disastrous attempt at first. But rest assured, if you practice and learn you CAN become very successful trading – don’t let anyone convince you otherwise!

It’s Always Lack Of Knowledge That Kills

If anything we do in life, it’s always a lack of knowledge that hurts us the most. I always use the mechanic example when coaching students each week. It goes a little something like this…

My father was a mechanic for Nissan for many years so he knows specifically how to tear down a car and rebuild it from the ground up. I do not know how to do this and would fail miserably if I tried.

It’s not that I don’t have a lack of ability – I can absolutely do the hard labor. And if anything, since he’s older it should be much easier for me to do the work. So the only real difference between us is that he has the KNOWLEDGE and I don’t.

As with anything, people who are wildly successful trading options continue to learn and grow each and every month. They put together a great trading plan, have solid risk management and learn about new strategies.

Create A Non-Emotional Trading Plan

This is where a lot of beginners fail. In order for beginners to become consistent in options trading, a robust and objective trading system should be created so that all you need to do is follow your own rules and make very limited emotional decisions. We are all human and thus our EQ (Emotional IQ) leads our decision making.

With a proven system and framework for trading like a business (and not a hobby) I can teach any person to trade options successfully. Because at this points it not about how “smart” you are, it’s about following the system and making non-emotional trades that generate consistent returns.

Options Trading Is “Simple”

Have you ever attended an options seminar, learned from some guy how “simple” it is to make a high money from options trading but yet when you when home and started trading you failed to make any money consistently?

What a classic story that is told over and over. I have been to those seminars as well and have the scares to prove it.

BUT YOU NEED TO MOVE PAST THIS!

Realizing right now that you this is NOT a “get rich quick” industry will save you thousands over the course of your life -maybe even millions. You have to establish a strong trading mentality which comes not by nature but is something that can be trained.

Options trading is like running a marathon. There is no short cut and no easy way to make money or else everyone would be doing it right? You have to make a conscious effort each day to learn and get better.

While the US Markets were closed yesterday, oil and other commodities continued to trade. Crude oil jumped more than 10% since last friday and is now nearing $100 per barrel. Any it may not be over just yet…

We’ve posted twice before on both Crude Oil Demand and Crude Oil Inventories. Each time we highlighted the fact that supply and demand data signals strong oil price gains for the next couple years. Throw in the recent escalating tensions and protests in Libya and other Middle East countries and we could see oil prices continue to jump very fast.

‘Rivers Of Blood’ – Is He Serious?

Seems we all sometimes lose sight of what’s happening around that world that could possibly effect our perfect bubble world. I myself have a hard time trying to filter nonsense and fact on a daily basis.

Which stories are important to watch and pay attention to and which are just regular “news”?

Per Bloomberg:

Libya erupted into violence last night after Muammar Qaddafi’s son threatened “rivers of blood” and deployed security forces on protesters, some of whom claimed control of the second-biggest city, Benghazi.

At least 250 people died in Tripoli alone, al-Jazeera reported, citing witnesses. Troops attacked “terror” hideouts and urged citizens to fight back the “organized gangs that are destroying Libya,” state television said. Amid the violence were signs that some officials and troops were deserting.

The increasing violence in the Middle East is a story we all should closely follow. If nothing else you should at least understand how it could effect our oil markets and broader economy. My gut tells me that things are going to get much worse over there before it gets better.

Where Do We Get Our Oil?

I was actually curious as to where most of our oil comes from and the facts may surprise you. According to the EIA, Canada remained the largest exporter of total petroleum in November, exporting 2,510 thousand barrels per day to the United States, which is an increase from last month (2,345 thousand barrels per day). The second largest exporter of total petroleum was Mexico with 1,363 thousand barrels per day.

Most of you would assume after looking at these numbers that we are relatively sheltered from any major issues. But we all have to keep in mind that oil is globally traded and any tensions in the Middle East will surely effect our own domestic prices.

Market sentiment and the investor emotions are very powerful when trading stocks and options. If you learn how to master market sentiment you could find yourself finally making trades ahead of the next big move higher/lower.

Today we are going to show you how to put a trade on and be confident that the position will start moving in your direction instead of going against you right away. I use market sentiment analysis each and every month for my own trading, and attribute much of my success to it. But…

I Lost Too Much Money Early On

When I first started trading I had the same problem many of you are experiencing right now. I got stopped out of a lot of trade even though when I looked at the charts it “seemed” I should have been winning much more often.

A couple months of this trading and major hits to my overall confidence and I begin to also cut my winning trades short. I would see a profit and take it quickly – fearful it would disappear.

I soon came to realize however, that to really make money trading stocks and option you need to position yourself with the major driving forces in the market and not against it. This momentum or driving force is – Market Sentiment.

Sentiment Is Based On Human Emotions

Since nearly all trading is still done by actual humans, though computer trading is on the rise, market movements are driven primarily by emotional people. It’s this changing perceptions and emotions of people that run the market. Most people keep forgetting this simple fact.

People move the markets, not candlestick patterns, stochastic indicators, put/call ratios or economic data. We have all seen cases where any one of these indicators or event seems to be bullish for the market and yet it sell off!

Here’s a past post about Apple. It had earnings that beat all estimates and yet the stock fell the next morning?

Regardless of how bullish something seems to be for the market, it’s the traders and investors who determine how higher the market will go (or won’t go) in the past case of Apple.

Predicting Market Sentiment Is Much Easier

Fortunately for us today, predicting the market sentiment or market emotions of traders is a lot easier than predicting price action. Hard to believe a first but absolutely true.

Between money flows, RSI indicators, Commitment of Traders, and other sentiment readings – we can easily see if the market is poised for a sell-off or rally.

Once we know where most traders are positioned, the key to profitable trading is more about getting direction right when sentiment is strong than it is about getting in at precise price levels and times. In plain English – we want to identify a trend and jump on board, rather than try to pick tops and bottoms.

If you can master market sentiment, you will quickly start trading the next big trend and make a lot of money doing it.

COT – One Of The Best Sentiment Indicators

The Commitment of Traders data is released every week by the CFTC government regulatory organization and publicly gives the positioning of the two largest players in the market. These two groups are “large speculators” (i.e. hedge funds and banks) and “commercials” (corporations). With this information it’s hard to NOT be on the right side of the trade right?

Now you know that it’s publicly available what the “Smart Money” is doing each and every week. When the large speculators put on or take off exposure each week, you can follow their moves all year long.

Seems so simple now that you know what to look for right?

So this past month my analysis of the market has been less than favorable. Along with a whole host of other traders, I have continued to feel like the next big move down is just around the corner. Sadly enough (with the help of the FED) this market continues to push the upper limits.

You Cannot Out-Smart The Market

Just goes to show you that you still cannot out-smart the market! Thankfully, my trading style does not rely on my analysis being right. I’m sure at one point you actually believed you could out-smart the market and make a ton of money doing it? I’m sure you also learned the hard way why that’s a complete load of crap.

Odds Trading Really Works

I’m an odds and probability trader and have been for most of my career. I trade strategies that have historically proven to be successful, provide steady income and are market neutral. With these strategies you don’t have to be 100% right in your timing and direction. In fact, as this video proves, you can even be 100% WRONG and still make money.

The Herd Mentality is very strong in everything we do as human beings each day.

New fashion trends, technology, social norms all are influenced by the general population. Ideas and trends start small, with only a few people jumping on board. Then acceptance becomes more widespread and the new trend becomes the new norm. It’s this Herd Mentality that prevents some people from joining the trend too early.

Herd Mentality Keeps You Out Of Market Bottoms

Think about where you would be now if you had joined the Internet or computer boom earlier? Or the mobile phone and Apple technology sooner? These were all amazing trends but only a few people joined the movement early? Why didn’t they jump on board when the ideas first came out?

The same thing can be said about the stock market. More often than not, it’s the investors and traders who go against the sentiment early that make the most money. How about the cover of Barron’s on March 9th just before the bottom…

The Herd Mentality told them that it wasn’t socially acceptable at the time to buy stocks again. It was new and “weird” and people were afraid to risk what money they had left. As a result they missed the bottom floor of these exploding markets.

It Also Keeps You In Before A Top Forms

Just as the Herd Mentality will prevent you from buying at the bottom, the Herd Mentality will also prevent you from getting out before the market top. We saw this just recently during the top in 2007-08. We all knew that the Sub-Prime mess was spreading but we didn’t accept the truth until it was too late. And we could be in the same boat once again.

Here is the latest Barron’s Cover showing the Bear market killing over…prophecy for the next top?

Emotions, not logic, usually rule the average investors’ decision making. They are heavily reliant on social norms and trends. If the hot sector is alternative energy purely because so many people are investing there, then investors will follow smiling since there is perceived safety in numbers.

Investor psychologists and financial behavioral scholars have confirmed this during multiple case studies. Better investment choices require you to understand and embrace your emotions and determine how to avoid becoming your own worst enemy. In other words, the best investors stay out of their own way.

Investors Show Repeatable Habits

Repeatable habits and investor sentiment why technical analysis is so consistent and profitable. It identifies repeatable happens and patterns visually with charts, patterns and indicators. It is important for you to learn and understand the mental cues that are present in the market and how to prevent them from clouding your investment decision making.

Failure to learn and educate yourself on the Herd Mentality of investing can be disastrous to your portfolio. This is why we continue to preach and support trading plans and goals that help you remove your emotions when trading. Let the technicals and price action be your guide and you will find enormous success.

I’m doing something different tonight – I wanted to cover just a few of the major headlines today and how they relate to the charts we all see. Are these risks real or just media hype?

I firmly believe (regardless of what the so-called “experts” say) that the issues I’m going to show you in this video are dangerously linked and could all trigger pressure on each other. Between the dollar, the deficit, and bonds we are truly setting the stage for a very painful decline over the next year.

Reactions?

You’ve heard all of these stories multiple times before right? Same story Kirk you say. But I know deep down you have very real fears about the next couple of months and year. So do I. But we have to move past those and look for ways to protect and profit from ANY market move.

What are some of your investment and trading ideas for the next year? Share your ideas with the entire community via commenting.

Moving averages are very popular among beginning traders and investors. They are simple to use and give very easy indicators to buy/sell a stock. The 200-day moving average is generally the most talked about along with the 50-day moving average.

I have both on my charts at all time and use them mainly for trend trading and confirmation. For me, they are a quick visual check on my market analysis and have been a really great tool for me trading at home.

What Are Moving Averages (MA)?

Simply put they average the price data from a stock or ETF. The 200-day MA will take the last 200 days worth of data and, you guessed it, average it out. The 50-day MA will only take the last 50 days and so on. Pretty simple right?

As the market moves, these average also move. New daily prices and added in and old ones are dropped out – 1 day at a time. Moving averages help smooth price action and filter out the noise. They also form the building blocks for many other technical indicators and overlays, such as Bollinger Bands, MACD and the McClellan Oscillator.

The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).

MA’s Experience Market Lag

Moving averages do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices – which is mainly why the are not a great short term trading indicator.

The longer the moving average, the more the lag it will have in relation to the current market’s movement. For example, a 10-day MA will react quickly to market spikes and drops. In contrast, the 50-day MA and the 200-day MA contains a lot of historical prices and therefore will take longer to turn and adjust.

This is why we don’t use them for trading entries and exits. Notice the name of this post – TREND TRADING. Moving averages are slow but great at identifying the overall trend and long term direction of the market.

Use Shorter Time Frames For Short Term Trading

I said before that I don’t use MA for short term trading – but you obviously could if you wanted to. If you want to use short moving averages (5-15 periods) you can get quick trading signals on short-term trends. But as always, be careful to check other indicators and support/resistance levels. Don’t rely solely on the MA as you only signal to trade.

Moving Average Trend Signal: Cross

There are two different ways moving averages can give you a buy or sell signal:

1. Simple Cross – The stock simple crossed above or below the moving average line you are using.
   
2. MA Cross – Two moving averages are used and the shorter term MA crosses above or below the longer term MA.
   

The direction of the moving average also conveys some important information about prices and the overall market trend. A rising moving average shows that prices are generally increasing. A falling moving average indicates that prices are generally falling.

EMA or SMA?

A big debate that most technical traders have is whether to use an Exponential or Simple Moving Average. I can write down positives and negatives for both, but I’m curious what YOU all like to use and why? Debate this issue by commenting.

The wealth of information online today is incredible – but this also leaves room for doubt. Where should you turn for your options trading education as a result? And what companies and programs should you steer clear of permanently?

Most of you I’m sure somewhere have been to one of those “free” seminars right? And if you didn’t go to one for options then I’m sure you have been to one for something else.

What really happens at these FREE senimars

The normal scam system works a little like this…

First, get you to come to a free seminar which is fairly easy since it’s, well, free. Quickly you learn that the seminar has little educational value if any. After a while you soon find out that their intent is to sell you a high priced course or program you can “make easy money” with.

These courses can easily be over $1000 and should be seriously questioned. I’ve even seen some 1 on 1 programs (or at leasted marketed as such) that can run over $10,000 per month! Talk abou the scam of the century.

Read ever books you can get your hands on

Instead of attending these free senimars, why not trying reading a couple good boosk. I’ve posted about some of my favorites before but you can always email me if you have a question about a book you are looking to purchase. I have a semi-large collection next to my desk – many of the books I’ve read 2-4 times over.

I know it’s much easier to sit on your butt and be spoon feed information in a single day. But the reality is that trading for a living is hard work – and takes determination. The sooner you realize this, the better.

By all means…if you want to go to some cheap hotel and pay an outrageous premium to hear a wannabe trader “teach” what you can find on your own, knock yourself out! I’m sure anyone reading this can tell you how much of a waste of time it turned out being.

You will learn much more by your money on great books and reading from reputable websites. Then start trading small and never stop learning! Keep a log of your trades and write down what went right and wrong.

Great education rescources for options traders

If you truly don’t know where to start or if you need a refresher, here are some of the most trusted sources I still will use and refer back to for my own trading education.

Option Industry Coucil - www.optionseducation.org

Chicago Board Options Exchange - http://www.cboe.com/learncenter/

The Options Guide - www.theoptionsguide.com

thinkorswim – www.thinkorswim.com

TradeMonster – www.trademonster.com

Now I’ll toot my own horn. READ MY BLOG – IT’S FREE! Help me build this resource and tell as many friends as you can.

If you have had any good or bad educational experiences, please help your fellow traders and share by commenting.