A Stock Market Chat Room can be a great asset especially if they come equipped with profitable traders, live scanners and breaking news feeds. However, they can be your worst nightmare if you aren’t smart about how to properly use them. In fact, I feel 90% of day traders fail because they automatically assume that a chat room service will hold their hands and feed them as they trade. That style of thinking is a pure recipe for failure. On the flip side, there aren’t a lot of chat room moderators who constantly warn their subscribers of the traps of trading either. This duel symbiotic and dysfunctional relationship goes on so much to the point that I was compelled to write this post. So, if you are interested in joining a service but are confused about how to properly use one then bookmark this post because it will help guide you to do so the right way.
Warning – Before diving head first into stock trading you must be educated on certain topics of the stock market. You must know basic concepts, support and resistance, charting, risk management, strategy criteria, scanning and psychological control. These all get developed along your stock market journey but before testing out your strategies that you think will work for You, you should only paper trade the ideas before placing real money on the line or trade a few shares (25-50 shares) of real money until you build up a strong foundation for trading. One of the biggest traps is making money from a bad behavioral pattern or by mistake which will teach you to do the same bad behavior again and again.
Build Your Watch List
Stock market chat rooms are great for building watch lists but you MUST NOT FOLLOW someone’s trade alerts. As you are learning to trade you will be tempted to wait for your stock market guru to buy and sell so you can buy and sell after them. FIGHT THAT URGE! Let me say that again. FIGHT THAT URGE! You will lose. Rather than following someone into the trade, learn the reasons for their thought process and points of interest in the trade. I would find out what their buy points, exit points, scaling out points and bail out points are and why. Then study that. I would also find out or confirm what the resistance and support areas are so you can map out those points of interest on your chart as well. Then when you are ready to trade have a go at it with those points of reference to guide you but do not and I repeat DO NOT FOLLOW!
Tip – If you are not sure what to do then don’t trade. There will be another trade waiting for you right around the corner.
Learn From Chat Members
Find 3 or 4 of the most consistently profitable traders in the stock market chat room of your choice and with care and ease try to pick their brains. Notice how I said the most consistently profitable and not most profitable. There is a huge difference. If you look for the heavy hitters of the chat room you better believe everyone and their mother is going to be up their asses asking them a ton of questions. Don’t add to their headache by asking the same 5000 questions they receive daily. Google, Bing and Yahoo can go a long way and won’t waste anyone’s time. Also, remember to find those who’s strategy you are trying to master so you can learn from that formula. Profits can come immediately but consistency takes time.
Tip – Kindness breads kindness. Send those who help you often a thank you email or even a $5 gift card to their favorite coffee shop. 🙂
Avoid Those Who Distract
Knowing how to use a stock market chat room also means knowing who and what to avoid. If you find people constantly posting their gains you will focus on the money and fall into one of the 10 day trading distractions. Those distractions will inevitably hurt your building and learning journey. Money is such an emotional topic and day trading can be extremely emotional. If you add emotion to an already emotional business you could possibly make some very serious day trading mistakes. Also stay away from traders who trade too much, don’t have a clear strategy and those who post random thoughts. It’s ok to have friends in chat but you are building the business of You and not a social gathering.
Tip – Find those distractions in your trading journey and rid yourself of them immediately.
Ask The Moderators
Not long ago a chat member in the Warrior Trading chat room said to me they didn’t want to bother the moderators by asking them questions because they thought they were busy. On the contrary, ask ask ask. Then when you are done asking ask some more. A great stock market chat room is going to have moderators who answer your questions. If they don’t you should seriously reevaluate why you are there. Now on the flip side don’t be a lazy chat room subscriber like I discuss in this post. Before asking a question ask yourself can I Google this and get the answer myself. If it’s yes than don’t waste everyone’s time. Your ultimate goal is to be able to be fully independent so start by knowing when to ask and when to find it yourself.
Tip – Unless it’s an emergency, don’t ask questions 5 minutes before the market opens. In fact, wait until the market slows down before asking questions.
Find The Free Stuff
I found out about so many free tools like this one here from being in a stock market chat room. Finfiz, free charting websites and Think or Swim’s level 2 are just to name a few. Sometimes it’s tough to determine what is good and what is not but if you ask the moderators from my suggestion above you will filter out the free that could be more costly than you ever imagined. Also some moderators like Mike and Ed from Warrior Trading do watch list building and nightly recap videos that are absolutely 100% free. Use them.
Tip – Free for a limited time is a marketing ploy. Look for the free stuff that can help you cut costs and save money as you learn.
There are hundreds and maybe even thousands of stock market chat rooms in the world that it will be hard to decide which one to choose from. I highly suggest you take the free trial offer that most of them have and see if it’s a good fit for you. If they don’t have a free trial then sign up for a month and test out the waters with no long term commitment. Don’t be lured in by marketing ploys of “sign up now and save 50%”. Those sales never really end as they are strategies to get you to act quickly. Take your time and gather as much information as you can. You might find that you have to go through 1 stock market chat room after another before you find the one that fits your trading style and that is perfectly ok.
Every profession requires focus to some degree or another. Some jobs are inherently tougher than others which would require greater focus but, no matter what the profession, battling distractions and focusing on the task at hand is an implicit requirement. Drivers are told not to take their eyes off the road, baseball player must keep their eye on the ball and dancers use a spinning technique called spotting in order to enhance control. Even in the original Star Wars, Luke Skywalker was told to stay focused by avoiding the temptations of the dark side. Whether you know it or not day trading has many distractions that will ruin your process. Some of those distractions are mental, some are physical and others are behavioral. So, if you are new to day trading and don’t know where to start or you have been around a while and aren’t consistently making money you might be suffering from 1 or more of the 10 day trading distractions.
Looking at Other People’s Profits
People think looking at other people’s profits is inspiring. It’s not. In fact it is distracting to the process and is highly used by many as a marketing tool to lure in new clients. Oh look at me I made $69,417.23 in 3 minutes and you can too if you pay me to learn to trade like me. Let’s be real… Controlling your emotions is paramount in being a successful day trader yet seeing other people’s profits will elicit the same emotion you are trying to control. In addition, there is no other profession in the world where one dangles their profits in your face in order to inspire and teach you a life long skill. I will even take it a step further. I highly suggest you turn off your own profit and loss module on your trading platform to focus on your trading plan and get focused on making Your money.
Tip – If you need inspiration read Rumi, listen to Deepak Chopra or watch Rocky.
In 2015 I deleted my Facebook app on my phone which has saved me hundreds of hours. I have scaled down quite significantly on my social media as most of it serves no real purpose in my life. However, as part of my Stock Research to build my watch list, I do use Twitter to support or reject my trading idea. That doesn’t mean I use it to see how little Kim Kardashian is dressing again. Doing so would totally distract me and my focus so I am very specific on what I look at and do during the market hours. In fact, I only follow 26 people who I feel might help my process in some way or another. Every few months I reevaluate, unfollow the noise and move on.
Tip – Go through your social media and start filtering out the noise. You will be surprised how much time and energy you save.
Family & Friends
I can’t trade with my friends or family standing around me. It distracts me and I know it hurts my process. Ironically I have danced on some of the biggest stages in the world and I loved the attention back then. However, there is something completely different with someone standing over my shoulder watching me push a few buttons to get in an out of a trade. Yes I have done it plenty of times but I already know if my son or daughter are sick and have to stay home from school it will be a very minimal trading day or it will be an off day altogether.
Tip – If trading with people around You doesn’t distract You then go with what works best for You.
You need the right tools to day trade successfully. Having a weak internet connection is bad, not having the right broker is bad and not having hot keys if you need to move in and out of a stock quickly is… how should I say this… BAD. Those are 3 distractions that you must learn to deal with immediately or you will fail hard. Imagine not having hot keys and trying to jump into a momentum stock that is fast and volatile. There is a possibility you get in but if the trade goes against you and you can’t use hot keys to get out you will make big mistakes that you might not be able to recover from.
Tip – Don’t experiment if you aren’t equipped to trade. Add the correct tools and trade accordingly.
Trading is a waiting game. You spend most of your time waiting for your setups and if they don’t come you have to wait some more. If you have to be somewhere at 10am and you want to trade the opening bell you will be distracted the whole time. If you do happen to place a trade you might find you are not truly invested in your process and trading plan because your thoughts and energy are on your 10 o’clock appointment. The pressure of your schedule might make you exit a position too quickly or hold longer than normal adding randomness to your process which is a distraction you do not need.
Tip – If you have plans to do other things throughout the day don’t plan to trade.
Needing Trading Profits to Live
If you are financially pressed to make a living day trading stocks you will find the thought of making money one of the biggest distractions eroding your process. The goal of every trader is to be process oriented and not outcome oriented. If your thoughts are on paying your rent, catching up on your bills or putting food on the table you will never focus on the process as your life depends solely on the outcome.
Tip – Prove to yourself that you can be consistently profitable before making your living day trading stocks.
Changing Strategies Often
Everyone makes money day trading according to every trading chatroom or social media outlet. In fact, I rarely see someone admit losing money which is not good for business. However, if you are the lone loser in the stock market (trust me you are not) you will jump from the strategy you are perfecting to someone else’s strategy. Then when that isn’t working for you right away you will jump ship again and go with the next “perfect and profitable” strategy that someone else never loses with.
Tip – Find your personality in trading and learn to perfect a strategy that works for you without changing strategies often.
I had someone argue with me recently that you can be consistently profitable by shadowing someone else’s trades. They are 100% wrong. In fact, they are 1000% wrong. When I wrote the 20 trading secrets I wish I knew before I started trading I wrote about the inconsistency of following someone in and out of a trade. Here is what I wrote.
“Imagine what it would be like if you had to wait if the person you were following was breathing or not. What kind of consistency would you be able to replicate by waiting to inhale when your followee inhaled or when your followee exhaled? If you compare it to following someone into a trade it’s easy to see why 90% of traders… how shall I put this… Die.”
Tip – Learn the reasons someone is entering or exiting a stock and then apply that to your trading.
Learn to control your emotions, then learn to control your emotions and when you are done with that then learn to control your emotions. I can’t stress it enough your emotional state of being is one of the most important aspects to becoming a consistently profitable trader. Revenge trading, false inspiration and a bad attitude will ruin any chance you have at day trading success. Have you ever wondered why high frequency trading is at an all time high. Aside from being extremely fast at executing trades it removes all emotion from the equation. In fact, I have toyed with the idea of setting up a HFT system to avoid self emotional sabotage.
Tip – Minimize all stimulation that affects you emotionally while day trading. Even too much positive emotion can be harmful.
Like social media, gadgets are distracting. Text messages, people IMing and phone calls at the wrong time will distract you at the worst possible moment. Even if you are a part of a stock chat room you might find the moderator is distracting calling out stocks that you aren’t even watching. That is not all. If you like watching stock market television like CNBC you might find their commentary to be equally distracting while you are managing a trade. I totally understand that some gadgets serve a greater purpose but if it is distracting you and your trading plan turn it off immediately.
Tip – If your devices distract you, turn them off and check them (along with social media) at specific times during the day.
If any of the above distractions truly distract you, you need to make a conscious effort to change them immediately. If there are other distractions that aren’t on my list but have you thinking then change those to strengthen up your trading day. Lastly I would be very careful finding inspiration from the marketing tactics used by many. In my opinion they are worthless, harmful and dangerous.
If you agree, disagree or want to add something below I would love to hear your thoughts.
New traders contact me all the time to get as much information as they can because they know, from my personal experiences written on this blog, I have gone through the good and the bad in day trading. When I was putting together a stock research tool to gather quick information on the fly I started thinking about stock charting. As you can imagine, stock charting is extremely important because traders use it to find chart patterns for their preferred strategies and to perform technical analysis. So, if you are just starting out or you need a stock chart on the fly here are 6 free stock chart websites to add to your tool bag.
Yahoo Finance is my go to website for stock quotes with a quick glimpse of a stock chart for a symbol I am looking up. In addition, if you expand the charting platform further you can dig a little deeper and use indicators like, the simple moving averages, stochastics and bollinger bands. As an added bonus, Yahoo Finance has news headlines, important press releases and key statistics that are very useful if you need to do more extensive research.
Finviz is the stock chart website I use to do my nightly scan for stocks. If I see a stock I might like to trade the following day I can pull up the stock chart and get a nice view of the daily chart with trend lines and moving averages already accounted for. As an added bonus you can find tons of information on a particular company such as, the float of a stock, ATR and volume.
Trading View is a beautiful stock chart website that is very user friendly and superbly done. Although I don’t use it all the time, I like using Trading View on a more casual bases when I am delving deeper into a stock. TradingView’s charts are largely displayed across the screen for easy viewing and have detailed charts with advanced features. One of the biggest benefits of Trading View is you can create personalized ideas, set timely alerts and get notifications.
Stock Charts is another stock charting website that adds certain indicators to its interface which can be helpful if you know how to use them. Stock charts has a very clean and simple look to it which makes it a pleasure to use. The moving averages and MACD indicators are added in which can give a chart enthusiast a quick read on a stock chart and the pattern it’s showing. Also, Stock Charts has a paid subscription charting school that is beneficial if you are interested in learning more about technical analysis.
Big Charts is on of the first free stock chart websites I used when I got started. It is pretty basic in it’s look and appeal but it is truly a great website to get a quick birds eye view of a stock chart with no bells and whistles. I use Big Charts just to see a chart pattern and nothing more. One of the things I found very beneficial in my early days is their news articles underneath the specific stocks I was researching.
Free Stock Charts has a pretty awesome look and feel to it even though it is full of advertisements. When I discovered it I realized it was set up as a one stop shop for charting. It has news headlines, basic scanners and a running ticker stream to keep you up to speed with what is going on in the market. One of my favorite things about Free Stock Charts is it is very similar in look and feel to Think or Swims charting which I still use to this day.
There are other free stock chart websites that are ok but I felt didn’t make the cut for this post. However, I am posting them underneath in case you find them more helpful for your liking. Happy charting.
20 Trading Secrets I Wish I Knew Before I Started Trading
I was fortunate enough to start trading in the late 1990’s. Back then there were no trading secrets because trading was easy. All you had to do was pretty much buy anything that had a dot com in it and wait a day or 2 for it to sky rocket. It was absolutely nuts. I made a lot of money and did nothing to make it. But those days ended and my trading ceased while I Salsa danced and commentated on ESPN’s World Salsa Championships. When I retired from dance and the show got cancelled I got back to trading but things were very different. I actually learned quickly that I had to know what I was doing to make money. Nevertheless, I dove right in making a ton of mistakes along the way. Through those mistakes I saw a lot of things that changed me. In fact, there were so many changes I can honestly say I wish I were reading the 20 trading secrets I wish I knew before I started trading instead of writing it.
You Can’t Turn $1500.00 into Millions
You cannot make millions from $1500 when you start out trading stocks. You just can’t. Don’t think it, don’t try it and don’t waste your time trying to do it. Yes it’s possible You hit a long shot and get lucky in a super speculative stock and make a decent amount of money and yes I am sure we can find 1, 2 or 100 people who say they turned $1500 into millions in the stock market but out of the 7.125 billionpeople in the world there is a 99.9999986% chance You can’t.
Tip – Invest your $1500 in your education instead of trying to hope and pray it into millions in the stock market.
The Trader’s Lifestyle is All a Big Fat Lie
Girls, yachts, fancy cars, drinks, wild parties and money flying all over the place are just marketing ploys to get you to join their service or buy what they are selling. Trading profits might be good enough for some nice things in life but it’s your money as a subscriber, DVD purchaser and user of affiliate links to stock trading tools that afford them their luxurious lifestyle. Being a consistently profitable trader is challenging and not as easy as it looks.
Tip – If you want to start trading stocks don’t let people’s flashy lifestyle cloud your judgement on how to get started.
Chat Rooms Make Most of Their Money from Subscribers
Chat rooms make a lot of money and I mean a lot. 2000 students at $100 a month is $2.4 million a year. Add in DVD’s, books, classes and affiliate fees from various things and boy does it add up fast. On top of that the turn over rate in these chat rooms is ridiculous because 90% of traders fail but everyone believes they will be the 10%. Don’t get me wrong there are some solid chat rooms out there that offer great information and education but had I known then what I know now I would have learned about stock chat rooming instead of stock trading.
Tip – If you learn how to use a chat room the right way you have a chance of becoming a profitably consistent trader.
Some Chat Room Subscribers Ask the Dumbest Questions
Dumb questions during chat hours are annoying and a waste of everyone’s time and money. It creates a lot of noise and is a big distraction. Nevertheless, after being in various chat rooms for years I have compiled a collection of some of the greats with a soft spot for these 3 dumb questions. “I am stuck in a stock what should I do?”, “What happens to my money if a company goes bankrupt?” and my all time favorite “Can anyone tell me how bears make money if there are no buyers?”
Tip – Think, research and inquire but don’t ask dumb questions… especially during market hours.
Some Chat Room Subscribers Are Really Lazy
In order to make consistent money in this business you have to know the basics, you have to do research and you have to learn how to get as many answers as you can for yourself. What I mean is, if you want to know what the catalyst of a stock is… go to a news source and look it up. If you want to know what broker fees cost… go to their website and look it up. If you want to know something… anything… remember that Google, Bing and Yahoo are your friends so… go look it up.
Tip – Learn to be self sufficient and do your own work with research tools like this to open up a world you never knew existed.
Monthly Expenses Are Expensive
There are a lot of trading secrets but this trading secret is the least talked about because it’s not good for business nor marketing. However, trading is not cheap. Even if you trade from home you still have various monthly fees that add up fast. Chat room services, broker platforms, charting software, stock scanners, news feeds, commissions and ecn fees are just a few of the monthly expenses one must incur. All in all it can add up to $500 a month and sometimes more. And that’s not all. If you take a loss on a stock (which you most definitely will) you have to chalk that loss up as an added expense of doing business in the sock market.
Tip – Look to minimize your fees in the beginning as the expenses can eat away at your profits quite quickly as you learn to trade.
I do my own taxes and so it pains me to see my tax bill every time I look at my capital gains. Losses can sometimes be a tax asset if used strategically. However, if you have many more losses than gains you are only allowed to write off $3000 worth of those losses that year. The rest get rolled over into the following year(s). That’s not all… Unfortunately, the IRS prohibits a taxpayer from claiming a loss on a sale or trade of a stock in a wash sale if you are not a mark to market trader. Taxes really hurt!
Tip – Talk to a tax accountant proficient in stocks to correctly guide you in the beginning.
One Trade Can Make You or Break You
If only the 90’s were back where every day another long trade idea would make you just a little richer again and again. But like we already established, those days are long gone. Today more and more traders are placing trades that break them and take them out of their trading career for good. In fact, Joe Campbell who had to pay back E-TRADE a whopping $106,445.56 after losing a large amount after market hours comes to mind.
Tip – Don’t hold low float stocks short overnight especially if it’s in the pharmaceutical sector.
CNBC and Other Channels with Finance Shows are Really Bad
Before I got into day trading I used to think finance shows were the way to become a smart investor. However, today I actually feel like many of the people (not all) on those shows need to be held accountable for their bad information. I can’t tell you how many times I have watched various hosts and guests make calls that they believed were 100% correct but worked out to be 100% dead wrong. In my opinion, too many people on those shows steer people the wrong way pushing their own agenda.
Tip – If you are going to watch finance shows watch them for entertainment purposes only.
I was pretty emotional when my wife gave birth to my son and daughter. I also had a nice mix of emotions before I danced at Carnegie Hall years ago but trading stocks can put a new kind of definition on what being emotional really means. Without exaggerating, you might find yourself with emotions of being the happiest person in the world feeling like an invincible genius and then in the drop of a dime something can happen in the market which will flip your emotional state making you depressed and feeling pure stupidity.
Tip – Have a plan and stick to the plan so that your emotions are already prepared before you take a trade.
Education is Paramount
Having an education in the stock market doesn’t mean you need a degree in Yale but you definitely need to know what you are doing so you minimize your mistakes. It is 100% important and essential you learn stock terminology, charting, risk management and how to scan for the right stocks that fit your strategy. How do you find a profitable strategy? You need an education on various strategies in the stock market.
Tip – Take your time to educate yourself and fight the urge to trade by embracing the learning process.
You Can Be 100% Right and Lose Money
Timing is everything when dealing with the stock market. That means you can do all the research in the world and be 100% right on your thesis and still lose money if you get in at the wrong moment. Time and time again I see people lose money shorting a stock the minute they hear bad news, learn of bad earnings or read bad press only to see the stock move to the upside. Once they cover for a loss the stock moves lower than they anticipated.
Tip – Be patient and respect your stops. Sometimes it takes days/weeks or months for people to digest bad news.
Trading is a Business Not a Get Rich Quick Scheme
Because trading is so easy to set up it’s easy to fall into the thinking that it’s easy to make money. Anyone with a computer, good internet and a stock broker can start trading immediately but 90% of the people who start trading fail because they fail to realize that it’s a business and not a get rich quick scheme. Learning to trade successfully takes time, it takes patience and it takes dedication to grow the business of You.
Tip – Setting up as a business will make you feel more professional and allow you to take advantage of all the write offs too.
Less is More
Jesse Livermore said, “It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!” I agree. I have found my biggest wins have been because I have waited for a trade that I absolutely could not pass up. The cream of the crop trade that only comes around once in a while. Unfortunately, trading less isn’t going to make it fun but it will make it less unprofitable. If you trade to trade you might as well start gambling.
Tip – Do what I did. Start a blog to help others.
Fear of Missing Out (FOMO)
Picture this! Everyone in chat, Twitter and StockTwits has made a ton of money but you haven’t made a dime. After waiting hours for your preferred setup you finally start seeing a stock you sort of like. Your entry point is not where you like it but you decide to get in fast (just in case) because you have a fear of missing out. Then the stock goes the wrong way and does the opposite of what you wanted. So, you either bail out for a loss for not waiting or double down which more than likely will cause double the losses.
Tip – Set alarms on your charts to go off when they near your desired entry point and then do something else.
There is No Secret Sauce
So many people make it look easy to make money in the stock market because of their winning strategy. It would be great to be able to tell you that all you had to do was study study study and then implement your hard work at just the right moment and every time you did that you would make money… but I can’t because it would be a lie. Every winning strategy has losing moments. In fact, sometimes you have to adjust your strategy as market conditions change making it an ever evolving process.
Tip – Write your trade statistics in an excel spreadsheet to see which strategies are most successful.
Risk Management is the #1 Key to Trading Survival
You must pick the right stocks and you must have the right tools to trade but if you don’t have great risk management skills you will join the 90% of traders who fail. If you know where your risk is then you know how and when to exit a stock when you are wrong. You also know how to exit a trade when you are right. I know it sucks to lose money but losing a little money today will guarantee you can start fresh tomorrow.
Tip – If you have learned 1 thing from this post I hope risk management wins. Learn risk management.
Seeing Someone Else’s Huge Gains is Dangerous
This is one of those trading secrets that gets secretly masked as inspiration. I see people constantly brag about their huge gains on blog posts, Twitter and StockTwits because they say it inspires others to strive for a better way of living. I say it’s 100% bull. In fact, I think it’s harmful in the long run. Seeing someone’s gains on a daily basis can evoke various emotions which are counter intuitive to controlling emotions during the trading process. The arousal of fear of missing out (FOMO), excitement, jealousy, amazement, frustration and revenge trading can be easily triggered by seeing someone’s daily profit and loss.
Tip – If other people’s gains arouse your emotions either for the good or bad, trust me focus on the process and blockthem out.
You Will Sell Your Winners and Hold Your Losers
Did you know that Terry Odean found investors are almost twice as likely to sell a winning stock as they are to sell a losing stock? Research shows that not only are relatively unsophisticated retail investors making these errors but seasoned veterans of the stock market are making them too. This phenomenon is known as the Disposition Effect and can stump your growth as a trader if you aren’t conscious of the behavior.
Tip – Don’t hold losers until they become winners. Eventually you will lose more than you ever imagined. Just ask Bill Ackman.
You Will Never Make Consistent Money Following
This is one of the Trading Secrets that nobody wants you to know about. However, let me explain the disastrous effect of following stock alerts in a more creative way. Without trying to make this seem like a joke imagine you had to follow somebody to breathe. Imagine what it would be like if you had to ask if the person you were following was breathing or not. What kind of consistency would you be able to replicate by waiting to inhale when your followee inhaled or when your followee exhaled? If you compare it to following someone into a trade it’s easy to see why 90% of traders… how shall I put this… Die.
Tip – Educate yourself and then learn to trust You.
Hopefully you enjoyed learning about the 20 Trading Secrets that I learned about the hard way. One of the keys to stock trading is to not put too much faith in any one person or group of people. Everyone has an agenda and it’s usually a financial one. You have to be open and flexible in understanding that or else you will fail as a trader. That doesn’t mean you have to be skeptical and paranoid about everyone in the trading community rather you must be smart and in control of the path you take.
Are there more trading secrets I don’t know about? Add them in the comment section.
I like to think I am a smart guy but I always make this joke that being blonde puts me at a learning disadvantage. I partly do it to make people laugh and I partly do it just in case I can’t learn as quickly as others. With that said, I am not going to fool you, call and put options explained to me the very first time made absolutely no sense to me. It was one of the few times in life I felt that maybe my biological circumstances were preventing me from understanding. However, with a little patience mixed in with examples of real life situations I was able to see how simple the concept of option trading really is. Don’t be fooled, options carry risk and you have to know when to use them but I have been successfully trading options for a few years now and I can honestly say that it is easy to understand. In fact, when you are done reading this post you will learn 3 things. 1. The concept of trading options is a cinch and 3. blondes are smarter than you think.
Before I get started, it’s important to know that this blog post is about learning the concept of trading options. It will not teach you how or when to trade them. If you are interested in trading options I will post a link at the bottom of this page where you can get a solid education on options and learn strategies when to use them.
Let’s start out really simple.
What does the word Option mean?
The word option without any financial mumbo jumbo is “thepowerorrightofchoosing.” For example, if I ask my wife if she wants chicken or fish for dinner, she has the option to chose from one of the two. Interestingly, I don’t have that same option as she normally just tells me what’s for dinner. What is an Option in finance?
In finance, options are contracts which gives the buyer the right, but not the obligation, and the seller the obligation, and not the right, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date.I felt the same way when I read that definition. Ok, let’s break it down. What that means is, an option is an agreement between 2 parties for a valuable thing that could be be bought or sold in the future. In the contract the price of the valuable thing is agreed upon and the time frame the agreement is valid is agreed upon too. The person buying the agreement pays the seller a fee. If the price during that time frame isn’t reached within the agreement the 2 parties go about their way.
The agreement is the option contract.
The 2 parties are the buyer and the seller.
The valuable thing in this example is a stock.
The price agreed upon is the strike price.
The time frame is the expiration date.
The fee is the option premium.
Buyer of the contract (Option buyer) – The buyer of the option contract pays a fee which gives them the right to buy or sell the stock if the price is reached during the agreed time frame. If the price isn’t reached the buyer will not be forced to buy or sell the stock as the option contract becomes void. The buyer’s only loss is the fee paid for buying the option contract.
Seller of the contract (Option seller) – The seller of the option contract gets a fee from the sale of the option contract. If the price is reached the seller must buy or sell the stock. If the price isn’t reached under the time frame the seller doesn’t have to buy or sell the stock but gets to keep the option contract fee paid by the buyer.
Now let’s break down the two Options or contracts that we all get so confused about. There are 2 types of options. There are Call Options and Put Options. Let’s break down Call Options first.
What are Call Options?
A Call Option is a contract that gives an investor the right to buy a stock (ETF, bonds, commodities, etc…) at a specific price within a specific period of time.
Think of a call option like a security deposit or down payment.
To make it clearer let’s break it down with a simple and fun story.
Liz (seller) wants to sell her house (asset) valued at $500,000. Bob (buyer) is interested in buying it but doesn’t have all the money today so Liz gives him a contract (calloption) to buy the house in 6 months (expiration date) for a $10,000 fee (call option premium).
Now that the agreement is made there are 3 possible outcomes to the story once the contract ends.
Scenario #1 – One night, Liz’s daughter accidentally set fire to the kitchen while cooking dinner. The house suffered severe damage which lowered the value of the house to $400,000. Bob decides he no longer wants the house as the value has decreased and so he walks away from the deal. Bob loses the $10,000 fee paid but Bob is happy to have only lost $10,000 and nothing more. Luckily for Liz, her talented next door neighbor Jai knows how to do repairs and even though she is upset that the value of her home has decreased she can put it up for sale again in the future.
Scenario #2 – During the length of the contract the world stayed the same which had no impact on the value of Liz’s house. So, the $500,000 house that Liz owns is still only worth $500,000. Bob now has 2 choices. He can walk away from the deal only out the $10,000 fee for the contract or he can believe the value of the home will increase down the road and buy the house at its current value of $500,000. So, with the contract fee paid, Bob’s cost for buying the house totals $510,000 even though it’s currently valued at $500,000.
Scenario #3 – Parks, shops, theaters and new complexes were added around town where Liz’s house is located. The entire city beautification increased the value of all the homes in the surrounding area. Liz’s house once valued at $500,000 is now valued at $550,000. Liz is now forced to sell her house at $500,000 even though the value went up $50,000. Bob can either keep it and live in it and be happy that he paid $10,000 for buying the contract and $500,000 for the house, or he can turn around and immediately sell the house and make a $40,000 profit.
Now let’s look at call options using Facebook as the stock example.
Let’s say Facebook (FB) is trading at $100 and you believe FB will go up to $120 in the future. You could potentially buy a $110 call option for 40 cents. If the stock goes up to $120 that would allow you to buy the stock at $110 which would give you a profit of $9.60 per share. However, the person who sold you the call would be (forced) obligated to sell FB stock at $110 at a loss of $9.60. If FB never goes to $120 by the expiration date, the call expires worthless and the call buyer loses 40 cents and the call seller gets to keep the 40 cents and doesn’t have to do anything with the FB stock.
*Note – call options can be closed out at any time during the length of the contract.
What are Put Options?
A Put Option is a contract that gives the option owner the right to sell a stock (ETF, bonds, commodities, etc…) at a specific price within a specific period of time.
Think of a put option like an insurance policy.
To make it clearer let’s break it down with a simple and fun story.
Jan (buyer) has a cool motorcycle (asset) valued at $20,000 but being that Jan is afraid that something might happen to the bike he buys a 1 year (expiration date) insurance policy (put option) from Ed (seller) for a fee of $2000 (putoption premium).
Now that the insurance is set up there are 3 possible outcomes to the story once the policy ends.
Scenario #1 – One of the reasons Jan bought his cool motorcycle in the first place was so that he could speed around town. During one of his adventures he crashed damaging the bike pretty badly. The damage to the bike lowered the value down to $15,000. Ed now has to buy the motorcycle from Jan for $20,000. Luckily Ed got an insurance policy fee of $2000 so that he can off set the cost of the bike which in the end cost him $18,000. Jan is happy he paid the fee because he gets $20,000 for the bike even though it is now valued at $15,000.
Scenario #2 – Jan got busy making pizza at his pizza shop which left him little time to ride his cool motorcycle during the year. So, his $20,000 motorcycle maintained it’s value through the life of the policy. Ed walks away from the deal happy with his $2000 and no motorcycle and Jan walks away happy that he only paid $2000 to protect himself in case he got a little reckless on the road. Once things slow down in the pizza shop Jan has the ability to buy another insurance policy and protect himself again.
Scenario #3 – One of Jan’s competitors in the pizza business got mad that Jan’s pizzeria was doing better than his. So, he decided to steal Jan’s cool motorcycle. Jan had the last laugh because Jan’s competitor didn’t realize that Jan paid for an insurance policy and will still get $20,000 for his bike. Ed, is angry on the other hand because even though he got a $2000 fee Ed must pay Jan $20,000 without ever riding or seeing how cool Jan’s motorcycle really was.
Now let’s look at put options using Valeant Pharmaceuticals as the stock.
Let’s say Valeant Pharmaceuticals (VRX) is trading at $30 and you believe VRX might go down to $20 in the future. You could potentially buy a $25 put option for 25 cents. If the stock goes down to $20 that would allow you to sell the stock at $25 which would give you a profit of $4.75 per share. However, the person that sold you the put would be (forced) obligated to buy VRX stock at $25 even though it’s valued at $20 at a loss of$ 4.75. If VRX never goes to $20 by the expiration date, the put expires worthless and the put buyer loses 25 cents and the put seller gets to keep the 25 cents and doesn’t have to do anything with the VRX stock.
*Note – put options can be closed out at any time during the length of the contract.
There are many various ways to play call and put options and there are many different risk parameters involved but hopefully you understand the basic principles behind the puzzling idea of options. My biggest suggestion to anyone who is still confused is to try to understand 1 option play at a time. For example if you own a stock you might want to look into selling a covered call. If you can implement 1 profitable option strategy you can build upon that success with trying to understand and implement a 2nd strategy. Once you have nailed down all 4 option plays you can expand your knowledge even further with combining options together.
I highly recommend Jeff’s option’s classes in his Swing Trading course at Warrior Trading. He also has an options FAQ that I highly recommend. He is an excellent and profitable teacher, a helpful moderator and an all around nice guy.
Feel free to email Jeff at Jeff@Warriortrading.com and tell him Jai sent you.
I love iMac computers because it is so user friendly for my photography business. However, when I started to day trade stocks I knew I was going to have issues because all of the direct access routing software used for day trading is not compatible with Apple computers. And being that I still work as a (corporate) photographer I knew something was going to have to give if I wanted to do both. Luckily Jeff at Warrior Trading, who is a Mac user, shared his knowledge with me which led me to the amazing set up I have in the picture above. Sure it’s not as grandiose as this setup here but it works for me and I love it. So, after going through the whole process myself I thought it would be great to share my day trading iMac setup for the hardcore iMac lover who doesn’t want to make the switch.
Before I begin the step by step process of how I run my DAS trader pro software on my Day Trading iMac Setup let me say that less is more for me. The 5 screens you see above might seem like a lot if you are just starting out but they are really just a combination of my original set up (which can be seen here) with 2 new monitors that I added late last year as a little gift to me from my successes in 2015. Anyway, have a look at the photo at the top of the blog and you will see that I have two 24 inch LED monitors that flank my main iMac 27 inch retina monitor. In addition, I have a 16 inch portable AOC monitor that I never stopped using after my upgrade. Finally on the left of that I have my Mac Book Pro from 2014 which is a stand alone screen I use just for Warrior Trading Chat.
Note: I run my DAS trading software through Windows 10 via Bootcamp. You can use other software such as VMware Fusion or Parallels but I spoke to a representative at DAS trader and was told Windows via Bootcamp is the best way to trade in and out of stocks without any lag time.
Ok let’s get started with my day trading iMac setup.
Installing my Windows 10 on an iMac.
I inserted a USB Flash Drive (at least 6gb) into one of the 4 USB ports on my main iMac and download an ISO Windows 10 pro from here.
Then I accessed my Bootcamp on my iMac by going to the menu bar. Click Go > Utilities > Bootcamp assistant.
I then opened up the Bootcamp assistant and clicked continue.
Next I clicked all 3 check boxes on the next screen. Create a Windows 8 or later install disk, download the latest support software from Apple and Remove Windows 8 or later version.
With the USB Flash Drive still in its port I then clicked continue again so that the driver would format which would allow the Windows software to download on the drive.
Then I typed in my password and followed the partitioning process of my iMac. Note: I split my computer 80% OS X and 20% Windows 10 because I have a lot of saved files on the OS X side of my computer.
Then once complete I restarted my computer and after I heard the Apple start up chime I held down the option key until I saw this screen here. Then I chose Windows and followed the setup process from there. Setting up Windows is pretty easy but in case you need a little help here is a quick video to help you get it installed and setup.
Setting up my Day Trading workstation.
Inside the box of the two 24 inch LED monitors I purchased there are VGA cables. I connected those cables to their respective ports in the back.
I then connected the other end of the VGA cables to a Mini DisplayPort Adapter that I purchased on Amazon. Note: I bought 2 adapters because I bought 2 monitors.
Then I connected the mini DisplayPort Adapter into the thunderbolt ports in the back of my main iMac. Click here to see what a thunderbolt port looks like.
Note: You must be on the Windows partition of your iMac.
On the display screen of Windows 10 I clicked the Windows Icon Task bar on the lower left of my screen.
Then I clicked settings > system > display.
Once there I customized my display with the settings that worked for my needs as well as monitor specifications. Here is a good blog post for setting up multi monitors using Windows 10.
Voila! You are now done…
After everything was complete I opened up my DAS trading platform from SpeedTraderPro and have had no problems whatsoever. Hopefully my day trading iMac setup was helpful to you. And in case you were wondering here is my desk that I got off of Amazon which I absolutely love and this is my chair that I spent a fortune on. Why did I spend a fortune on a good chair? Well, my motto is if you don’t take good care of your ass nobody will.
Ever since I started this blog I have received hundreds of questions. In fact, I have gotten nearly 500 questions and comments and I have answered every single one of them based off of my truth in the moment I was writing. Some of the questions were kindly worded, praising me for my generous information and others were mean spirited and challenging my New York upbringing. However, I tried my best to keep emotions out of it and answer as truthfully as possible. In 2 years a lot has changed. My thinking has changed, my recommendations have changed, and my process has changed. In fact, if you read everything on my blog since the beginning you will see exactly what I mean. Anyway, as I stated above I get a lot of questions, most of them the same. So, here are the answers to some of the most
Frequently Asked Questions FAQ (Please note… This post will get updated regularly.)
I don’t have time to read everything on your blog can I just email you directly?
90% of traders lose money which means you might want to get some popcorn and skittles and spend the next few hours going through everything here before you increase the percentages.
Who do you day trade with?
I only day trade with Day Trade Warrior. I find their education, chat room and service to be outstanding.
Why did you stop trading with The Millionaire Challenge?
My yearly subscription ended in January 2015 and I felt there were other avenues I needed to explore in my day trading journey.
Were you successful in the Millionaire Challenge?
It all depends on what You call success. When I began the challenge which you can read here I quickly learned that I needed to study and not rush to trade. I only traded 7 times that first year which made me about $400. It wasn’t even 1/10th of what I had spent but I was happy that I was learning and understanding the process.
Did Tim Sykes really fly you out to meet with him?
Yes and you can read about the whole experience here.
Why did you stop trading with Investors Underground?
My time with Investors Underground was great. I learned a lot and couldn’t have gotten to where I am without them. However, I found that my trading was different than most of the moderators in the room. For that reason I didn’t renew.
How do you trade?
I am usually a 1 and done style trader. That means I trade 1 stock for the day and I am done. Sometimes 2 or 3 but rarely is that the case. In a nutshell my process is simple… I pick 2 or 3 stocks before the market opens and look to trade based off of the range from the catalyst, price action, support and resistance. If I don’t see something I like I don’t trade.
I don’t have a lot of money how can I start trading?
Unfortunately you can’t do much in life without money. That means you need money to trade but you also need to pay for a solid education. Yes you can learn a lot for free and I suggest you learn as much as you can before spending any money. However, you will have to spend money on your education. In my opinion, I have found Day Trade Warrior’s education to be solid especially because they place a high level of emphasis on risk management. The key to longevity, as you will see once you start trading with a profitable strategy, is risk management.
Can I be a profitable trader even though I have a 9 to 5 job?
Yes and no. If you learn how to swing trade properly I am sure you could be profitable however, I personally would never recommend day trading to those with a 9 to 5 job.
Are you profitable and if so how much money do you make?
Yes and unless you are writing the Jai Catalano biography I am going to have to respectfully leave that information for the future author.
How much money did you start with?
You used to post a daily watch list why did you stop?
I find that I trade based off of the current day’s momentum so I no longer need to create a watch list the night before. I might start recapping my trades in the future but for now I have put that page on hold.
How should I get started?
I highly suggest you learn as much as you can for free first. There are several chatrooms who have free trial offers. I am partial to Day Trade Warrior but you might find your style and taste to be different. I wrote a post here that will give you a lot of free information. Take your time, do your homework and don’t rush to trade.
Are you an affiliate of any day trading chat room?
As of April 23, 2016 I started an affiliate relationship with Warrior Trading to receive a small commission for products, education or chat room subscriptions that You credit toward me under their check out tab. However, what is more important to me than receiving a commission is that you gather as much information as you can before making a decision. Don’t rush to trade, rush to learn to trade.
I read that Ross Cameron from DTW doesn’t trade real money. Is that true?
Once I am able to sit in Ross’ lap while he is trading and tell you with 100% certainty that he trades real money, I am going to have to honestly say that my heart, mind and instincts tell me I am only 99.99% certain that he trades real money.
I have read the FAQs but still have more. Can I email you anyway?