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Take the Video Tutorials!

 

Tour and Stock Trading Tutorial This informative video walks you through using the service and how to make actual trades.

Option Trading Tutorial Watch me in this quick video as I explain my most profitable trading method and how to trade options.

 

 

 

 

Quick Start Guide:

1. Log into the Member page and read through the Daily Briefing. This is the area where we'll talk about what's important. No fluff, just good trading tips and market probabilities. The Member page is updated once per trading day, usually before 10:00 PM Eastern for the next day of trading.
   
   
   
    

2. Next, you will find our Smart Money indicator. This indicator will either be long or short at all times. By default, we'll show the gain/loss of SPY which tries to mimic the S&P 500, but it trades like a stock.
   
   New ETFs such as SSO or SDS are now the preferred vehicles to invest in. They mimic a 200% long or short position in the S&P 500. SSO is a 200% long position on the S&P 500. SDS is 200% short and can be used in an IRA.
   
   We also recommend index options on SPY to greatly enhance the superior performance of the Smart Money index trading system. These options can outperform the indices by 10x. Whenever there is a new signal, we'll alert you with exactly what to trade.
   
   
   
    

3. Next, take a look at the Pending Positions. These are the trades you place with your broker for the next trading day. We list specific entry prices ranges, stops, and targets (when necessary). 
   
   
   
   
   
    

4. You can simply place the orders with your broker ahead of time, and then go about your business. Not all brokers allow you to place a buy stop limit, and a sell stop limit at the same time (which is necessary to protect yourself from excessive losses). A couple brokers I've used to do this are:
   
   Interactivebrokers.com - Their TWS software allows you to quickly update all your positions from one screen. Very inexpensive. Highly recommended!
   
   OptionsXpress.com - No trading minimums. 2nd to interactivebrokers, but not bad in my opinion.
   
   
   
    

5. All open positions are listed under "Open Positions". If a stock hits its target or is stopped out, it will be listed on our trade history page. 
   
   
   
   Any specific instruction for a trade will be listed under Instructions, and any changes to open or pending positions (such as changing stops) are listed under Changes. For example, we might say "Sell XYZ", which means sell at the open.
   
    

6. That's all there is to it. We tell you when to buy and sell. You just have to read the Member page, and place the orders with your broker. If your broker doesn't have the capability to place multiple orders on one position, simply look into a getting a new one. It will make life easier.
    

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Buying and Selling

A stock should be bought at or above the Buy Stop price we list in the Pending Positions area on the Member page (unless it's to simply buy the open). In order to minimize slippage, we suggest buying within a price range using stop limits. Specifically:

Stocks Under $5: Buy at or above the buy stop + 2 cents. So for example, you would want to buy from 4.00 to 4.02. 

Stocks over $5 and under $15: Buy at or above the buy stop + 4 cents. So for example, you would want to buy from 11.62 to 11.66

Stocks over $15: Buy at or above the buy stop + 6 cents. So for example, you would want to buy from 21.62 to 21.68

Shorting Stocks: Sell short at or below the sell stop - 4 cents for stocks under $15, and 6 cents under for stocks $15 and over. So for example, you would want to sell short from 13.86 to 13.82

Stops

When using a stop loss, a stop limit order with the above rules is recommended. For example, if the stop we list is 5.50, you would enter a stop of 5.50 with a limit of 5.46. The abbreviation we use is 5.50/5.46 (stop price first, limit price second).

It might be a good idea to vary your orders a bit so crowding at one price becomes less of an issue if you have a large account (More than $1 million).

 

Here's the list of trading systems in use, and the methods we use to get in AND out:

 

Trigger Method

Interactivebrokers.com allows you to control how your stops are executed. With most brokers, your stop is seen by everyone. It shows up as an order on the Market Maker or Specialist's screens.

For example, if I'm trading a stock on the NASDAQ with a stop limit to sell at 50.00/49.94...my limit order of 49.94 will be placed into the market even if the stock hasn't traded at or below 50.00. What a drag! You see, on NASDAQ, if the highest bid for your stock is below your stop price, the limit order is then placed. Very sneaky if you ask me.

To combat this, a few brokers like IB have "Last" or "Double last" trigger methods. That way, there has to be at least one or two actual trades at or below your stop. To put it another way, someone else has to first move the market below your stop...then your limit order is placed. I use "double last".

Interactivebrokers.com is the preferred brokers since they allow you to place your buy order, stop loss, sell target, and trigger method all at once. Do yourself, our other members (and me) a favor and take a look at their service. The less MM's and specialists see our orders, the better.

 

Buying After The Fact Can Be Costly

If you are late in buying our picks, it's best to simply wait for the next one. Most traders who buy late will experience a loss. They have a habit of buying the worst stocks in the group that we pick. Why? Because most traders feel more comfortable buying our picks on weakness. That is the wrong way to trade because we are buying into strength. When it "feels good", that's usually the wrong time to trade.

A stock that is going straight up is better than a stock that has faded. Great performers will attract more and more money as trend followers keep jumping in. Once the trend is broken, it's more difficult to get it started again.

Diversification and Losses - READ THIS!

When trading, I can guarantee you that some of your trades will lose money. For that reason, you must limit your risk. You must get out of your losing position and save your trading dollars for the next opportunity. DO NOT hang on. It is also a good idea to diversify. You should have enough money to buy several different stocks. Don't buy one at a time, because you are more likely to introduce your own bias and pick the weakest stocks from the bunch. 

You should also let your winners run. If you take a quick profit every time you have a winner, you will be doing yourself a disservice. You will often see a small percentage of the stocks you trade make you the most money. In fact, there are many traders that win maybe 40% of the time, but those winners more than offset any losses. In other words, they make money even though they are right less than half the time.

New traders think that pros win all the time. I did an informal poll with our newest members, and they basically said that they expect us to win 80-90% of the time. -- Attention newbies -- I'm going to have to give you a quick slap to the face here: Trading does not work that way. As traders, we're basically trying to react to the buying patterns of thousands of people. 

Not only do we have to make money, we also have to limit our risk. No one has a crystal ball. Like I said above, there are plenty of GREAT traders our there that win less than half the time. Why do they win? Because they dump a losing position super quick in order to minimize risk; but when they're in a winning position, they ride that sucker out. Their winners are much bigger than their losers. Read this to see what I mean.

Comfort and Margin

Using margin to buy stocks is very common practice. You effectively double your trading dollars. Whether or not you trade on margin is up to you. If you can't sleep at night because of a trade you made, or you find yourself constantly checking the market every minute, then maybe you should reduce your exposure. After all, you should only be trading with money you can afford to lose.

I want to use as much margin as I can while keeping my drawdowns as small as my mental make-up allows me. For me, I don't want to lose more than 30%...ever. This is very tough to do, but possible when using several trading systems (discussed below)

Money Management and Constructing a Portfolio...Perhaps the MOST IMPORTANT aspects of TRADING!!!!

We can control the trades we list, but ultimately, you are the one making the trades. Therefore, you must have discipline when trading. Always keep in mind that money management is EXTREMELY important. If you make a mistake, get out of the trade. Do not hold onto a loser. Always remember that losing is part of the game. Even the greatest baseball players got a hit less than 40% of the time.

Trading is not about how many times you win, but how much money you make...that's how the score is kept in this game. I can't say enough about this aspect: The vast majority of traders are focused on their win percentage instead of making their winners much larger than their losers. 

It's tough for a person to take a bunch of small losses in a row, but that must be done in order to make that 20%, 30%, or 50% gain. It's like I always say...if you feel "comfortable" when trading, you are probably doing something wrong...the stock market tends to crush those who "feel good" about a trade, and reward those who are uneasy. You must be in the minority to beat the crowd, and the crowd only makes a trade when they feel good about it. Try to diversify and PROTECT that money that you are making, otherwise you are out of the game. 

Creating a Portfolio

How much do I put in a position? That's a question most people don't really give much consideration. I for one believe this to be one of the most essential questions. In fact, I have tested this question over and over. What is the number of positions where I can keep my reward/risk ratio at an optimum level?

What I have found works best in my testing is spreading money evenly between 10 positions per system...which of course implies using several systems to spread your money around.

Using 10 positions allows you to trade most of the money allocated to each system (so you're invested as much as possible), and it diversifies enough so that one catastrophic event (such as a stock going to zero...which has not happened to me yet) does not set you back too long. See the example below:

Example 1

Portfolio size: $100,000

System 1: 50% of portfolio using 10 positions = $50,000 / 10 = $5000 per trade.

System 2: 25% of portfolio using 10 positions = $25,000 / 10 = $2500 per trade.

System 3: 25% of portfolio using 10 positions = $25,000 / 10 = $2500 per trade.

 

The smallest portfolio we suggest for trading is $10,000. If you were to divide $10,000 by 30 positions, that would be $333 per trade. Well, interactivebrokers.com offers extremely low commission...only 1/2 cent per share and $1 minimum per trade.

Personally, I think that even with those rates, it would be tough to make money trading several systems. I don't recommend trading with less than $1000 per position because even a cheap broker will still take too much of your profit, so a more realistic portfolio size would be $30,000 and higher...or you can simply trade the Smart Money signals (this is really the way to go for new traders).

...if you're using a portfolio less than $30,000, you're going to experience more ups and downs because you won't be able to spread risk between more than 10-20 positions effectively. However, if 2-1 margin is used, that would give you control of double your equity, which would let you spread risk between 20-30 positions. All the stats on our systems pages are using 2-1 margin.

Example 2

Portfolio size: $25,000

Margin: 2-1 (which effectively gives you $50,000 in buying power)

System 1: 50% of portfolio using 10 positions = $25,000 / 10 = $2500 per trade.

System 2: 25% of portfolio using 10 positions = $12,500 / 10 = $1250 per trade.

System 3: 25% of portfolio using 10 positions = $12,500 / 10 = $1250 per trade.

 

How you trade and how often is (like everything else) a personal decision based on your risk tolerance and dedication to trading. Like I said above, my tolerance is a 30% loss and I don't mind trading actively.

All of our trading systems have great track records, but vary in how often they trade:

 

Choose the systems that work best for your particular style of trading. They are all included as a member.

 

 

Choose the systems that work best for your particular style of trading. They are all included with your subscription. Just beware the pitfalls of putting too much money in any one trading idea! I never know when I'm going to win or lose.

My odds are sometimes no better than a coin toss (but the winners are much larger than the losers). Would you gamble everything on a coin toss? Most traders blow up their account because they have no discipline or money management rules. I hope you keep that in mind when you decide how much to risk on your next trade.

For more examples on selecting a portfolio, click here.

 

How to interpret the member services:

 

• Smart Money Indicator - See what the pros are doing. They are either buying stocks (Long) or shorting stocks to profit while the market declines. This is one of the most important indicators available because it shows you the internal strength. Pros sell at tops and buy at bottoms. Note: This is an Intermediate to Long-term indicator (meaning 1-6 months out). Think of it as the wind -- you want the wind at your back, not in your face. On average, there are about 3 signals a year.
   

• Open Positions - Positions that are currently open. It is not a good idea to chase these or buy into them at a date later than specified, as your risk will be higher.
   

• Pending Positions: Positions that are pending activation for that trading day.  For example, we might post a "Buy stop" on INTC at $23. That means you would enter the stock at or above $23 (within 6 cents since the stock is over $15, so you would want to get in between $23.00 and $23.06). 
   

• Action - Either "Long" or "Short," "Call" or "Put." Please check out our FAQ's about short positions.
   

• Price - The price at which a position was entered.
   

• Stop loss - The recommended price for getting out of a position to protect gains or capital. Note that some securities will not let you set stop losses, such as those under $5 (depends on your broker). We recommend using a "stop limit order" to keep losses to a minimum, while reducing slippage (see below).
  
  Some brokers allow you to place contingent orders that allow you to place buy orders and stop loss orders together (one triggers the other).
   

• Target - The price that we believe a stock will trade up to. Once our target is hit, our position is closed. A trader could use a sell limit at the target price. When "none" is listed, we do not have an initial target (one will be added later if necessary). Stops are the main way we get out of positions.
   

• Smile - Always remember to smile when trading. It will ease the anxiety.     :>)

 

Trading Terms

Everyone knows what "buy" means, and what "sell" means (we hope). However, the language we use is a little different because we don't just buy and sell. Here are some definitions:

• Long - This means buy or "Buy to open". If we say Long->ABCD (20.00), then we mean that the stock should be bought near $20. 

• Sell - This isn't too tough. We get out of a Long position by issuing a sell signal or "Sell to close". 

• Short - When we want to profit from a stock going down, we issue a short signal (Often called a "Sell to open" order). Shorting stocks requires a margin account with your broker. If you aren't sure what shorting is, please check with your broker (yes, shorting a stock is different from buying put options...we get that question all the time). 

• Cover - When it's time to get out of a short position, it's a  "Buy to close" or "Buy to cover" signal as it is worded at most brokerages. Covering a short position gets you out. 

• Call - A call is an option that we buy when we think the market will go up. We trade index options on mostly the OEX and QQQQ. We will give you 3 things when issuing an alert on an option: 1) The ticker symbol of the option. 2) Strike price and date. 3) The price at which to get in. Options trading has been much less frequent since volatility has been falling. When volatility consistently falls, the option writers have the advantage (since the option decays at an even faster rate).

• Put - A put is an option we buy when we think the market will go down. The alert for a put is in the same format as a call above. 

• Stop -We issue stops on our positions. Basically, a stop loss is where we get out just in case we're wrong about a position, or we want to lock in profits. For example, if we bought INTC at $15, and the stop is set at $14.65, we would be stopped out if the stock traded at or below $14.65.
  
  To limit slippage, we recommend using stop limit orders, with the limit 2-6 cents under the stop price. Stops should be considered good until cancelled (GTC). "Sell to close 500 shares INTC at a stop of $14.65, limit of $14.59". See stop orders below.

Broker Terms and Order Types

• Market order - To get into or out of a stock fast, a market order is the way to go. However, you might not get a very good price -- but you get into the position almost immediately. Example: "Buy to open 100 shares INTC at market".
   

• Limit order - Used to get into (or out of) a position at an exact price or better. The drawback is that if the stock moves away from that limit price, you might only get a partial fill or no fill at all. Example: "Buy to open 500 shares INTC at a limit of $25.35" would get you into INTC for a maximum price of 25.35 (you might pay less if the market is trading under that price).
   

• Stop order - When you're trying to get into a stock at or above a certain price, a stop order can be used. A stop order will turn into a market order once a stock hits your stop price. Example: Buy 200 shares INTC at a stop of $24.01". Once INTC trades at or above $24.01, your order is submitted as a market order (which has certain advantages and drawbacks as noted above). 
  
  A stop order can also be used to get you out of a position (as a stop loss). Example: "Sell to close 500 shares INTC at a stop of $23.05". Once INTC trades at or below 23.05, your order  becomes a market order to sell.
   

• Stop limit order - If you want to get into or out of a position once an exact price is hit, a stop limit order can be used. The drawbacks and advantages for limit orders are noted above. Buy example: "Buy to open 500 shares INTC at a stop of 24.45 and limit of $24.51". Once your stop limit price is hit, it becomes a limit order at that price. This is the preferred entry method.

 

 

For any other questions:

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The results listed herein are based on hypothetical trades. Plainly speaking, these trades were not actually executed. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under (or over) compensated for the impact, if any, of certain market factors such as lack of liquidity. You may have done better or worse than the results portrayed.

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 Articles

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Trading Systems 101

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Trading Systems 201

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Creating a Portfolio

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