SangLucci.com Options Training Course Guide(1)

8/11/2019 SangLucci.com Options Training Course Guide(1)

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Sanglucci.com Options Training:Course Guide


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Webinars start promptly at 8pm EST. You must come to class prepared with questions having reviewed the material in thistextbook ahead of time. Traders are expected to study when classes are not in session and come ready to learn.

During class hours questions will only be fielded via comments. Q&A portions of class will allow audio participation.

Recordings will be made available for missed classes.

Sanglucci.com its affiliates and representatives (collectively Sanglucci.com) have the right to remove any student from a classor any other services provided by Sanglucci.com for no refund if he or she acts disruptively, disrespectfully, or in any wayimpedes class progress.

Sanglucci.com is not responsible for decisions made by traders who use information from Sanglucci.com writings and/or

educational courses.

We do not claim to have a special insight into the markets that prevent us from making mistakes. We do make mistakes.However, we believe our successes more than make up for our mistakes, and will continue to offer our education until provenotherwise.

Trading of stocks, and especially options, involves substantial risk of loss and may not be suitable for everyone. Day trading inthe stock market brings with it a high degree of risk; trading options is an even higher-risk undertaking. Traders should carefully

consider their decisions and know the risks they take on before placing trades. The valuation of options may fluctuate, and, as aresult, traders may lose more than their original investment. You are responsible for all the risks and financial resources you

use.

BY ENROLLING IN EDUCATIONAL COURSES PROVIDED BY SANGLUCCI.COM, YOU ARE ACKNOWLEDGING THE RISKS INVOLVED INTRADING THE STOCK AND OPTIONS MARKETS AND ARE ALSO ACKNOWLEDGING THAT YOU, THE TRADER, AND NOT SANGLUCCI.COM,

ARE SOLELY RESPONSIBLE FOR ANY LOSSES, FINANCIAL OR OTHERWISE, EXPERIENCED AS A RESULT OF YOUR TRADES.SANGLUCCI.COM SHALL UNDER NO CIRCUMSTANCES BE LIABLE FOR ANY LOST PROFITS, LOST OPPORTUNITIES, MISSTATEMENTS, ORERRORS CONTAINED WITHIN SANGLUCCI.COM WRITINGS AND EDUCATIONAL COURSES. YOU AGREE TO HOLD SANGLUCCI.COMHARMLESS FOR ANY ACT RESULTING DIRECTLY OR INDIRECTLY FROM SANGLUCCI.COM, ITS CLASSES, DATA, CONTENT, MATERIALS,

ASSOCIATED PAGES AND DOCUMENTS.


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Table of Contents

Trading Basics5-23

Auction Process Candlesticks Charts Time Frames

Types of Trades Short Selling Price Action Understanding Sentiment Supply/Demand Dynamics

Technical Analysis and Indicators Building a Watchlist Sangluccis Watchlist

Options24-39

Why Trade Options What is an Option? What Calls and Puts

How You Read An Options Chain Sangluccis Equation for Pricing an Option The Underlying Stock

Time Decay Volatility Equation For Pricing An Option: Revisited

Puts vs. Shortselling Characteristics of In Money vs. Out of the Money Different Classes of Options: Weeklies and Monthlies

Focus Profit vs. Loss Potential

Tape Reading40-55

Definition of Tape Reading Level II Time and Sales Bid and Ask as Related to Tape Reading Refreshing Orders Exchanges and Routes

Dark Pools Tape/Price Manipulation Techniques Scanning and Analyzing Large Order Transactions

Fakeouts Timing: Having The Touch and Timing with the

Markets

Continued


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Table of Contents

SangLucci Methods: Combining Tape Readingand Options55-61

Before The Tape: Idea Generation Selecting the Right Option Finding Conviction in The Tape Timing Entries Exiting

Using Trading Platforms62-68 Priorities for Choosing a Platform Customizing Layouts

Adjusting Settings to Maximize Performance: SangsSetup

Hot Keys Multiple Chart Time Frames

Trading Psychology69-79 Market

Headline Risk

Bullish/bearish sentiment Anticipation Earnings

Personal

Challenging your fears Taking losses

Taking Winners When to Size In Value of NOT Trading

Building Your Own Trading Style Why Do We Trade?


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Trading Basics


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Supply and Demand are represented at the Ask (sellers) and Bid (buyers):

The price of a stock is set by the last transaction made, regardless of it being a buy or asell. The receipt of this transaction is displayed as a time and sales stamp.

The supply and demand dynamics in a stock market are no different than those of aphysical market or auction of any other kind.

If there are more bidders trying to buy a product or security, the price will go up. If there are more sellers trying to sell a product or security, the price will go down.

Bid, Ask, and Spread Defined:

Bid:The price closest to the last transaction that buyers are willing to buy at.

Ask (aka Offer):The price closest to the last transaction that sellers are willing to sell at. Spread: The difference between the Bid and the Ask. This is the amount profited by Market

Makers who are paid to make sure shares of a stock are always available and trading.

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Stock charts are typically made up of units called Candlesticks.

As each time stamp is recorded by the computer, the price movement of each tick iscompounded into a Candlestick.

Candlesticks are vertically-oriented Box and Whisker plots.

In this case, 50% of trades happen within the box and 50% of the trades happenoutside of the box (25% on each wik aka the whiskers).

Each Candlestick finishes populating depending on what time frame you haveselected.

Example: 1 minute, 5 minutes, 1 hour, daily, etc.

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Candlesticks populate as time elapses, forming a chart. When Traders analyze

charts, we are in reality assessing the movement of the candlesticks forming thechart.

What the chart can tell us:

Support and resistance levels.

Support:A price floor in the stock where buying demand matches sellingpressure, halting the movement of the stocks price below that level.

Resistance:A price ceiling where selling pressure matches buying demand,halting the movement of the stocks price above that level.

Which of three possible chart environments the stock is currently in: Uptrend

Downtrend Consolidation aka Chop What stocks to watch and what to set to the side.

Depending on your strategy, youll be looking for different types of movement orsetups within a chart before you further investigate the stock for a trade. A quicklook at a chart can often tell you if a stock is worth your time that day.

Who are the bag holders, what their mentality is, and where they are in thechart.

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Bagholders

Bagholders are the people that are holding the stock at its peak and cannot get ridof their position until the stock has moved lower against them.

Usually bagholders increase the effect of sell/short pressure on a stock; they admitdefeat and exit their position, pushing the stock lower with their sells because thereis no logical game plan of getting out of their trade other than dumping.

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Chop/Consolidation

Uptrend

Downtrend

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Each of these charts shows the same stock at thesame moment from different time frame settings.

The time frames that we use to look at these chartsshould be proportional to the duration of the trade thatwe are putting on.

As you can see by these charts, different time frames

will completely change our perspective on the stockand consequently what price patterns we recognize.

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30 Minute Chart Daily Chart

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Scalp

Seconds to minutes. If you are scalp trading you jump in and out of stocks very rapidly,often picking up gains on penny moves over and over again. Scalp traders typically usespecialized platforms with hotkeys to make sure they can enter and exit positionsimmediately; scalp traders often employ a large amount of leverage. Scalp traders usuallyuse advanced strategies with regard to routing and exchange routing.

Scalp trading usually takes place at a prop firm because the technological requirementsare so expensive. It is not possible to scalp trade using a retail platform.

Day

Hours to a full day. Day traders are looking for a larger move in a stock compared toscalpers.

Positions usually require multiple entries to reach full size. Stops (predeterminedmaximum loss points) are wider because the trade is being placed across a longer periodof time and therefore will typically experience more swings.

Swing

Days. Swing traders hold a position over multiple days.

Swing trading mostly happens in trending markets (either up or down trending). A swingtrader could slowly piece into a position over multiple days or could put on a position thathas a relatively good amount of gains within 1 day and hold it overnight.

Investing Two weeks or longer; not relevant for our purposes

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Short selling is the process of selling stock that you dont own in the hopes thatyou will be able to buy it back for cheaper in the immediate future. In order to sell

short, you have to borrow shares of the stock (typically from your broker). Example: Apple is at $620.00. I believe its going down to $580.00. I can short Apple by

borrowing shares from my broker at $620.00, selling them immediately in the market,and waiting for the stock to go down before I buy those shares back and give them backto my broker.

The difference between what I originally sold the stock for and what I buy it back (minus

commissions) is my profit.

Short selling is used when you want to profit from price going down instead

of up.

The danger of short selling is that your potential downside is UNLIMITED.

Example: A trader shorts 10 shares of Apple at $620.00. He has now collected$6,200.00 (minus commissions). However, Apple makes an unexpected announcementand the stock jumps to $1,000.00. The broker calls and demands that the trader coverhis short, so the trader has to buy back his shares at the market price of $1,000.00 pershare. He has to pay $10,000 (plus transaction costs) for those shares, which means he

loses about $4,000 on the trade, 65% of his initial investment. The unlimited downside potential of shorting is one reason why traders use options.

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Price Action is the behavior of the Bids and Offers in relation to one another over a period of time, at certain price levelsof a stock. As buyers and sellers come in and out of a stock in greater or lesser numbers, they are affecting the Price

Action.

Imagine a physical marketplace: If there are only a few buyers and sellers mulling around, placing small orders for goods,there isnt much activity; the price action could be described as slow. However, if a busload of big buyers and sellers pilesinto the market and starts buying and selling like crazy, the prices of those goods are going to start moving A LOT. Thatsprice action.Having a good read on price action is very difficult. Thats the whole point of Tape Reading in the first place.

Specifically, price action refers to the ways that orders go off whether they are bidded or offered with relatively largeamounts of volume. Price action also refers to the behavior of the buyer or seller in relative strength to one another arebuyers overwhelming sellers and pushing the price higher?

Example: When there is a stronger buyer involved, the price action--the aggressive buying--will happen on the offer.This suggests that buyers are so intent to buy the stock that they are not willing to wait to have their order filled whenthey place it on the bid. Instead, they are paying the difference between the bid and the offer and buying sharesimmediately on the offer. They are paying a premium to buy the stock in the moment.

Having said that, there are manipulative ways to accumulate shares by making the price action look a certain way. Just as

you can bluff and cultivate perceptions in a poker game by changing the way you bet, you can bluff and manipulate otherplayers in the market by changing your buying and selling habits.

Price action helps us determine whether a stock is in play whether its worth trading that day. Its usually apparent withinthe first 30 minutes of the open whether the activity within the stock the price action will be such that it will create movesand opportunities to actually make trades.

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Dictionary definition Sentiment: A view or attitude toward a situation or event; an

opinion.

Market definition of Sentiment: The prevailing macro view of the market direction. Thesentiment is our way of qualifying where the markets will be going in the future.

Example: Bearish sentiment prevails in the market after poor macroeconomic reports suggests thatthe US is heading into a double dip recession.

Sectors and Sentiment: Markets are made of different sectors (tech, financials, casinos, etc.).Each sector has different sentiment as a subset of the overall market sentiment.

Example: Google, Amazon, Apple, and other tech sector stocks are falling while Bank of America,Goldman Sachs, JPMorgan Chase and other financial sector stocks are surging upwards. This wouldimply bearish sentiment in techs and bullish sentiment in financials.

Indexes and Sentiment: You can also look to broad indexes for market sentiment. Bullish

sentiment on the S&P 500 (tracked via the SPY) will create bullish sentiment in stocks of almostevery other sector. Example: Three weeks of bad data come out but the SPY is still bumping up against resistance

levels. The sentiment here is bullish, and we can infer that most investors and traders still believe thatmarkets should be moving higher despite the bad news.

Different stocks have different levels of correlation with the broad market indexes. This is

important to factor in as you prepare your Watchlist.

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SUPPLYand DEMANDare the most important factors in trading.A change in Supply and Demand moves astock. Without that change, the stock DOES NOT move.

Ultimately, traders want to step in front of changes in supply and demand because it is these changes thatgive us movements in the price of the stock, and therefore the opportunity to make money.

Example: When a large fund increases its holdings of a stock, its position size can be so large that itliterally removes a large portion of the supply of the stock while increasing the demand. Therefore,when a large fund goes into the market with a large buy order, it will drive the price of the stock upbecause demand has substantially increased.

Example: A Low Float Stock (a stock with little average daily trading volume)

Lets say the average number of shares traded are 300,000 shares per day. Its very easy to spot alarge trader who wants this stock because his order size and the quantity of the orders are morethan the average number of transactions in the stock. Spotting a buyer like this signals a largechange in supply and demand and triggers the need for a closer look.

On a large scale, you can see equilibrium or consolidation areas as a price range where supply and demandare in agreement. This is an area where buyers and sellers agree that the price of the stock should be in thisarea.

Breakoutsoccur when demand (buyers) overpowers supply (sellers), therefore driving the price of thestock upwards.

Breakdownsoccur when supply (sellers) overpowers demand (buyers), driving the price of the stock

downwards.

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Breakdown

A breakdown is a move out of consolidation into a downtrend. Breakdowns occur when a stockhas been trading within a certain range and the price suddenly collapses lower than that range.

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BreakdownSupport Level

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Breakout

A Breakout is a move out of consolidation into an uptrend. Breakouts occur when a stock hasbeen trading within a certain range and the price suddenly escapes out higher than that range.

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Breakout BreakoutResistance Level

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Indicator:An analysis tool that traders use to predict the direction of the stocksprice and structure trades.

Technical Analysis:the analyzing of charts: behavior of candlesticks, areas ofconsolidation, breakdown and breakout areas, and more.

There are hundreds of technical patterns that supposedly indicate high probabilitytrades, and in conjunction with chart analysis there are thousands of differenttechnical studies out there. The point of technical indicators is to display and helpthe trader understand what is on going with the stock at certain prices.

Example: VWAP (Volume Weighted Average Price) is an indicator that can signal that alarge number of transactions within a certain time period have taken place at a certain

price.

All technical indicators have one shared characteristic: they need historicalinformation to exist.

Beginning to intermediate traders will rely on indicators heavily.

This shared quality also means that traders only using technical analysis will always bea step behind the market as they wait for their indicators to take shape and calculate.

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Technical indicators are helpful for momentum trading because there has to be a

jump in volume and/or price for it be considered a momentum trade; oftentimesindicators will pick up on these movements.

-HOWEVER-

Lagging Indicators All indicators lag. You will never have the best entries or exits if you are using

only indicators.They might let you catch a move but youll probably miss a hugeportion of it, especially in a hybrid market where computers using the sameindicators can move thousands of times faster than you.

Indicators can also overcomplicate your trading analysis, which is the last thing

a trader wants.

Were not here to teach technical analysis; we use key levels based on what thechart tells us and based on what the price action tells us. We aim to get inBEFORE the momentum traders, which means we have to move beyond technicalanalysis. Thats where Tape Reading comes in.

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Before you build a Watchlist, its important to define your style of trading.Some questions to ask yourself:

Do you trade whatever is hot that day (aka high flyers)?

Do you trade large range days?

Do you like to trade within certain ranges of technical indicators?

Do you like to trade a small basket of stocks that you know well?

Momentum Trades

If you like to trade momentum plays, youll probably be scanning through 100sof stocks a night to find the stocks that are building momentum based on

technical indicators. This is tedious but plenty of people do it; its quite feasible.

High Flyers

No Watchlist. You literally wait until the next day to see whats popping and then

trade that.

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We made it through a top-down approach:

We are looking for stocks that have relatively good liquidity (trading volume) on theoptions. Liquidity is essential because without liquidity we cannot exit a tradeimmediately and lock in gains or cap losses.

We know that capital flows through different sectors (Sector Rotations). Weve built a watchlistwith a diverse number of sectors specifically so that we can take advantage of Sector

Rotations. We watch broad indexes (SPY) and our stocks to see which sector is leading the indexes

in a certain direction.

Example: Well watch Goldman Sachs (GS). Lets say it reaches new highs in themorning on high volume. We look at the rest of the financials and see they arerising as well. We look at the SPY and compare its behavior to the rest of our

stocks. If the rest of the sectors arent moving, we know that the financials aremoving because they are moving with or before the broad indexes.

Therefore we know which sectors are hot and which sectors are lagging. Sectorsthat are weak during a bull rally will be optimal for short positions if the bull rallystalls and turns into a bear market.

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Tech:

Amazon (AMZN)Apple (AAPL)Facebook (FB)F5 Networks (FFIV)Netflix (NFLX)

Priceline (PCLN)Yoku Inc (YOKU)

Financials:

Bank of America (BAC)Goldman Sachs (GS)JPMorgan Chase (JPM)

General/Index

20+ Year Fed Treasuries(TLT)S&P 500 (SPY)Silver (SLV)Gold (GLD)

Casinos

Las Vegas Sands Cop(LVS)Wynn Casinos (WYNN)

Industrial:

CF Industries Holdings (CF)Potash (POT)United States Steel Corp (X)

Credit Cards

American Express (AXP)Mastercard (MA)Visa (V)


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Options

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We trade options because they require less money for higher potential returns.Example: You have a $600.00 stock. You buy 100 shares, which costs you$60,000.00. If the stock moves up $5.00 to $605.00, you make $500.00.

Thats a lot of money to put on the line to make $500.00 (1% return on investment).

Instead, you could play an option. Lets say the 605 Call is at $3.00. If you spend$60,000 on this option, you would have 200 contracts. If the underlying moved $5.00,your 200 contracts are now probably worth DOUBLE (100% return) what you paid forthem. You would be walking away with $40,000.00-$60,000.00 in profit.

There is of course substantial risk that you take on in order to achieve this type ofreturn, but you can see the sizeable gains that options can provide.

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An optionis a contract that permits the buyer (holder) the right to buy or sell an underlying security at a specified price(strike price) for a specific date (expiration date).

Equate an option to a bet, like on a football game, except youre not just betting on something happening in the game,youre also betting on how long it will take that outcome to occur. If you think the Packers are going to score 28 points

against the Patriots, youre not just taking that bet, youre betting whether it will happen in the first quarter (not likely)or by the end of the game (more likely).

The option only provides the right to transact on the terms of the contract; it does NOT require or obligate the buyer toexercise the contract.

If you chose, you could purchase an option and allow it to expire without exercising it. There are plenty of strategiesthat take advantage of this capability.

Each contract of an option equates to 100 shares of the underlying stock.

So when you buy a single $2.00 Call in Bank of America, you are going to pay $200.00 for that 1 call. The listed price

of the option is NOT what you actually pay for it.

This is why using leverage when trading options is rare an option already requires 100 times more capital thansimply purchasing the common stock.

The Strike Price is the price at which the contract allows the buyer to trade the underlying stock at.

Think of the strike price as YOUR bet on the game. If you think the Packers will score 28 points, thats your strikeprice. If you think Apple is going to 605, thats your strike price.

The Expiration Date isthe date at which the option expires or is no longer valid.

This is the ticking clock on your bet; you have to be right BEFORE this date. If not, the value of your bet is ZERO.

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Here are the more technical definitions of the two types of options, Calls and Puts.

A Call option gives the buyer the right to purchase 100 shares of the stock at a certain price before a certaindate.

Buyers of Call options want the stock price to GO UP.

Example: A trader purchases one $6.00 Call contract for Bank of America. The expiration date is threeweeks away. The next day, Bank of America trades up to $10.00. Theoretically, the trader could exercisehis option, in which case the seller of the option would have to sell him 100 shares of Bank of America

stock at $6.00. The trader could then go back out into the market and sell those 100 shares at $10.00,making a $4.00 ($10.00-$6.00) profit per share (minus transaction costs). In reality, options trade just likestocks, so the trader would simply sell his call option for a large profit instead of translating it into stock.

APut option gives the buyer the right to sellthe stock at a certain price before a certain date.

Buyers of Put options want the stock price to GO DOWN.

Example: A trader purchases one $600.00 put contract of Apple. The expiration date is 2 weeks away.Two days later, Apple is trading at $540.00. Theoretically, the trader could exercise his option, in whichcase the seller of the option would have to buy 100 shares of Apple from him at the strike price of$600.00. Since the trader just sold shares that he didnt own, he had to borrow them, which means hesshort. To cover his short, he goes back out into the market, buys Apple at the current market price of$540.00, and gives those shares back to the entity that initially let him borrow the shares. The tradermakes a profit of $60.00 ($600.00-$540.00) per share (minus transaction costs).

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This weeksOption

Next weeksOption

ExpirationDate

Strike Price

Bid and Ask for Calls Bid and Ask for Puts

Every platform will display an option chain differently, but there are a few common denominators, as highlightedbelow. Note that this chain was captured on a Thursday, which means that there are two series of weekly options

displayed (those expiring this coming Friday and those just released on this Thursday expiring next week). This isonly true on Thursday or Friday.

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This is the way we look at options while trading and what you need to know

in order to trade options live:

Price of Option = Underlying Stock + (Time Decay) + Volatility

In the next few pages we define each of these variables and how they relateto the price of an option.

Note that this is clearly not the Black-Scholes Model or any othercomplicated way of pricing an option. Simplicity (without sacrificing

accuracy) is paramount when it comes to trading, which is why we haventovercomplicated our formula unnecessarily.

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As described before, a Fakeout usually happens at a place where the most eyes are on acertain technical level.

The idea behind a Fakeout is that if a large trader or institution can establish an acceptedperception, it has the ability to lead the herd into a slaughter.

Below, you see Mastercard bumping up against a resistance level. The Fakeout occurs whenthe price briefly breaks through the resistance level before immediately plunging lower. Itsquite possible for a large trader to momentarily push the price across that level.

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When day trading options for a short term move in an underlying stock, timing is one

of the most important factors of you becoming a successful trader.

Trades have to be timed with the broad indexes, so being able to understandthe sentiment on the major indices is as important as picking the right stock totrade.

Timing is about sifting through the noise on the tape and positioning yourself for aparticular trade at the right moment.

Example: You're buying a breakout but the tape is showing no aggressive

buyers and no volume. Therefore, its probably not the right time for you to goheavy into the trade, even though you want to put on a long position.


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Sang Lucci Methods:Combining Tape Reading and Options

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This section of the curriculum is structured for live note taking and

learning through interactive examples. Treat this section as a workbook

and take notes as we go along.

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BEFORE THE TAPE: IDEA

GENERATION

Assessing underlying sentimentusing charts and simple technicalanalysis (broad indexes,treasures, precious metals).

Market sector sentiment analysis

Thesis Formation what do youthink is going to happen?

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Choosing the expiration and strikeprice.

Understanding ebb and flow of thatparticular option.

Calculate profit potential is thistrade worth your time?

FINDING AN OPTION

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CONVICTION IN THE TAPE

Proving or disproving theinvestment thesis

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TIMING

Catching Fakeouts

Entering and re-entering

Returning to the tape

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Day trade vs. swing trade vs. scalptrade approach.

Adapting to what the market gives

you

EXITING

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Using Trading Platforms

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Many retail platforms force you to click at least 4 times before you can execute a trade.THESE ARE BAD for our purposes.

Good execution platforms are ones that allow you to set up hotkeys and click a singlebutton to get into a trade. THESE ARE GOOD for our purposes.

The difference can be 5-10 seconds, which can easily mean 1000s of dollars whentrading options.

Latency

Latency is the time between you placing the trade and it actually being filled by yourbroker.

Platforms have different latencies for execution.

Many retails platforms are visually appealing but are high latency, meaning if you

throw a market order it may go through 3 different brokers. They are not made fortraders trying to rapidly enter and exit stocks; they are made for investors.

Example: ThinkOrSwim(High Latency, poor execution). The actual ticks in thetime and sales may be as much as 1 second off from a low latency platform. Thismay be okay for swing traders and investors, but it is not okay for active traders.

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Due to technological limitations there is an inverse correlation between low latency and high

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Due to technological limitations, there is an inverse correlation between low-latency and high-quality visuals. Typically, when you have a fancy platform, your execution is going to suck.The reverse is also true. This is why many traders use multiple platforms, i.e. using

ThinkOrSwim charts while using a low-latency platform to execute. There is nothing wrongwith using charts from a platform with great visuals (Fidelity, ThinkOrSwim) and using a

different platform with execution capabilities better suited to scalping or day trading to actuallyput on your trades.

Retail Platforms (generally high-qualityvisuals, more technical indicators, slower

data feeds, non-customizable routes)

Direct Market Access Platforms (DMA-fastexecution, low latency data feeds,

customizable routes, better fills, better speedof tape)

Think or Swim LiveVol

Schwab Sterling

Fidelity DAS Trader

TD Ameritrade Fusion

Brokers through retail bank programs likeJPMorgan, Bank of America, etc.

Tachyon

Laser

Lightspeed

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Depending on what you value more, you could have more charts for

technical indicators and a very small execution section for your Level II, or ifyou dont rely on charts very much you could have a number of time andsales displays and Level IIs.

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-&+6F# -(./1

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-& 6 # -(./1

The setup has to be something you are comfortable with. When you have a

conviction for a trade, it needs to be one easy fell swoop.

See live screen sharing of Sangs setup

We value execution. Its crucial that we have low latency and immediate fills in order

to effectively use our strategy. If we had to wait 5 seconds longer to place our trades,the difference would be ENORMOUS in terms of performance.

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Hot keys are mostly used by proprietary traders to reduce the number ofkeystrokes and clicks required in order to place a trade. They allow you to press a

single key to execute orders that would typically take multiple keystrokes andmouse clicks. For scalpers, hot keys are essential.

A#"+6 5)&,"+6 :%&X2)'#8 Q/%41%( ;=&). 5"'( >)&'(# 5 Minute Chart

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30 Minute Chart Daily Chart

These charts show Goldman Sachs. They

are snapshots of the same moment acrossdifferent time frames.

Set up your monitors so that you can see asmany different perspectives of the market asnecessary to perform the analysis you

make.


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Trading Psychology

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A trader has to exercise constant awareness of the major economic headlines that

move the markets. Watching the economic reports themselves is not as important as monitoring the

perception of those numbers and the reactions in the markets.

Example: GDP numbers came in better than expected; however, the market

had already priced in that number, and as a result the indexes sold off. This isan example of buying on the rumor, selling on the news.

Paying attention to every bit of economic data or news report is not advantageous to

any trading strategy.

Bullish/bearish sentiment

A trader needs to feel, not just see, the underlying sentiment in the market

and indexes.

Example: In a bull market, most negative economic reports are thrown asideand any dips in the market are bought up very quickly. This is a trend thatyou need to follow, and through continuous practice you will begin to seethese patterns and literally feel connected to the sentiment in the market.

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When you are trading large caps, the largest moves and the largest opportunities are

when you have a broad market move. Unfortunately the smart money does their best to mask what direction that move

will be in.

You need to be able to anticipate by watching reactions to headline risk and by

watching the sentiment in different sectors.

You have to understand the manipulation. Think to yourself: If someone were

trying to manipulate you into a trade, how would they be doing it? Does thetrade youre about to go into look like it is this kind of setup?

Example: Markets overextend themselves off of a news report, and thatoverextension is a form of manipulation.

The LEAST expected move is the one that yields the most profit because no one haspriced this move in on the options. That means that those options are extremelycheap.

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Trading around earnings is typically considered RISKYdue to the simple fact that

investors could react negatively to a positive earnings report, and vice versa. Thereactions to earnings are very difficult to predict.

Example: Apple blows out earnings but the stock is down 10% because theydidnt beat analyst expectations as much as some people thought they would.

Market sentiment has to be factored into trading around earnings as well. Ifcurrent sentiment is bearish it will hold back or otherwise obscure the move of

an earnings beat.

Unless there is a very significant reason to act otherwise, we stay away fromtrading around earnings.

There are successful ways to trade earnings but they require a lot of research in

regards to reactions to earnings in previous quarters. Using complex options strategies like spreads, strangles, and butterflies, you

can minimize that added risk when you are playing earnings.

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Trading is a mental endeavor!

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Trading is a mental endeavor!90% of the game is mental. Once you understand how to make money, its all a game withyourself.

The fear that negatively affects a traders performance comes from a variety of differentsources.

Fearful of the sacrifice needed to make to make it work.

Sacrificing time with family and friends.

Opportunity costs.

Fear of taking the plunge into something thats not guaranteed. Fear of failure.

Fear of what people will say.

Fearful of your own success.

You have to believe that you have earned the success that comes with a good trade,when that happens. If you dont believe that youve rightfully earned money that youmake, it can create disastrous mental consequences when you actually do turn a profit.

One of the greater myths in trading is that you must remove emotion in order to be a goodtrader. Thats not possible. Instead, you have to learn to be aware of your own emotions anduse them as another source of information that steers and informs your decisions. Your

emotions are another data feed that you can use to factor into your decision-making process

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Losses are a cost of doing business.

Trading markets is not about being right or wrong; its about taking a position with theinformation that you have in front of you and accepting the outcome of that position nomatter how it goes.

You have to put in the work so that you have conviction in your decisions and

confidence in yourself. If the position turns against you and you lose money, you haveto know that your original thesis had strength to it, and although it didnt turn out in yourfavor, your mental process was not necessarily wrong.

Starting out small is a GOOD thing because it allows you to steadily and safely

increase your pain threshold. Do not be too quick to increase the size of your tradingaccount just because you want to stroke your ego.

Taking a $1,000 loss now might seem world-wrecking, but in 3 years it will behappening daily and you wont think twice about it, assuming a larger account size.

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Win or lose, a trade is just a trade.

A win often motivates you to take bigger risks, get cocky, or do things you wouldn'tnormally do. Always remember that the next trade has nothing to do with theoutcome of the previous one.

Trades are not mutually exclusivethey exist independently of one another.

Mentally speaking, the next trade has nothing to do with the previous one!

Working toward control of your emotional state after both a win or a loss isessential.

If you accept the outcome of your bet before you put the trade on, then the

outcome should not affect your mental state. When you put on a trade and tell yourself that you have a specific stop

MAKE SURE YOU STICK TO IT! This discipline separates average tradersfrom good traders, and good traders from great traders.

If youre thinking about the victory before the trade is over, youre in bad

territory.

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Whatever your trading strategy is its not going to work all the time and in all

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Whatever your trading strategy is, its not going to work all the time and in allmarket environments. Thats just the nature of the market.

You will eventually be wrong.

You need to be able to recognize when your particular strategy is yielding profits vs.not making any money.

Thats when your mind takes over. You start pushing things that arent workingand taking bigger positions sizes because you are playing your emotions. Youthink just because you are sitting in a chair in front of your screens you areobligated to trade. Ironically, your identity as a trader tricks you into tradingwhen you shouldnt.

This can lead to another onslaught of debilitating emotions, which will lead toeven more mistakes.

Stepping away and not putting capital at risk is often the strongest part of a strategy.

CASH IS A POSITION!

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There is no one strategy that fits all.

Of the millions of strategies out there, there is no one strategy that fits every person.Part of your evolution as a trader is to identify and practice the strategy thatresonates with who you are as a person.

Your personality defines your trading strategy, your goals and what you want out ofyour trading career.

A strategy has to be adapted to develop your unique style.

Example: You are not comfortable taking overnight positions while someoneelse might be more than eager to take a gamble overnight. That could bebecause he works the night shift and can watch the markets from his toll

booth. That might mean that you gravitate toward scalping while the otherguy chooses swing trading.

Its important to stake out your identitythats why good traders are oftenheadstrong people.

A trader cannot successfully use several different trading strategiesits too

much for the mind to manage

After youve traded for long enough youll realize that trading has to be about more than

Trading Psychology: Why Do We Trade

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Source: htt ://traderfeed.blo s ot.com/2009/07/what-is-value-of-tradin .html

In mastering risk and uncertainty; in learning to pursue opportunity in effortful ways;

in making ourselves better as decision makers; in becoming more disciplined actors;we improve ourselves as human beings. That carries over to many areas of life, so

that we can become better business partners, spouses, parents, and friends.

Indeed, this might be the most important distinction between trading well and trading

poorly: When we trade well, we make ourselves stronger, better; we tap into the bestwithin us. When we trade poorly, we succumb to our lowest common denominators.

The value of trading is the value of any competitive performance activity: in itsmastery, we become just a bit closer to our ideals--and that ripples throughout our

lives.-Brett Steenbarger, Ph.D

After youve traded for long enough, youll realize that trading has to be about more thanmoney, and we traders do it for reasons beyond getting rich.

Its about mastering ourselves.


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Conclusion


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