by Adam Beaty

Last week I wrote a short piece describing the Moneyball Approach to investing.  In trading, traders can get carried away with the glitz and glamour of day and swing trading.  The flip side of that coin is slow consistent investing, and that is what we focus on at Adam’s Options Income Newsletter.  No, we do not make the headlines by taking credit plays on options.  No, we are not going to hit those magical 10-20% plays you see in day trading.

What are we going to do?  Make money!  Last year we had a 90% win ratio on our trades.  This year we have already started making consistent money and are holding a 100% win ratio.  We average 3-5% return on your capital every month!  This may seem like small change but it will beat the S&P 500 year over year.  We make money in up markets, down markets, and flat markets.  We target safe and consistent plays to make sure you keep money flowing in.

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by Adam Beaty

Hope everyone had a good day in the markets today.  Market pushed higher getting us out of that recent consolidation.  Still coming up quick on the 1370 resistance so be careful trying to swing trade into that.  The name of the game right now is day trading with a couple of swings on good setups.  Don't try to step in front of this bus and get short.  This is a bull run with all dips getting bought so there is no reason to get heavy short.  It is better to get stopped out of your positions when the market turns then it is to sit back, not play this market, and wait for a turn.

by Adam Beaty

Happy Valentines Day Everyone!  Right now the SPX is looking for resistance around 1370 which only puts us 20 points away.  We should be looking to change up our trading strategy to fit this.  Now might not be the time to get heavy into long swings.  Look to day trade a bit more here until we have more room to work with.  I am still not looking to get defensive with short positions until we see the 20 day moving average and the 1300 level fail.  This market is still full of bulls and they are leading the way.

by Adam Beaty

The Moneyball approach made famous by General Manager Billy Beane and the Oakland Athletics’ can and should be translated into the stock market.  Billy Beane took the lowest funded ball club and turned them into winners.  While they didn’t win the chip they still became winners in their own right.  Billy thought outside the box and sought to go after the more important statistic of getting singles over getting home runs.  

Like baseball the stock market is filled with the excitement of big plays.  It is that excitement that draws us in and it is that excitement that does not keep us in the game.  In 2011, there was an average of 8.70 singles allowed each game and 1.78 double hits allowed, but there was only .94 home runs allowed per game.  Do you see where the real game winners were?  How can we use this same thinking in our every day investing?

By focusing on small consistent gains we can be winners over time.  The home runs are great but they do not create long term growth.  What are the way we can create our winning singles?

Some plays you should consider to achieve this singles are:

Dividend plays
Selling covered calls
Selling option credit spreads and naked calls/puts

None of these plays offer you a great deal of excitement or short term fame.  Dividend plays will slowly build on themselves over the course of their life.  Selling covered calls are great ways to offer return on existing positions.  Credit spreads and naked options offer high probability returns for smaller premiums.  All three of these plays should have a place in your investment portfolio.  Understanding how to consistently extract profits, even if they are singles, will lead you to financial freedom.  Step back from trying to hit home runs all the time and let’s take the easy score.

by Adam Beaty

The search for the Holy Grail of technical indicators is like the search for the real Holy Grail.  A constant search by a lot of people which is always met with dissapointment.  One of things you notice about traders is they are afraid to take a losing position.  This fear has led traders to focus on minimizing the losing trades.  The main way traders look to achieve this goal is by adding multiple indicators to their charts and look for confirming signals.  They feel if they can alter their indicators to only give them the right buy signals then they will cut down the losses.

Now obviously this tatic does not work.  Most of the time traders suffer from multicollinearity by using multipe indicators that all measure the same thing.  So they feel a buy signal in these indicators indicates a strong buy when in reality the indicators just confirm themselves.  

Another side effect is paralysis by analysis.  By having so many indicators and items to look at the trader tends to lose sight of the big picture.  They miss the real action in the price and volume of the chart for what they think is happening in the indicators.

Instead of trying to minimize the amount of losing positions the key item to focus on is trade management.  No trader will be able to get away from a losing position, so it is better to learn what to do with that position instead of trying to figure out how to avoid it.  Trade management is one of the hardest and most important parts of trading.  That is because it is equally hard to manage profits as it is losses.  Through a proper risk/reward and position management strategy you can keep your losses small and keep you wins big.  Proper discipline is the holy grail of trading.  Don't waste your time trying to find it in indicators.

by Adam Beaty

Looking at a gap down this morning on more worries from Greece.  We will have to wait and see if this gap down brings us more dip buyers as it has done in the past.  Any push to the 20 day moving average would be healthy here as it would help reset the charts and prime everyone for more buying.  I would look for that level to be tested and to hold.  Not looking to go short here.  A push to the 20 day moving average is not a far one so it doesn't set up an ideal reward/risk for shorting.  I will, however, look to make a watchlist of over extended long positions looking to pull back, so when the market bounces they will too.

by Adam Beaty

First off sorry if I sound weird on the video or I ramble.  I am still getting over a cold so that is my excuse.  Dip buyers are still taking control of this market.  We saw it yesterday when we started in the red and finished in the green.  Still not seeing a break down of support levels so I continue to go long.  Our next stop is SPX 1370 but I imagine it won't be a clean break once we get there.

by Adam Beaty

Longs are still working and dips are still being bought.  Charts are getting hard to find for initial breakouts.  Right now we are only seeing the secondary moves.  We do need a rest to see some better setups rise, but we will keep hitting the longs until they work.  Not looking to get short here until we see a break down of support levels.  The longs are working so keep going after that.  If you keep making money during this run then the one day it does turn won't be a big loss.  We will keep our risk down and look for our support zones so the loss won't hurt our accounts.

by Adam Beaty

Market is starting to get a bit extended.  We had a nice pullback to the 1300 level before bouncing higher.  Going to look to reduce my long exposure and start holding positions for a shorter amount of time.  Not really looking to go short here until we start taking out support levels.