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

Let's talk parabolic shorts because they are starting to pop up on this overextended market.  The parabolic short is an excellent play for reward/risk because the downward moves can be so great! 

The ideal setup:

1) Straight upward move = Parabolic = 'U'

2) Outside the bollinger bands - A must have!!!

3) Gap up in the morning

4) Weakness intraday - play when it crosses over yesterdays close - green to red

These things can drop 10-20% over 3 days!!!!!!!

Discuss in the forums! http://www.shareplanner.com/forum/swing-trading/179-parabolic-shorts.html#179