Trading NADEX Binary Options (by Market Sniper)

This is a follow up post to a post I did back on May 27, 2012 on the European binary options which is what I was trading at the time. Here is a link to that post. http://slopeofhope.com/2012/05/binary-options-market-sniper.html . Since then, I also started trading binaries on the NADEX (North American Derivatives Exchange) and have shut down my trading of binaries through European binary brokers. The counter party risk in continuing to trade through European brokers I feel is unacceptable. Unfortunately, at this time, you must be a resident of the United States to trade on the NADEX.

NADEX options are structured with strike prices. The first thing you will need to do is to set aside your normal option terminology and thinking as to "puts" and "calls" as those do not exist with NADEX. You will either buy a strike when you believe the price will move and/or close above that strike or you will sell that strike should you believe price will move and/or close below that strike. So the binary statement is either true or false. The statement is false if it settles out of the money and true if settled in the money. Unlike the European binaries, you are NOT locked into the trade as there is an active two-way market. You can close out or scale out of positions at any time by putting in an opposite trade to the open position you have.

Normally, there is around a $3 to $4 spread between the bid and the offer. All options settle at either $0 (zero) if false (out of the money) or at $100 if true (in the money). When  you enter a trade, the bid/offer price you buy/sell is subtracted immediately from your account. Should the trade settle true (in the money), $100 per contract is then added back into your account. When you buy a strike, your risk is what you paid. When you sell a strike, your risk is the difference between the bid and $100. Example: you sell the strike for $45. Your risk in the trade should price be above your strike at close is the difference between the $45 and $100=$55 risk.

Commissions for executed trades are $.90 (ninety cents) per contract. You are not charged commission should your trade be false (out of the money). But here is the kicker! There is a maximum commission of $9.00 per trade! Trade 10 for $9 or 250 for $9!!! This went into effect the day after Labor Day. You can open an account with as little as $100. When you first open an account, you can go up to $250 by "insta-check" and start trading immediately. They will even give you a paper trading account for up to two weeks when you sign up with them.

I thought I would give you a peek at trading this to see how it can work. Here is what I did on Thursday, September 20, 2012. Early in the morning, I did my pivot analysis and determined that major support on the ES (December contract) was 1440-1442. The major resistance was 1452-1456. Early in the regular session (not GLOBEX) price traded at support so I bought the 1443 ES strike (they are in increments of 3 points or "handles") for $41.50. Risk in the trade is your premium paid or $41.50. Maximum you can make on the trade is $58.50.

Remember, if your trade settles true, maximum you can make is $100 less whatever you paid for the option. As price moved higher and got to the bottom of what I had already decided was resistance, I sold the 1452 strike for $47. In this trade, my risk was $53. Price continued to advance and what I was looking at lead me to then believe that the 1452 strike would most likely settle true (which means I would be out of the money) and I was in a losing trade.

I therefore bought the 1452 strike (remember I sold that strike. Buying that strike closes the trade) for $65 for a $18 per contract loss on that trade. Price reached the top of resistance late in the day and I sold the 1455 strike for $51. Settlement was between the 1443 strike that I bought early in the day and below the 1455 strike that I sold late in the day. Both trades ended true (in the money). Though you can trade these with a "set it and forget it" trading plan, I tend to manage my binary trades more tightly.

Conclusion: IF you have a proven trading methodology, binary option trading may be for you. Some may view this vehicle is gambling. IF you are not trading with positive expectancy, then, yes, you would be gambling as would be the case for any "trading" of any vehicle. What I really like about this is the small amount of money to get involved. I have found that out of small acorns, mighty oak trees can grow. Here is the link for NADEX http://www.nadex.com/  If you have any questions, I can be reached at Dutch302 at gmail.

Yours in the never ending search for more trading edges, The Market Sniper


Trading In The Matrix by Market Sniper

Most are familiar with the movie series The Matrix in which reality was totally divorced from perception. I believe we are faced with the same situation when we, as traders, engage the markets now.

Formerly  relatively free markets have been replaced by The Matrix. Markets that, over a long period of time, reacted to fundamentals and over shorter periods of time reacted to supply and demand factors no longer exist. All of that has been replaced by The Matrix leading some to even question the validity of technical analysis.

Does it not seem that what used to work fairly well no longer does? Or works so sporadically as to call the usefulness of what we used to do into question? Does volume matter with the advent of dark pool trading and high frequency trading  (HFT) machines? Does it seem that things no longer trend well at all? When you do identify a trend, it tends to end abruptly? Seeing a lot of chart patterns that used to work well fail more consistently than leading to the next technical  expectation as to direction?

I do not believe I am alone in these observations. Here, as I see it, is The Matrix where nothing is as it seems.

+ A federal government that manipulates statistical releases and often out right fabricates them. From employment/unemployment statistics where those no longer receiving benefits are excluded and a birth/death deflator is used to skew results. Where GDP figures are deliberately manipulated by using a false inflation deflator. Where nearly ALL "adjustments" after the fact (like a page 18 retraction in a newspaper!) are negative. The US Federal Government is not alone in this practice. The Chinese government is a past master at this. Throughout the globe, national economic statistics are systematically falsified.

+ Government regulations that crush commerce for the benefit of the few.

+ A Federal Reserve that manipulates interest rates, money supply and even directly intervenes in bond and equity markets.

+ Global Central Banks who do the same as the Federal Reserve for self-serving Ponzi schemes to the benefit of the few elite.

+ Energy cartels with price fixing, supply manipulation and massive collusion.

+ Wall Street which has taken chicanery, double dealing and insider trading to a whole new level, even for them.  Where a thief like John Corzine remains free. Where laws are changed to benefit a few ahead of massive fraud. For you see, that fraud is now legal.

+ A mainstream media which gives it all a blatant, agenda-driven spin.

All of the above are interwoven in such a manner as to make it difficult for many and impossible for most to see what is reality behind the fiction. We were all given a glimpse of the harsh reality in 2008 when a rip in the fabric of The Matrix existed for a brief moment in current history. The "unforeseen" derivative melt down allowed for that very brief instant. Almost immediately that tare in The Matrix was "fixed." The harsh reality remains as it was. The perception of that reality was manipulated.

As traders, we must accept the fact that there is nothing we can do about this as individuals or as a group. We are powerless to change what is. What this is is beyond deplorable. We rant and we rave about it but that also does not change the reality. As traders we either reckon with this reality or we do not. 

An acceptable method of dealing with this is to withdraw totally from markets. That is a choice an overwhelming majority seem to have made as they recognize the death of buy and hold, seen their 401K's ripped to shreds, etc.

There is another response. First, we accept that the forces of The Matrix are now what is driving markets. The Matrix is what drives capital. For those who so choose,  we can accept The Matrix as morally reprehensible as it is a false reality.  However, if you know how to trade in The Matrix, you can garner an astounding amount of wealth in fairly short order. You use the "order" of The Matrix to extract capital from markets. Your financial life may depend on your ability to do this, to look at it in a different light and benefit you and your family by so doing. If you refuse to do this, as a trader, you will continue to feed those in The Matrix whose sole purpose is to extract capital from you.  I will make a few suggestions on how you might be able to accomplish this and look forward to your feedback as to other ways and methods as well.

+ Shorten your trading time frames. This is no longer your Daddy's market. Embrace volatility and make it your friend. In the short time frame, eschew thinking in terms of "bear" or "bull" as it clouds what price is telling you. In the long term, I am a huge bear as I can foresee the coming destruction of The Matrix and the corrupt monetary system that stands behind it. That, however, will not make me a single dime tomorrow, next week or next month. When we trade in short time frames, all of that is left at the door. You trade now with that long term bias, you, as a trader, will be destroyed. Same would apply to those traders who see nothing but blue sky and candy canes in the future.

+ Become an expert in reading and analyzing the Commitment Of Traders Reports (COT). It is an excellent source for understanding future global capital flows. Become conversant in cross market correlations.

+ Learn to trade reactions to news/price events. Thursday, June 14, 2012 was a superlative example of that. Tactical tip: the first direction price takes is normally the future direction of price. In this case, in very short order, we got a move higher very fast. Then an equal and nearly opposite price impulse to the downside. Then, more slowly, the longer term directional move back up. Market ended approximately as high as the high off the first impulse move. You will see this repeat, over and over again.

+ Learn the correct use of options in your trading. We will use the coming Greek elections this weekend and what those results, potentially, could mean for the Euro, as an example. Regardless of your view either Euro positive or Euro negative, should you be already positioned in a Euro futures contract or positioned in the FOREX market? If so, you have taken on huge risk in your trade. You could be in the trade with an option instead. Your risk is limited and your potential upside is almost unlimited in a very large move. Uncertain as to the direction of the move but expecting a very large move? Go long a straddle or a strangle with options could be your answer. In short, learn to trade options in a highly volatile period.

+ Attempt to think in the terms the elites think…if I were them, what would I do? Stay very opportunistic.

This is but a brief few ideas and concepts. Expand on them, add to them. Hope this helps.

 Yours in the never ending search for trading edges.-The Market Sniper


31 Habits Of Wealthy Traders (by Market Sniper)

While relaxing on a Saturday afternoon, doing some market related work, I thought I would pass this on to my fellow traders on The Slope.

A while ago, I listened in on a video done by Tim  Bourquin who has interviewed hundreds of successful  traders. He has distilled some excellent points here that he keeps hearing over and over again. Said in different ways but the messages are the same. Here are actually 31 "habits" and in a few instances I have added a few comments to them. Some over lap as well. You would do well to incorporate these "concepts" into your trading. Tim Bourquin has done some excellent work in the area of trader psychology and great interviews with superior traders. You might want to visit his site. Here is a link to his latest work.  

1.  Wealthy trades are patient with their winning trades and enormously  impatient with losing trades.        ---This is the exact opposite of what most do. Most traders are hesitant to "take" a loss, even though they already own it. "Taking" the loss means to them they have to recognize the fact that they were wrong in the trade.  At the same time, most traders are very impatient to take profits, missing out  on some great trades as a result.

2. Wealthy traders realize that making money is more important than being right.

3. Wealthy traders look at technical analysis as a picture of where traders are lining up to buy and sell.

4. Before they enter any trade they know exactly where they will exit for a gain or a loss.  ---In other words, they trade by plan.

5. They approach trade #5 with  exactly the same mindset they did on the 4 previously losing trades.  ---How many times have we done this? Same setup (with positive expectancy). Trade after trade taking a stop loss. After a number of these, we no longer believe in the expectancy and pass on the next trade. Only to watch it work so well that it would have wiped out all the previous losses and handed us a nice profit.

6.  They use naked charts and focus on price zones. ---How many of us put on so many upper studies (on the chart itself) that we have a difficult time seeing  price action?

7. They realized a very long time ago that being uncomfortable trading is OK.  ---As human beings, we are always uncomfortable making decisions with incomplete information. When trading it is impossible to have complete information.

8.  The markets they trade fit their personalities. They view themselves as market participants, not as on-lookers.  ---In other words,  their perception is not that one of an on-looker trying to make a buck but rather as a market participant say, like being in the pit.

9.  They stopped attempting to pick market tops and bottoms long ago and stopped losing money by doing so. ---Take a look at any chart. What do you see? Major turns at tops and bottoms come maybe 2% or so of the time. The rest of the time,  price goes in the direction it was going. When it does turn, confirm the turn and then trade it.

10.  They stopped thinking about the market and price being either "cheap" or "expensive."  ---In other words, is some one going to pay you more or less for it in 10 minutes? 30 minutes? Tomorrow? Next week or next year?

11.  They are willing to change sides, short to long and visa-versa when the market tells them to do so.---This cannot be over emphasized. You must be equally comfortable being short as being long. As comfortable being long as being short. You must also be willing to flip in less than a heart beat should market and price tell you that is appropriate.

12. They are aggressive when trading well and trade modestly when they are not.--Here is a thought. I would rather lose money to my broker than to the market. So, when you get three or four losing trades in a row, forget about the commissions! Trade ONE share until you get two winning trades in a row then go back to your normal trade size!

13.  They realize that the market will be open tomorrow. ---You do not have to justify your screen time by trading if no good trades are available on any given day.  Just because you have the cash to trade does not mean you should always be in a trade.

14. Cash profit  is, of course,  the target but they set goals for their trading that is anything but money. --Make your goals things like sticking to your trading plan, looking at your trading as earning expectancy on your proven setups, etc. anything but trading for the money. If you are trading for the money, you will lose.

15.  They never ever add to a losing trade. ---If nothing else is taken from any of this, just do this one thing and you are half way there. This does not mean that if your trading style is to be a liquidity provider, you cannot average down in a position to a predetermined stop loss level. Don Miller is such a trader. It does not mean that if you are building a long term position, you cannot add at a lower price levels to end up with your final size. IF you are doing any of that, it had best be by plan, however. By and large, not adding to a losing position is solid and verysound advice!

16. They do read trading books, but they tend to read more "crowd" books.--here are some of my favorites: Mobs, Messiahs And Markets;  Wisdom of Crowds;  The Art Of Strategy;  Markets, Mobs And Mayhem and Extraordinary Popular Delusions And The Madness Of Crowds.

17. They provide liquidity to markets while watching price and volume. --This concept is a tad more difficult.  They view themselves as market makers. They supply liquidity to other traders by making markets in what other traders want or don't want.

18. They have a way to gauge fear, greed and speed of transactions. ---one way is the 612 tick!

19.  They practice reading the right side of the chart, not the left side! --the right side of the chart is that big blank space on all your charts. Patterns tend to repeat and if you are constantly saying "what IF" then you understand this.

20.  Every wealthy trader has an "edge" or better yet, numerous "edges." ---remember, an edge is merely the higher probability of one outcome over another outcome.  If you cannot explain your edge to a 15 year old it means you do not have one. If you do not know what your edge is, cease trading until you do.

21.  Their position sizing is calculated exactly on risk tolerance.

22.  Profit targets are based on Average True Range (ATR). ---What is meant by this is if your profit target in a trade is $3 per share and in the time frame you are trading, the ATR is only $2, why is your profit target at $3??

23.  One or two trades a month make their month. ---The patience of the professional poker player. Looses small on a lot of hands. When he has the cards, the money flies into the center of the table. That pot more than makes up for all the small losses he has taken in the session. Same thing applies to your trading.

24.  They are confident decision makers in the face of incomplete information. --part of being comfortable with being uncomfortable.

25.  A losing trade is not a reflection on themselves as traders. --Remember:  to be right or wrong in a trade is not a decision. It is just what happens. To stay right or wrong in a trade is a decision! NEXT TRADE!

26.  They buy higher highs and they sell lower lows until it turns.  ---In other words, do what is already happening. Goes along with not attempting to pick bottoms and tops.

27.  They view their business as not trading but rather  finding the right trades.

28.  They write down or record every trade. Price, thoughts, mood…---Keep a journal, folks!

29.  Their conviction in an active trade remains constant unless something major changes.

30.  A winning trade does not result in taking extra risk in the next trade.

31.  They trade the "reaction" not the "news."---Trading is boring or it should be. You are replicating winning edges over and over and over again.

I hope this helps. Good "list" to periodically review. See where you can improve and give yourself a much deserved "atta boy" pat on the back when in sync. 

Yours in the constant search for trading edges.-The Market Sniper


Binary Options (by Market Sniper)

Binary options are fairly new to the speculation/trading landscape. They are called binary options as there can only be two possible outcomes. There are two types. Either cash-or-nothing binary options or asset-or-nothing binary options. They are binary in that you get all or nothing. They are also called all-or-nothing optionsdigital options (more common in forex/interest rate markets), and Fixed Return Options (FROs) (on the AMEX). Binary options are usually European-style options.


There are two ways of going with this as well. There is exchange traded binary options such as offered on the NADEX and there is non-exchange traded options. Each are structured differently. With exchange traded binaries, there is a set strike price. With most non-exchange traded binary options, you set the strike price upon entry. Your strike is your entry in the trade. It then expires in or out of the money. Structure of payouts are also different. Both Amex and CBOE listed options have values between $0 and $1, with a multiplier of 100, and tick size of $0.01, and are cash settled. In 2009 Nadex, the North American Derivatives Exchange, launched and now offers a suite of binary options vehicles. Nadex binary options are available on a range Stock Index Futures, Spot Forex, Commodity Futures, and Economic Events.

Thus far, personally, I have not spent anytime at all with exchange traded binary options. That will come in the future as I have been spending time with non-exchange traded binary options. These only recently became available to traders in the United States.

Non-exchanged traded binaries are mostly offered through brokers located in the EU. At first, I saw a lot of red flags and proceeded with caution. I choose one broker to begin with who had relatively good ratings by customers. GlobalOption is located in Nicosia, Cyprus. I had visions of Russian and Albanian mobsters running money through them. Indeed, they clear with a bank out of Bulgaria! Other red flags: they give you "bonus" money to trade. For example. Open with USD 550 and they will give you an additional $250 to trade. To "earn" the "bonus" money, you will need to trade the entire amount by 5 times or $800 X 5=$4,000 in total trading volume. Easy to open an account on line with your credit/debit card. How you withdraw: they will put back on your card any amount that you charged to your card only. After that, withdrawals are done by wire or check. I have already had the money put back on the card and have had no problem with wires from them as well. So, thus far, this broker checks out. Here is a link to them and I have no affiliation with them other than as a customer.  http://www.globaloption.com It should also be noted that since Cyprus is part of the EU, they come under the jurisdiction of the EU's equivalent of the SEC.

Here is how these work. You can choose the amount you wish to trade. The minimum per trade is $25. Maximum trade in a single vehicle in one direction is $3,000. The maximum you can have on all trades at any given time is $12,000. You can choose an hourly expiration, end of day expiration or end of week expiration. You can trade indexes, some futures and single stocks as well. They have around 65 different vehicles available.  You chose either put or call. Your entry is your strike price. At expiration you are either in the money and get paid or out of the money and not get paid. The amount of the payout will vary by instrument but you will know what that is before you enter a trade. As an example, typical payout on the SPX (S&P 500 cash index) is 78%. On the DJIA cash index it is normally 72%. In addition, they kick you back 10% of your trade amount on losing trades. As an example: you choose to trade the SPX at 11:35 am for a 12 noon expiration for $25 with a call. You enter the trade with a strike of 1315.56. At expiration (top of the hour) if cash settlement price is above 1315.56, you will receive $45 (your $25 capital in the trade+$20 in winning payout). Should the cash price be below 1315.56, you will receive $3 on your losing trade. Should settlement be at your strike (rare, only happened to me once) it is a "push" and your trade capital at risk is returned to you. With this type of binary, there is NO early exit. Once in the trade, you are in until expiration. Also, there is a lock-out period of 5 minutes before expiration. You can enter a trade at any time up to then. End of day is a 10 minute lock out as they settle 5 minutes after the close to allow for run-off after the cash close.

With this type of payout structure, with a 78% payout and 10% kickback on losing trades, you will need to be correct or have a minimum positive expectancy on your trades above 55% to make money. Some will use this vehicle as a gambling instrument. Please refrain from doing that as you will lose your money. Whatever gives you a positive expectancy in your trading can be applied to this to great effect. I have over an 80% win rate doing this now for over 2 months. I will give you just a couple of things that I do with this. One of which is actually a big hole in the "system" that you can drive a Mack truck through!

Here is something I back tested from 2005 forward. It is a Friday ONLY trade close to the market close. It is back tested on the DJIA cash index only at this time. I demonstrated this trade live here on the Slope after 3 pm Friday, May 25, 2012 if you would care to take a look. Here is the set up. At 3:15 pm you enter a call on the DJIA. Should the cash price be below your 3:15 pm entry at 3:30 pm, you enter another call at that time for equal money as your 3:15 pm call. This setup has a 74% positive expectancy.

This second is a real doozy and happens rarely. I do not know if they will "plug" this hole or not. What you do is after the close on either a Wednesday or a Thursday (not before!) IF there is a very large move in price during GLOBEX while the cash market is closed, go to the weekly expiration and enter your trade! The strike is the previous cash close!!!! This happened once with a very large drop in the ES. I loaded up the maximum ($3,000) on the SPX put for a close at the end of the week! This happened early on a Thursday morning!! As close to a sure thing as it gets!

In conclusion: if you are a day trader and have a solid methodology for very short term time frame expectancies, you may wish to look at this vehicle for additional profits. If that is not the case, please do not touch these with anything shorter than a 10 foot pole or your worst enemy's money! I hope this helps.

Yours in the never ending search for trading edges, The Market Sniper


FINAL Update for Slopefest IV! (Market Sniper)

The fun is about to commence forthwith!  Here is a link to the main post which includes a map of scheduled festivities.  http://slopeofhope.com/2012/04/slopefest-iv-is-almost-here-market-sniper-and-vittorio.html

A few changes and updated information! Great news! Our Las Vegas connection, Mr. K, aka, Ferrari, has scored for us again! It seems that our Slopefest night is also member's night, an annual shindig. We are still getting in! Free food and drinks from 6 pm to 8 pm! And here is the food menu!

Buffet and tray passed Hors d’oeuvres

Crudites with Blue Cheese Dressing

Hummus with Crispy Pita

Tapenade with Grilled Bread

Pear Goat Cheese on Belgian Endive

Warm Jalapeno Corn Bread & Spanakopita

Chicken Sate with Spicy Peanut Sauce

Bananas Foster Empanada & Mini Assorted Chocolates

After 8 pm, tabs will be run. They do have a "theme" for dress but it is not mandatory. Dress is 1940's garb (which I guess means zoot suits!). We will still have our own room but it most like will be the Ganesh Room rather than the Media Room. Be certain to identify yourself with the Slope Of Hope to the elevator concierge. 

Vittorio and I are leaving for Vegas Sunday, May 13 and will be there through Sunday, May 20. We are staying at the Excalibur Hotel and Casino and can be reached by asking for Holland or Abbene. Those who are coming in prior to Friday can get a hold of us as there are other festivities also planned. We are looking forward to meeting with all of those who can attend and yes, Mr. Tim Knight will be making a cameo apperance Saturday night!

SPY Guessing Game Results: The  close of SPY ETF on Friday, May 11 was 135.61. Two entrants had the exact same number, 135.45! According to the rules, first entry in got the first prize. I have been in contact with both and prizes will be going out to them right after Slopefest. Third prize winner with a guess of 135.42 was a Dr. Peter (last name omitted). Doc, for some reason, I do not have your email address. Please contact me at Dutch302 at gmail and be certain to include your last name for verification.

Final note: for those of you that enjoy casino gambling, bring a roll and we will go after a casino. Who knows, maybe we can make a big dent in their quarterly earnings results. IF we do, then we will short the living hell of their stock and score again! Legal insider trading!  LOL!!! Look forward to seeing as many of you there as can make it. Surprise prize for the Sloper in attendance who came closest on the SPY guessing contest as well!

Yours in the never ending search for edges wherever they maybe found!-The Market Sniper


Opportunities EVERYWHERE (Market Sniper)

While discussing with other Slopers our business experiences, it occurred to me that perhaps the community might benefit from a topic not directly related to markets and "trading." The purpose of this post is to perhaps help you make some significant amounts of money in a relatively short period of time. You can also become very wealthy by looking at this very hard and closely and implementing the concepts.

This will require some "out side the box" thinking on your part. The concepts presented here do NOT require capital outlay on your part! They do require a lot of creative thinking, ability to perceive and solve problems as well as the ability to get in front of decision makers and present  a plan or plans of action.

The basic concept is to find businesses with dormant or grossly under utilized assets. I have found around 30 different categories in which you can find these under utilized assets in the typical business. I am sure there are many more. What is important here is you get your creative juices flowing. What you will be doing is to find ways your "client" can make more money and/or save money. This works anywhere and in any part of the business/economic cycle. In fact, during times of economic distress, you will find that business owners are even more open to what you can offer them. When times are good, some narrow minded business owners are in the "don't rock the boat" mindset.

Here is the basic proposition  you will present to business owners and decision makers: "IF I can, at absolutely no cost to you, increase your net cash flow, would you be willing to pay me 15% of that net positive cash flow that I create for you?" And/or "IF I can save you a significant amount on your operating costs, at no cost to you, would you be willing to pay me 15% of what I save you?" If I cannot help you, you are under no obligation and we will part as friends......now think about that. What business owner in his right mind would say NO to such a proposition? If he/she does, you would not want to do business with them anyway! As an aside, that 15% is somewhat arbitrary. You can make it any percentage you wish. I have found that 15% is a good rough guideline. Do not ask for too much and do not discount the service you will be providing either. Depending on the type of deal, you can set yourself up as a toll booth operator. You can create substantial monthly cash flow from your deals. Often, that is not possible and you can receive decent lump sum payouts. The more deals you do, the more deals you will be able to do! I call this "Business Combinations." Perhaps the best way to get you thinking along these lines is by illustration of some of the deals I have done and am doing.

Call Center Operation. Call centers are expensive to set up and not cheap to operate. I found a rather large call center that was dealing strictly with businesses. It is on the West Coast and its hours of operation were Monday through Friday, 6 am local time until 5 pm local time. I went to the owner and asked him: "IF I could increase your cash flow, at no cost to you, would you give me 15% of that new cash flow I bring you?" His answer was: "Of course I would!" I then found another, smaller, operation that was marginal and the owner was thinking about shutting it down. It dealt with consumers and was running him $25,000 a month to operate. His hours of operation was 5 pm to 9 pm Monday through Friday and on weekends. My question to him was: "If I could find a way to save you a substantial amount of money in your operation, would you be willing to pay me 15% of what I save you?" His answer was: "Of course I would!" So here was the deal: The call center selling to consumers was moved to the other call center dealing with businesses who was paid $10,000 per month for that use. I recieve $1,500 per month from him. I saved the other owner $15,000 per month and every month he cuts me a check for $2,250. This is a good example of a toll booth operation.

Non-competitive Manufacturing And Delivery: I found two manufacturers in the City Of industry, CA. They were non-competitors. That is very important. They manufactured and then delivered to the Western United States. As business conditions worsened, both were sending out trucks half full. So, for a fee, Manufacturer A agreed to also deliver for manufacturer B. Then, manufacturer B was able to dispose of its delivery fleet. This type of deal cannot be monitored. My fee for putting this deal together was 25% of the total fleet sale from manufacturer B. The check came to $178,600. This is an example of a lump sum payment type deal.

Exchange of Services and Adding New Business Lines: I have a good friend who is a young MD type doctor. He was loaded down with student loans and he operates his own office in Encino, CA, a fairly wealthy area. It costs him $225 per hour to keep his office doors open. He had to do hospital rounds at night to survive. Radio time is now going begging. So, I worked a deal for him with a local radio station. He gets advertising air time and even has his own medical "show" on that station. He is also now the personal doctor for the station owner and the few employees. This was an exchange of services. I did not charge for putting this deal together but it lead to a new business line for him that I proposed and share in that revenue. He is located in a wealthy area. There are a lot of wealthy older people in the area who do not like going to see the doctor but from time to time, need medical help and attention. So we set up a medical concierge service that also gets advertised on that radio station. We make house calls and the fee is not cheap. We now have eight doctors on call and business is brisk.

The Mailer: I have not personally done this but know a person who did and this is brilliant! This took some money for postage costs and he got a financial backer to put up the small sums required to do this kind of deal.  He got a directory of all the independent CPA's, PA's and bookkeepers in the State of California. Around 30,000 names and addresses. He then set out a letter of inquiry to all of them. Basically: ANYBODY WANT TO SELL? He received over 1400 positive responses. He subtracted those from the list and to the rest, keeping it geographically specific, he sent out another letter of inquiry. Basically: ANYBODY WANT TO BUY? From this, he put together over 700 transactions! Many were cash transactions and he got paid. Many were non-cash transactions where the new owner pays the old owner a specific percentage of the billing on the "retired" owner's clients. He gets paid on that as well. The deals were all done over 9 years ago now. He has made over 5 million from these deals and is still getting checks. Think of the possibilities!

Taking Over A Business Using Options And The Double Escrow: This is a bit more of an advanced concept but something to keep in mind. Businesses are constantly being put up for sale. Your job is to find out the seller's motivation for selling. Given the right seller motivation, you would be very surprised the kinds of deals you can put together. Here is a deal I did two years ago. Found a well established local printer. He had inherited the business from his father 20 years before and he was burned out. His business was also in decline. He was a good printer but not a very good businessman. He was asking $200,00 for the business. I asked to see his dead customer files, which were voluminous. In the files I noticed many local businesses that were still in operation. I also found out that he was netting around $2,000 per month. Here was my proposal to him. I wanted an option to buy his business for one year for $200,000 cash. During the option year, he would turn over operational control of his business to me. For this, I would pay him what he was now getting, $2,000 a month which would NOT apply to the purchase price. In other words, go home and take a one year vacation in the worst case. In the best case, get a check for $200,000 in a year or less in addition to the $2,000 per month.  The deal was struck and I brought in a young operating partner who knows the printing business. Through aggressive advertising, promotions and specials, we revived a lot of his dead customers and aggressively bid for new business. In five months, the gross revenues were increased eight fold and we put the business up for sale for $750,000. In 30 days, we had a buyer from Taiwan at $700,000 cash. Cost of the transaction (broker fees as well as bulk escrow fees, etc) was $68,000 for a net after payoff of the old owner of $200,000 was $432,000 which my operating partner and I split. Word to the wise. Make a habit out of finding good people who have various skills and abilities. You just never know when you might be able to split a buck with them!

Cookie Cutting A Successful Enterprise: This, for me, is a fairly new concept and a work in progress. A friend told me about a local produce seller who had exceptional quality and pricing. I made the trek to their store to take a look. I was especially intrigued as the owner 8 years before, had a "hole-in-the wall" operation 8 blocks away. What I found was a super market sized building with a packed parking lot across the street from a Ralph's Super Market with a near empty parking lot. My friend did not lie. I walked out with $20 worth of produce of exceptional quality. Similar amounts of produce with inferior quality of what I purchased would cost elsewhere, much more. Here was an operation making money. I got my first appointment with the owner. Come to find out, it was a boot strap operation! The man had been able to build his business through internally generated cash flow!! My proposal to him was that I help him articulate exactly the steps he had taken to do what he did. See if it could be replicated or not. Then, franchise his operation in non-geographically competitive areas! But a different type of franchise operation. We would find similar to his old "hole in the wall" operations and help them build their operations to his present level and take a piece of their operation. We are working on the outlines of that at this point. I do not know where this will lead at the present time but it is something else to think about. Look for your local, very successful enterprises. It just could lead to something spectacular!

These are just a very few ideas to get your creative thinking process kicked into gear. The possibilities are virtually limitless. You can do small deals, you can do big deals and perhaps a whale sized deal or two! Think of the possibilities. Also consider, once you have some deals under your belt, you will run into situations that can benefit "clients" you have already helped. Now, when you walk through the door, you are the man. You are their rainmaker and the deals just get easier to put together. Keep this in mind: often the journey itself is more important than the final destination.

Yours in the constant search for edges. In trading, business and in life.-The Market Sniper


Calendar Stacking- a New Way to View Price (by Market Sniper)

I promised a post on just one thing that I use in my trading. This is but one very small piece of the "puzzle" but I find it VERY useful and you may as well.

As I am predominately a day trader, this is actually an extension of the daily Opening Range (OR) into longer time frames. If you are not familiar with trading using the OR, feel free to email me at Dutch302 at gmail and I will send you a pdf on the subject, called Trading The 10 O'clock Bulls.

What we use here is the monthly opening ranges and the six month opening ranges. The monthly opening range is defined as the absolute high and low of the first trading day of each month. This is regular session only. No data from pre-market or after hours trading is used. Why should we even look at this? Main reason, it is objective information.

    1. It happens twelve times a year, every year!

    2. It is a calendar specific defined price area on a chart.

    3. Key players tend to respect and react to it, just like they do on the daily opening range.

    4. It can be easily identified on all stocks and in all markets.

What you have created are two lines in the sand, the absolute high and low of the first trading day of each month. These two lines in the sand can act as 1) buy triggers; 2) stop loss triggers and 3) key resistance and support throughout the month. With this information, you can create rules for entering trades. Some simple ones would be 1) if price is above the monthly OR, you can only go long and pass on any short/sell setups 2) if price is below the monthly OR you can only sell/go short and eschew any long/buy setups and 3) if price is within the OR, you just do not enter any trades.  You can also observe key consolidations as the length of time spent inside month OR's. I use five trading days or longer spent within the monthly OR without breaking above or below it on a closed daily basis after the first trading day of the month. That is 25% or more of the month's trading action. This can be powerful information.

Once you have defined these price areas each month, you can then put them on a longer term chart. See how each month's OR relates to previous ones. Are they stacking above or below? Do the ranges intersect with previous ranges? This can give you an idea of trend as well as areas of price indecision.

The first trading day of each month could also be considered a key volatility day. They tend to be larger than the average true range (ATR). Rarely is it less than the ATR but often equal to the ATR. IF it is a tight range day, expect the rest of the month to be more volatile than "normal" as trading triggers get hit more frequently.

Lastly, we should address the six month calendar range as well. This you should do twice a year, in January and in July. The six month calendar range is defined as the first ten trading days of January and July. The same reasons for identifying these are the same as for the monthly OR's. Add to those the following: these areas are also where longer time frame traders engage markets. The moves around these six month ranges can be explosive as a result. It might be nice to know that when price approaches the previous six month range you have a heads up as to some massive support/resistance! Just might give you a heads up for potential breakouts and reversals! Combine your monthly ORs with your six month ORs to identify when the monthly aligns with the six month! You might be surprised at what you may find as far as additional trading opportunities. Combine this with any methodology and/or indicators you are presently using...two last little hints: when the July Range is below the January range, then the key resistance area is the January range. When the July range is stacked over the January range, parabolic moves do tend ot occur!

There is a lot more to all of this but this is the basic information that can get you started.

On a side note: Slopefest! My post was incorrect. For those early early birds who would like to get in touch, Vittorio and I are at the Excalibur, NOT Treasure Island. Looking for us at TI will not get it done! Sorry about that! Just ask for Holland or Abbene's room. Better yet, when you see Vittorio on The Slope, ask for his cell number. I do not own one of those!

Yours in the never ending search for the trading edge, the Market Sniper.


Slopefest IV Is ALMOST Here! (Market Sniper and Vittorio)

That time is almost upon us!

Slopefest IV in Las Vegas on Saturday and Sunday, May 19th and 20th! Time to come and party. Meet some old friends and make new ones. Put a face to the handles on The Slope and meet our gracious host, Mr. Tim Knight! Both Vittorio and I will be there starting on May 13. We will be staying at Treasure Island for those very early early birds. Drop us a message and we will get in contact prior to the festivities. Ask for Holland or Abenne's room.

For early birds who arrive on Friday, May 18th. A meet and greet at The Deuces Lounge at the Aria at City Center starting at 5:30 pm. (See map for further information)

Saturday, May 19th between 6 and 9 pm at a private club at the top of The Mandalay Bay in the Foundation Room is THE main event!

Go to the main elevator bank at the Mandalay Bay. You will see a desk at one of the elevators. You will need to tell the person there that you are with the Slope Of Hope. As this is a private club, there is a minor dress code. No open toed shoes/sandals for men. No sneakers, no shorts (no gang apparel either for you wannabees). No tank tops either I think. Just use common sense.

There is a minimum cover of $50 per person. Use your credit/debit card. Your drinks and eats will be charged against your minimum. IF you cannot afford $50 for the evening, you should not be in Vegas! This way, you are in control of what you spend. Based on last year, there should be no problem with this even if your funds are limited. The cover is based on the total and we have some party animals in the crowd! We most likely will be in the Media Room which is the best one according to Mr. K and I can verify that as that is where we held Slopefest III. We will have an absolutely spectacular view of Las Vegas while we get to know each other. Here is a link to the site. There are some pictures if you scroll down to the  links.  http://www.houseofblues.com/venues/clubvenues/lasvegas/foundationroom.php

There can be other meetings and get togethers as well and that is open. For those who can, I will be going to the Sterling Brunch at Bally's on Sunday. Never miss the chance as it is one of the best if not the best brunch in the State of Nevada. Both Vittorio and I look forward, as does our host, Mr. Tim Knight, to meeting you all at Slopefest IV!

Time to take a time out and have some fun, good people. We have MORE than earned it! I will also be giving mini-seminars on how to get an edge on the casinos at blackjack and craps!

Below is a map to guide and help you out in the navigation of Slopefest IV! 

Yours in the ever elusive search for edges in and away from markets, the Market Sniper and Vittorio.

2012-04-06_1127


SPY Guessing Contest-A Reminder! (by Market Sniper)

Just a quick reminder of the SPY Guessing Contest! Closing soon! Here is the recap of contest and prizes!

SPY Guessing Contest!

As has become the tradition there is another SPY Guessing Contest with even better prizes!

Rules: Open to all regardless if you are a lurker, a regular/irregular poster, plan to attend slopefest/do not plan to attend slopefest. The closest to the SPY ETF closing price on Friday, May 11, 2012 shall be the winner. You can be right on the final price, under it or over it. Closest wins! In the unlikely event of a tie, the person who has submitted their "guesstimate" the earliest will be declared the winner. So, get your "guesstimate" in early! Contest cut-off for submission of entries shall be midnight EST, January 16, 2012. 

Prizes1st Place: 1/10th ounce Krugerrand gold coin (yes, they do mint those!). 2nd Place: two (2) 1 ounce Silver Eagles minted by the United States. 3rd Place: a nice, crisp, selection of Wiemar German Notgeld Notes. For those of you unfamiliar with just what those are:  http://www.notgeld.com/ So, send in your SPY "guesstimates" to: slopefest4@gmail.com !! If for some reason, the link does not work, just copy and paste. We had a problem with that on the last post!

PS..For those few who do not know it, my new site, devoted to the swing trader, is up and ready for your consideration. Meant to be a resource for visitors as well as subscribers. Take a look! http://www.masterswingtraders.com/


Market Lessons (Re)Learned in 2011 (by Market Sniper)

In this last day of reflection prior to the resumption of trading tomorrow, I thought I would share this with you. Here are the top lessons the market handed out to us in the year just passed. Most are old lessons that just need to be reinforced. In the heat of the "battle" some are difficult to keep foremost in our thinking.

Lesson #1: Price patterns work.

I, personally, have difficulty trading classical chart patterns as I note they tend to fail to deliver the next technical expectation as often as they deliver. That being said, there is no denying that, for the broad markets in 2011, they did deliver on two notable occasions. 1) The summer of 2011 with the head and shoulders off the May high and 2) The double bottom off the August and October lows. One of my personal goals this year is to attempt to do better in this area. To that end, I will be using Tim Knight's and Tom Bulkowski's works predominately. 

Lesson #2: Markets tend to do the exact opposite of what most expect.

This goes hand-in-glove with Lesson #1 and why these patterns tend to work. At the May top, sentiment was overwhelmingly bullish as most expected the market to continue to advance. At the October low it was overwhelmingly bearish as most expected the market to continue to drop. Notice that the October low undercut the August low which sucked in the late to the party bears. The rapid advance then lead to a pennant formation. Bulkowski states that 81% of the time, this is resolved in the same direction as the initial price move. Since this was a very widely followed and commented upon formation, it did not break to the upside but the downside. Again, the very opposite of what most expected.

Lesson #3: Contraction leads to expansion.

Markets do this continuously. Rapid directional price moves tend to consolidate. This consolidation is choppy price action. As traders continue to get chopped out of trades, complacency sets in as they leave the market, exhausted from the chop. Then you see the next large directional move.

Lesson #4: Markets will go much further than most expect and then reverse and go as far as possible in the opposite direction. 

Early last year we saw this to the upside as the mantra was Just Buy The Dips (JBTD). That worked just fine until support failed to hold and then we went much further to the downside than most expected as "retracement" turned into correction. At the market low in early October, August  support basically held and the market quickly and very rapidly reversed to the upside. Again, catching most by surprise. Be prepared for similar in 2012.

Lesson #5: Your mindset will determine your performance.

In early May, if you expected the market to continue to advance, surprise! Conversely, in early October if you expected the market to continue to decline, surprise! Self control when markets are putting in highs and lows will keep you in the game. Apply some objectivity to what you are seeing. Do not get locked into a directional mindset.

Lesson #6: What worked in 2011 will not necessarily work in 2012.

The market is ever evolving and we must evolve with it as traders. For basically 2.5 years, just buy the dip, buy the dip and keep buying the dip worked rather well. We even witnessed this on an inter day basis as price would pull back for 60-90 minutes and then popped again to the upside. That changed this year. Do not get swept away by the herd.

A final quick note! Get those SPY Guesstimates in! Potentially a lot at stake and some people are going to win some good stuff! The email address now works. If this link does not, just copy and paste. slopefest4@gmail.com  Here is the link to the post so you can see the rules and prizes! And please! This is the SPY, not the SPX! If you submit a four digit number before the decimal point, I will just move the decimal point for you! Here is the link to the post: http://slopeofhope.com/2011/12/slopefest-iv-v-and-spy-guessing-contest-by-market-sniper.html

Happy New Year to all! Yours in the ever widening search for the trading edge. The Market Sniper


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