SACRED
SCIENCE INSTITUTE HOMEPAGE
TO
VISIT COMPLETE FINANCIAL MARKET BOOKSTORE, CLICK HERE
Trader's World article, SUMMER/FALL 2009
The Secret Strategies of the Master Traders
THE MISSING KEYS TO SUCCESSFUL TRADING
Most
people who develop the desire to become a trader do so with the dream of
producing 100’s of percent returns and making millions of dollars in profits
from their trading. This is particularly
true of those who pursue Gann theory, since they were inspired by Gann’s
reputation, beginning in 1909 with his Ticker interview in which he produced
1000% return in one month, leading to the legendary millions in profits that he
made during his career. These kinds of
results are what every trader truly seeks, and yet, even many relatively
successful traders lack a realistic strategy to produce these kinds of
percentages let alone to build up their trading accounts to $1,000,000. So what are these missing strategic elements
possessed by the Master Traders but lacking in the arsenal of the struggling
trader? The KEY elements are a proper
trading psychology, the ideal trading vehicle and a style of money management
which allows one to compound smaller amounts of money into a larger
fortune.
First let’s
discuss trading psychology. What most
aspiring traders do is study a few simple courses or go to a few seminars which
seem to give them tools they can use.
They begin trading with these tools and very quickly generate a string
of losses, possibly even blowing through their entire trading accounts. This immediately develops a negative trading
psychology which causes them to become fearful and hesitant in their trading,
something they may not be able to shake for many years. They often begin to hold on too tight,
meaning their stops are too close, so that even when they are right, they miss
the move they had correctly anticipated, or they take their profits too soon,
only to sit on the sidelines and watch the move continue on to produce large
profits without them. Alternatively,
they will get into the wrong move and watch it go against them, without the
proper protection, so their account burns away in losses. The real problem is
they have just not obtained the quality and depth of education they need to
even be trading at all, leaving them without a working strategy that is capable
making the profits they so desire. Gann
spent 10 years studying the markets before he found the tools and style of
trading that he became famous for, and many other of the great traders took
many years to develop their professional expertise. So you must be very careful to not begin
trading the markets until you are very clear about the right way to do so, and
have a clear working strategy that will accomplish the results you desire.
A fundamental
element of this process that most traders completely lack a clear understanding
of is the idea of money management. The
money management strategies that the Masters used were very different from
those used by most traders today, yet it is exactly this point that causes them
to produce only marginal returns in their trading, even if they are able to
accurately time turning points, and have a good understanding of market
structure and action. The difference
between money management strategies is the difference between growing your
account by 30% a year, vs. compounding at rates of 100’s of percent each
month. This is the great difference
between the wannabes and the Masters.
The Masters understand how to use only a very small percentage of their
trading capital, invested into the proper trading vehicle which possesses the
least risk and the greatest potential return, and then use money management to
compound those profits over and over again into huge returns.
Now let’s
examine the idea of the proper trading vehicle referred to above. Whether a trader is interested in the stock,
futures or Forex markets, they often assume that the best approach is to trade
the underlying stock or commodity, which is the greatest misconception held by
unsuccessful traders. With the current
volatility of the markets, there is nothing more dangerous to play than the
underlying entity. So, you may ask, what
is one to trade if not the underlying stock or commodity? The answer to this question is: OPTIONS! There is a prevailing myth amongst traders
that trading options is more risky and dangerous than trading stocks or
futures, but this couldn’t be further from the truth. Particularly in trading futures, one is
continually confronted with the problem of the markets running stops, gapping
open, or worst case, moving lock limit against them for a number of days,
leaving one with losses even greater than one’s entire trading account.
Options, on
the other hand, remove all of this danger by always limiting one’s risk to ONLY
the amount invested in the premium and commission costs of the any options
position. Yes, one can very easily lose
this entire investment if a position goes against you, or if the market moves
sideways while the time value of your position decays into the options
expiration. However, the market can gap
against you, swing way past what would be your futures stop position, or even
move lock limit against you, and you will NEVER lose more than this core cost
of your options position. In these days
of great market uncertainty and volatility, many traders are afraid to even
hold positions overnight, forcing them to become day traders, rather than swing
traders, against their personal inclination.
But trading options solves this fundamental dilemma.
Not only that,
but many traders do not realize that the potential returns generated by the
leverage of options positions can produce returns much greater than the returns
that would have been produced had one successfully traded the underlying
commodity or stock. A move in the
underlying entity which would have produced 20-30% returns will often produce
300-1000% returns in the options, when you know which ones to select for your
trading strategy. This insight alone is
the first step in converting from a trader who makes regular 30% profits to one
who makes 100’s of percent trading the exact same swings in the market. Yet, surprisingly, the majority of traders
out there simply do not realize this, so are missing the greatest opportunity
to become highly successful traders.
There are many
people who have read options books or who have taken some of the many options
trading courses available on the market.
But unfortunately, most of these courses do not teach the effective
options trading strategies used by the master options traders. So many educators out there and courses on
the market were written by theorists or those who have not actually traded
profitably, that you can practically count the number of successfully trading
educators on one hand. This is why
people go from one course to another without ever producing any positive
results. The problem with most options
books and courses is that they quickly confuse people by exposing them to a
barrage of complicated concepts, like delta, gamma, vega and theta, though most
of these details are totally unnecessary in trading options the way successful
traders use them. In order to justify
their cost, they teach every bit of technical minutia about options, but it is
not this minutia that shows you how to make large profits trading options. They show you all kinds of complex strategies
like spreads, straddles, strangles, Iron Butterflies, and on and on, leaving
you lost in complexities that you can never figure out how to make any money
with. And the most important thing that
they all lack is a clear trigger mechanism which tells you WHEN to enter your
trades, leaving you dependent upon some further expensive service or software
to tell you when to use all of these complex strategies.
So, let’s look
at an example of trading options from a different and much simpler
perspective. If we think the market is
going up we are simply going to purchase Calls, and if the market is going down
we will purchase Puts. Nothing complex,
we are just going to go long or short using options rather than the underlying
future or stock, but take our position in the same way, without complex options
strategies. The first thing that you
will notice is that it is much cheaper to place an options position than a
position in the underlying entity. Take
Apple Computer for example. On May 28,
2009, Apple is trading at $135.46. The
cost of buying 100 shares of Apple stock would be $13,546.00, plus
commissions. The cost of a Call or Put
option to control the same number of shares is only $510.00. If you owned the actual stock, it is very
likely that you could experience volatility swings that would quickly move more
than $510 against you, so that it would be difficult to even place stops with
less risk than you would have in taking an equivalent options position. However with the option, the market could
move against you significantly before moving in your anticipated direction and
still keep you in your position, without ever risking any more than the cost of
that option, $510 plus commissions. The
cost of your options position is less than a reasonable stop loss, and still
protects you against gap opens, lock limit days, or even market closures due to
some kind of disaster.
Now let’s do a
quick comparison of the difference in potential returns generated by an options
position vs. a position in the underlying stock. Following is a chart of Apple showing a nice
bull move from March 9 to the beginning of May, from 83 to around 130.
This is a bit
over a 50% move in the stock, so if you had owned it, you would have made a 50%
return in about 2 months. But let’s take
a look at what kind of return you could have produced with options on the same
move. Had you purchased the “at the money” July 80 Call options in
March, they would have cost $12.65 each, or $1,265 plus commissions for your
position. The next chart of the July 80
Calls shows that over the next 2 months those at the money options increased in price to $54.00, a 326% gain in
the options value for the same swing in the same period of time.
With the
options, your $1,265 investment would have returned $4,135. That’s over 6 times the percentage gain than
the position in underlying stock produced in the same period. This gives a very quick and dirty example of
the difference between trading options vs. trading the underlying, but these
same results can be seen in any market.
Knowing this, you have to wonder why anyone would trade the underlying
stock or future over the options. You
must ask yourself which you would rather have traded in this scenario. If you give the obvious answer of the options
position that produced 6 times the return, then you must ask yourself why you
are NOT trading options? You can clearly
see that the difference of taking the same trade but using a different trading
vehicle not only reduces your risk, but produces much greater returns from the
exact same swings in the market. This is the essential difference between what
the experts understand and take advantage of and what the amateurs completely
miss.
Now let’s
quickly take a look at the idea of the money management and how the Masters
used it to compound profits in a way that the wannabe traders only dream
of. While this was a very strong move in
Apple, many markets regularly produce equivalent swings, so let’s look at how
the Masters would have traded a sequence of such swings. After a first successful trade like that
above, many normal traders would trade the next swing in the same way, with
only a small investment. The great
traders, however, took a completely different approach, and would reinvest the
accumulated trading profits in each of their next trades. Their reasoning behind this is that they only
began with around $1000 investment, and they look at their continued trades as
just an extension of that initial $1000, their psychology being that if they
are wrong, and lost it all, they would only really have lost $1000 of their
initial trading capital. Often, after
the first trade, they would even return the initial risk capital to their
trading account so that their initial trading capital never deteriorated. Then they would invest the balance of those
profits in each next swing. Let’s say
that we found a sequence of similar swings producing the same return as this
initial trade:
$1,265 x 326%
= $4,135.00
Return the
initial $1265 to your account so as to never deteriorate your initial capital,
leaving:
$2,870 x 326%
= $9,356.20
$9,356.20 x
326% = $30,501.12
$30,501.12 x
326% = $99,433.95
$99,433.95 x
326% = $324,154.68
$324,154.68 x
326% = $1,056,744.26
Here we have
just compounded a small $1000 investment into a million dollars in only 5
trades! This is the method of
compounding profits through strategic money management that the Great Market
Masters used to generate the millions that they became famous for. If you have not worked out a strategy of this
kind, it should be no great surprise that you are not having the kind of
success that the Masters demonstrated.
It is surprising that no one really tends to bring out these points,
though it is clear that this is the difference between the men and the boys.
Now some of
you may think that this is just an ideal case and that you could never find a
consistent string of 300% trades, but actually these trades occur much more
regularly than most people realize, when you understand the insider secrets to
such options trading strategies.
Actually, there are even better trades that regularly present even
1000+% returns, when you know where to look, and how to find them. Only part of the game is in knowing the right
vehicle to trade and the proper money management system to compound the
returns. The other Key is in having the
right trading triggers to determine how to find and when to enter these kinds
of trades which produce the huge returns that the old masters used to produce.
Finding
these sometimes seemingly simple keys and strategies is the difference that
separates the successful traders from the amateurs. But when insights like this
are understood, what are otherwise considered to be simple technical analysis
principles can now operate as powerful technical triggers for the types of
options plays described above. In order
to take maximum advantage of such options trading strategies, one needs to
develop an ability to
forecast important turning points in advance, so as to be able to identify and
trade profitable trends. Many teachers
and tools attempt to produce these results, but most end up being hit and miss,
or are simply too complicated for the average analyst to comprehend and
effectively apply.
However, the new trading course by Dr. Alexander Goulden, Behind The Veil, presents
some of the most effective and powerful techniques to accomplish this
goal. Dr. Goulden uses a unique
combination of geometric price and price/time projection tools, combined with
some extremely powerful timing techniques which clearly identify future turning
points from which tradable trends ensue.
His techniques are developed from a similar tradition and theoretical
basis as those used by the great W. D. Gann, but unlike Gann, are much easier
to comprehend and apply by the average trader.
They involve the use of geometrical manifestation templates derived from
ancient systems of metaphysics and cosmology, as well as timing tools developed
from celestial mechanics, Pythagorean harmonics and vector cycles. His techniques have been shown to work in all
markets, stocks, commodities, indices and Forex, and on all time frames from
minute to monthly, with incredible accuracy and effectiveness, which when
combined with the options trading strategies described above, should help many
traders discover the trading success they have long desired and allow them to
begin compounding money like the master traders are famous for.
Dr. Goulden’s Course, Behind The Veil, alone will provide
the tools necessary to allow most analysts to forecast and trade the markets
with an accuracy only the best traders possess, and to take advantage of the
incredible opportunity the volatility of today's markets presents. Whether you are a conservative investor or
speculative trader, these tools will allow you to call turns and trade the
short or long term trends of the market, whether it is going up or down, while
allowing you to limit your risk and while maximizing your returns. This kind of trading may be the only way for
the individual investor or trader to make money over the coming decade of
unstable markets and crumbling economies.
See the following links for more details about Dr. Goulden’s important
new trading course.
FOR DETAILS ON DR.
ALEXANDER GOULDEN’S TRADING COURSE – BEHIND THE VEIL:
http://www.sacredscience.com/Goulden/BehindTheVeil.htm
LINKS
TO OUR BEST MARKET BOOKS & COURSES:
OUR
COMPLETE FINANCIAL MARKET BOOKSTORE
DANIEL T. FERRERA COURSES &
YEARLY FORECASTS
W. D. GANN COURSES & RECOMMENDED
READING LIST
DR. JEROME BAUMRING'S LAW OF
VIBRATION COURSES
SACRED SCIENCE INSTITUTE HOMEPAGE
DISCLAIMER
It should not be assumed that the methods, techniques, strategies or indicators
presented in these products will be profitable or that they will not result in
losses. There is no assurance that the strategies and methods presented in this
book will be successful for you. Past results are not necessarily indicative of
future performance. The examples presented in this book are for educational
purposes only. The data used is believed to be from reliable sources but cannot
be guaranteed. The methods presented are not solicitations of any order to buy
or sell. The author, publisher, and all affiliates assume no responsibility for
your trading results, and will not be liable for any loss, damage or liability
directly or indirectly caused by the usage of this material. There is
considerable risk of loss in Futures, Stock and Options trading. You should
only use risk capital in all such endeavors.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE
PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.