Supercharge your trading investment account using wyckoff volume spread analysis

The buyer of a call option has the right to buy the stock that itrepresents at an agreed price, and the seller of the call option has the obligation to sell their stock at an agreed pric

Supercharge Your Trading &

Investment Account Using Wyckoff /

Volume Spread Analysis

Danny YounesCopyright © 2017 Danny Younes All rights reserved.

ISBN-10: 1542517133 ISBN-13: 978-1542517133

2 How, When & Why Markets Go Up and Down 18

4 The Key to Using Options to Generate a Monthly Income 40

5 Minimize Risk = Buy Insurance 50

7 How Wyckoff / Volume Spread Analysis Can Assist You in Your

Trading Decisions

84

8 Covered Call / VSA Stock Selection Criteria 109

9 How to Find Trading Candidates Using the TradeGuider End of

Danny became a customer of TradeGuider Systems, the company that ownsthe Wyckoff / Volume Spread Analysis trading and investing methodologythat Danny shows you in this book

Danny attended many courses and webinars and was personally coached byTom Williams and myself, so I am extremely proud of his achievement withthis work which I know Tom would have been extremely proud of as well

As an author myself, I know how difficult actually writing a book is, but Ican say without a doubt that Danny has produced in this work one of thefinest books on the Wyckoff / Volume Spread Analysis trading method

currently available

In “Supercharge Your Trading & Investment Account Using Wyckoff /

Volume Spread Analysis” Danny goes well beyond the basic principles of theWyckoff / Volume Spread Analysis method, by introducing trading strategiesusing options that can be used once a stock has been located as a possible buy

or sell based on accumulation and distribution

As with anything in life, you need to be motivated to achieve your goals, andDanny reminds us of this in each chapter with very poignant quotes from LesBrown, Eric Thomas, Tony Robbins and Steve Jobs

Trading and Investing in the financial markets has never been easier to accessthanks to the internet, and more and more retail traders are getting involvedfrom all over the world In the book, Danny explains in detail the traps thatget the uninformed “herd” traders into bad positions and shows through

detailed charts and news clippings how the mainstream media is used to

wrong foot this group into making very poor trading and investment

decisions

Danny’s experience trading options is extensive and he explains in greatdetail strategies that you can use right now to grow your account and mitigateyour risk by insuring your positions, something many traders and investorswill be totally unaware off

The book is easy to read and the charts clearly show the key principles thatall traders and investors should understand before they risk real capital in themarkets Danny generously shares with us his personal trading plan at the end

of the book and this really brings the book together perfectly so the readercan take immediate action on the knowledge they have received.

Like me, Danny’s mission is to enlighten and help the uninformed traders andinvestors who get fleeced by Smart Money if they do not have the correctknowledge

In “Supercharge Your Trading & Investment Account Using Wyckoff /

Volume Spread Analysis” Danny has achieved that objective in a clear, easy

to understand book that evens the odds for the retail trader and investor andlifts the fog on how the financial markets REALLY work

I hope you enjoy the book as much as I did and I have already taken twostrategies from the book for use in the Wyckoff / Williams Investment

Portfolio Hedge Fund that I am running

Gavin Holmes 27/12/2016

WHY I WROTE THIS BOOK

There are various reasons why I wrote this book but there is one main reasonand that is to assist the retail trader From my experience the retail trader alwaysloses out and it’s my mission to educate as many people as I can There are tworoad blocks that face the retail trader:

1 The financial markets are manipulated I will explain in my book why the marketsare manipulated but more importantly how you can identify when the markets arebeing manipulated and how to trade in harmony with the professional traders, oftenreferred to as the “Smart Money”

2 The other reason is that many educators that teach retail traders how to trade thefinancial markets use indicators that are lagging and most investors are getting intopoorly conceived trades based on these indicators Indicators such as MACD, RSI

or Stochastics are based on mathematical formulas and when they notify you of anentry the markets more often than not, will do the very opposite These educatorsmean well with the education they supply to their customers, however, there aresome customers who do make in trading It is now recognised there is a large

number of traders and investors that do not make it in the markets, consistentlyblowing up one’s account It comes down to being disciplined and having the belief

in the strategy that you are trading and most traders and investors do not have thatbelief and enter trades that are poorly conceived

When I started, I was getting into poorly conceived trades, when pricing actionbroke out of consolidation I would get in on a trade I would see an increase in

volume, the MACD indicator will tell me ‘it’s a buy’ only to find pricing actiongoing the other way I needed to find a solution to this issue that I was having and Icame across TradeGuider TradeGuider opened my eyes to how the financial

markets really work and I am grateful that we have crossed paths One thing I have

in common with the CEO of TradeGuider, Gavin Holmes is that we want to spreadthe word around the world about how the markets really work and to educate as

many retail traders as we can.

I also wanted to pay tribute to the late Tom Williams, the inventor of Volume SpreadAnalysis, who through his work has certainly assisted many traders around the

world with their trading His dream of computerizing the Wyckoff method of tradinghas certainly come to fruition over the last fifteen years and it’s through his work Ican bring you this book Thank you, Tom, for sharing your wisdom, you will bemissed, may you rest in peace

I hope you gain a lot of value from this book and that it assists you in your trading Ifyou have any questions or you want to know more about the trading method that Idiscuss in this book, please email me, danny@tradeguider.com

At the start of every chapter I have provided you with motivational quotes from thelikes of Les Brown, Eric Thomas, Tony Robbins and Steve Jobs Their words

propelled me to write this book and I hope their words will also inspire you to fulfillyour dreams

INTRODUCTION

“The truth that will set you free, it’s the truth you don’t want to hear You’ve got to change, you’ve got to take responsibility for your stuff You’ve got to clean your act up You’ve better get your life together; you’ve got genius in you Challenge yourself, push yourself, make yourself come up with

something Use your imagination So what, you fell flat on your face, so what Learn from the experience and start again, don’t count yourself out Forget about the mistakes yesterday, forget about all your failures yesterday, forget about all you had, that’s not important Only thing that we have is right now What you will find is that you will know more than you realize that you know That you're more creative and more resourceful that you realize that you are See the universe responds to the man or woman that refuses to be denied That business that you want, that dream that you have of controlling your destiny, that is yours, that power to create that is yours, that’s available to you, but you have got to be willing to stand there and face disappointment, not have support, be lonely, doubt yourself sometimes, be rejected again and again and again, become bankrupt if necessary If it’s difficult so what, if it’s inconvenient, so what, don’t sentence yourself to a lifetime of being

miserable, a lifetime of being broke, a lifetime of being unhealthy, a lifetime

of being in a relationship that is no longer fulfilling to you You are a human being, don’t volunteer your life that way Your life has too much value to the universe, you’ve got something to contribute, you’ve got something to give, but the challenge is to hold on, and if you hold on tenaciously, I say the

universe is on your side.” – Les Brown

When it comes to investing in the stock market, the most popular strategy isthe Buy, Hope, and Pray Investors buy an instrument and hope it moves inyour direction to make money There is no certainty in this strategy and when

it comes to investing, I want to put the probabilities in my favour and get asclose to certainty as I can Buying and holding stocks is so 1980s, because it's

a time bomb waiting to go off I want you to think about the following, if youbuy a parcel of shares:

Do you make money if the stock price goes up?

Do you make money if the stock price goes down?

Do you make money if the stock price goes sideways?

There is only one scenario where the investor will make money and that is ifthe stock price goes up So why do investors invest this way? They have onlyone-third of an opportunity in making money The one thing it comes down

to is that most investors are not educated You don't know what you don'tknow

There is another interesting fact that I want to share with you Most investorsinvest in the stock market where they have 100% risk, meaning there is

a possibility that they may lose 100% of their money There is that chancethat a stock that you’re investing in, can fall very sharply or in some cases, Ihave seen companies that have been delisted from an exchange Take forexample at the height of the financial crises we had Lehman Brothers file forbankruptcy, and other bankruptcies prior to the GFC such as WorldCom andGeneral Motors just to name a few

Let's face it, most retail investors invest in the stock market with their hardearned after tax dollars which they cannot afford to lose Still, they invest inthe stock market with 100% risk and this doesn't faze them It doesn't fazethem as they don't look at trading from a risk management point of view.They only think about it from a profit taking point of view and completelyignore the downside

Did you know that you can save so much heartache and money if you

purchased an insurance policy on your shares? Let me share with you a life example which I think will hit home for you.

real-Prior to the Global Financial Crisis (GFC), BHP Billiton Limited (BHP) onthe Australian Stock Exchange (ASX) reached the highs of AUD$45.30 Let'ssay you entered this stock at AUD$45.30 because it broke a resistance level.The stock is on a magnificent run and you fear missing out on this fabulous

up move and everything seems to be positive for the stock You see articlesabout the company stating "Shares in BHP Billiton have jumped on freshspeculation, a Chinese investor is eyeing up to a 9% stake in the company.China is the biggest consumer of iron ore and the move would help Chinasecure supplies of key raw materials, such as iron ore and oil, needed to fuelits booming economy" The news is positive on BHP, and you invest in thestock thinking you are on a sure winner

Figure 1: BBC news article, Chinese whispers fuel BHP shares

In a matter of six months, BHP plummeted from AUD$45.30 to a low ofAUD$18.12 How would you feel if you had entered BHP at AUD$45.30,only to see it 6 months later at AUD$18.12? One word would describe howyou'll feel, devastated The news around the stock at the highs was positive,surely you were on a winner So why didn't the stock perform, it's a safeinvestment, it's a blue-chip stock?

I will show you later in this book how the financial markets are manipulated

by the professional traders (Smart Money) and that all is not what it seems inthe markets

The stock of BHP is now trading at AUD$18.12, and all you can think of isnot losing all your hard-earned money The pain in staying in a trade which islosing you money is unbearable, so you exit out of the trade with a loss

What if this was a long-term investment such as in your retirement account?The investment fund that you invest in has purchased BHP at these highs andinvestment funds usually invest in safe blue chip stocks It's August 2016 as Iwrite this book, BHP is only trading at around AUD$21.00 It hasn't goneback up above AUD$45.30 in the last eight years

Figure 2: Stock chart of BHP

It has been eight years and the stock has not produced a positive result Let’ssay you held onto the investment for the long-term Holding onto a stock that

is not producing a result is not an ideal investment You’re no longer looking

at making a profit, you just want your initial investment back, as you'll besatisfied with achieving a break-even result

If I told you that there was an investment opportunity where you had onlyone-third of an opportunity in making money, would you consider this

investment opportunity? Most investors will not consider it, but a lot of

traders and investors invest by Buying, Hoping, and Praying Let’s face itthey are not stacking the odds in their favour

What I'm about to reveal to you is a trading strategy that has been aroundsince the 1970s and many people do not know that it exists It's a strategy thatseveral governments around the world allow you to invest your retirementaccount because it's a safe strategy and it's much safer than Buying, Hoping,and Praying and you'll come to realize this as you read through this book.You will kick yourself for not knowing about it earlier If you knew aboutthis strategy, your trading & investment account would look very differenttoday

How would you feel if I told you there was a strategy where you can generate

an income from your share portfolio regardless of whether the stock goes up,down or sideways, you will still make money? You’re probably thinking thatthis can't be true, but it is true, it's been around for over 40 years and it's astrategy that works for many traders and investors who have embraced it Thestrategy is called the “Covered Call" and it’s a strategy where you can

supercharge your trading and investment account Excited? I bet you are and

I am excited to be sharing this with you

It's all well and good for me to show you a strategy that you can implement,but what most traders and investors want to know is ‘How do I find thesetrading opportunities?’ Throughout this book, I will share with you a

methodology known as Wyckoff/Volume Spread Analysis (VSA) VSA willassist you in finding imbalances of supply and demand in the financial

markets and this knowledge would have prevented you from investing into

BHP back in 2008.

Most traders are aware of the two widely known approaches used to analyze

a market; fundamental analysis and technical analysis Many different

methods can be used in each approach, but the fundamental analysis is

concerned with the question of why something in the market will happen, andtechnical analysis attempts to answer the question of when something will

happen Volume Spread Analysis, however, is a third approach to analyzing

a market It combines the best of both fundamental and technical analysis into

a singular approach that answers both questions of 'why' and 'when'

simultaneously

1

HOW MARKETS REALLY WORK

“You can’t connect the dots looking forward, you can only connect looking backward So you have to trust somehow, that the dots will connect somehow

in your future You have to trust in something, your gut, destiny, life, karma

or whatever Because believing that the dots will connect down the road, will give you the confidence to follow your heart, even when it leads you off the well-worn path And that will make all the difference Your time is limited, so don’t waste it living somebody else’s life.

Don’t be trapped by dogma, which is living with the results of other people’s

thinking Don’t let the noise of other people's opinion drown out your own inner voice You’ve got to find what you love and that is true for your work as

it is for your lovers Your work is going to fill a large part of your life, and the only way you are going to be truly satisfied is to do what you believe is great work, and the only way to do great work, is to love what you do If you haven’t found it yet, keep looking and don’t settle Have the courage to follow your heart and intuition, they somehow already know what you truly want to

become.” – Steve Jobs

Welcome to the largest business in the world Every day billions of dollarsexchange hands in the world stock markets, financial futures and currencymarkets Trading these markets is by far the biggest business on the planet.The average person has no idea what drives the financial markets Even moresurprising is that the average trader doesn't know what drives the marketseither So, despite financial trading being the largest business in the world, it'salso the least understood business in the world.

Sudden moves are a mystery, arriving when they are least expected,

appearing to have little logic attached to them Frequently the market does theexact opposite of a trader’s intuitive judgment Even those people who make

a living from trading, particularly the brokers and the pundits, who you

would expect to have a detailed knowledge of the cause and effect in theirchosen field, very often know little about how the markets work

Essentially the financial markets show a lot of similarities within the othertypes of markets If you look, for instance at a street market, it consists offour things; location, items for sale, buyers, and sellers The location is

known as a place to buy and sell items The prices advertised by the seller iswhat the seller thinks they can get based on the competition in the locationand the demand for the products by the passing buyers In a buyers’ market,the prices fall and in a sellers’ market, where the demand is high, they rise

The financial markets are not much different Instead of antiques, clothes, andfood, what's been sold here are stocks, commodities, currencies and

derivatives Buyers purchase stocks and commodities through the tradingexchanges such as the New York Stock Exchange (NYSE) or the AustralianStock Exchange (ASX) The sellers also sell through the exchanges with bothsides using brokerage firms to transact the business

Stock markets grew out of small meetings of people who wanted to buy andsell their stocks These people realized that it would be much easier to maketrades if they were all in the same place at the same time Today, people fromall over the world use the stock markets to buy and sell stocks in thousands ofdifferent companies

New issues of stock must be registered with the relevant exchange, such asthe U.S Securities and Exchange Commission or the London Stock

Exchange A prospectus giving details about the companies’ operation andthe stock to be issued is distributed to interested parties Investment bankersbuy large quantities of the stock from the company and re-sell the stock onthe exchange

Sitting between the markets and buyers and sellers are the brokerage firms.These firms act as an intermediary between the market and buyer or seller Apotential buyer places an order with a broker for the stock he/she wishes topurchase The transaction takes place when someone wants to sell and

someone wants to purchase at the same price

When you purchase a stock, you receive a stock certificate The certificatemay be issued on paper or issued electronically It may be transferred fromone owner to another or it can be held by the broker on behalf of the investor

What Affects the Markets?

There are several factors that affect the markets They are individual,

institutional, mutual funds and investors all affect market prices If a largenumber of people want to buy a certain stock, the price of the stock initially

is going to rally Just as if there were many people bidding on an item at anauction Both the condition of the individual business and the strength of theindustry that it's in, will affect the price of its stock Profits earned, the

volume of sales and even the time of the year will also affect how much aninvestor wants to own a stock

Governments make all kinds of decisions that affect how much an individualstock may be worth and what sort of instruments people want to be investing

in The governments interest rates, tax rates, trade policies and budget deficitsall impact prices

General trends that signal changes in the economy are watched closely by theinvestors to predict what is going to happen next Indicators include the grossnational product, the inflation rate, the budget deficit and the unemploymentrate These indicators point to changes in the way ordinary people spend their

money and how the economy is likely to perform.

Events from around the world and changes in currency values, trade barriers,wars, natural disasters, epidemics and changes in government all affect howpeople think about the value of different investments and about how theyshould invest in the future

Today, investments can be bought and sold around the clock When the

Tokyo markets have just closed, for example, the London market takes over,and when London closes the New York exchanges take over When big

moves in price occur in one market, the other markets can be affected too

A bull market and a bear market are terms used to describe market trends Abull market is a period when prices are generally rising If investors feel thatthey will be in a bull market, they will feel confident in investing, adding tothe growth of the market

A bear market is a period when stock prices are generally falling If investorsthink that the markets are generally falling, they will sell stock at lower

prices Each of these markets is fueled by investors’ perceptions of where theeconomy and markets are going These trends can quickly change

The first secret in learning trading successfully is to forget about the intrinsicvalue of stock or any other instrument What you need to be concerned with

is its perceived value, its value to the market and not the value that it

represents as its interest in the company This is a contradiction that

undoubtedly mystifies the directors of strong companies with a low stockvalue From now on it's the perceived value which is reflected in the price ofthe stock

2

HOW, WHEN AND WHY MARKETS GO UP

All markets move up and down, none stay static, why? They move as theresult of market forces, essentially all markets are moved by supply and

demand If more people want to buy, demand will overcome supply and

prices will move up Conversely if more people want to sell than buy, supplywill overcome demand and prices will fall

So, who trades the markets?

The markets are traded by a number of trading entities Most people will beaware of three entities The first group being retail traders, people like you or

me who trade the markets either as a full-time job, or part time for a secondincome or as a hobby If we are trading full time, then we will place trades inthe live markets If we trade as a hobby, we might take position trades on adaily basis

The second group is the pension funds who trade longer term positions,

holding stocks for week or months The final group controls about 85% of themoney in the markets and they are what we call the “Smart Money” They aremade up of hedge funds, private trading syndicates, and investment banks.These entities have the power to move the markets These professional

players sell at the top of the market and buy at the bottom In between, theyhave to move the markets by making them rise and fall To do this, they usethe emotions of greed and fear to herd the majority of traders into the wrongside of the market

They have developed many ways of wrong-footing the retail investor andtrader and one of their biggest weapons is the unwitting media Here are just

a few examples Let's start with the British Petroleum oil spill disaster in

2010 On the 25th June 2010, the stock price of BP fell to just under $27.00.The news was grim The pundits and reporters were talking in terms of hugelosses and a possible breakup of the company and everyone who had stockwas looking to sell from the expectation that prices were plummeting Sellthey did, straight into the hands of the smart money, professionals who

bought cheap Within six months the price of the stock doubled Buy cheap,sell back when the market rises, that's how the game’s played

On May 6th, 2010, something very strange happened in the financial markets.This day is now referred to as the flash crash because no credible explanationhas ever been provided by the regulatory authorities as to exactly what

caused the crash, or who was responsible In fact, many investors began tosuspect that all was not what it seemed to be CNBC's 'Closing Bell" anchorMaria Bartiromo was reporting on the day the 'Flash Crash' happened Below

is the transcript of fellow reporter Matt Nesto explaining to Bartiromo someunusual anomalies in several stocks, even though the mainstream media

claimed that it was caused by a lone trader from a major banking institutionhitting the wrong button 'B' for billion was entered instead of a 'M' for

million while trading the CMS eMini S&P Futures The conversation went asfollows:

NESTO: "A person familiar with the Citi investigation said one focus of the trading probes were the futures contracts tied to the S&P 500 stock index known as the eMini S&P 500 futures, and in particular, that two-minute

window in which 16 billion of the futures were sold Again, those sources are telling us that Citigroup's total eMini volume for the entire day was only

9 billion, suggesting that the origin of the trades was elsewhere."

Nesto named eight stocks that were hit with the supposed computer error/badtrade that went all the way down to zero or one cent, including Exelon

(NYSE:EXC), Accenture (NYSE:ACN), CenterPoint Energy (NYSE:CNP),Eagle Material (NYSE:EXP), Genpact Ltd (NYSE:G), ITC Holdings

(NYSE:ITC), Brown & Brown (NYSE:BRO), Casey's General

(NASDAQ:CASY) and Boston Beer (NYSE:SAM)

NESTO: "Now according to someone else close to Citigroup's own probe of the situation, the eMinis trade on the CME Now, Maria, I want to add

something else, just in terms of these erroneous trades that Duncan

Niederauer; the NYSE CEO was talking about I mean, we've talked a lot about Accenture, ACN This is a Dublin-based company It's not in any of the indexes If you look in the S&P 500, for example, I show at least two stocks that traded to zero or one cent - Exelon and CenterPoint If you look in the Russel 1000, I show Eagle Materials, Genpact, ITC and Brown & Brown, also trading to zero or a penny, and also Casey's General Stores, as well as

Boston Beer trading today, intraday, to zero or a penny So they have at least eight names that they're going to have to track down on top of the Accenture trade, where we have the stock price intraday showing us at least, we'll

assume, a bogus trade of zero."

When Matt Nesto called these trades 'bogus', host and CNBC veteran MariaBartiromo looked shocked and a little angry and replied:

BARTIROMO: "That is ridiculous, I mean this really sounds like market manipulation to me This is outrageous."

According to Nesto, these are frequent occurrences, at least at the NASDAQexchange, and if you make a trade and lose money, there's no recourse

NESTO: "It happens a lot It really does I mean, we could probably ask the NASDAQ, they may not want to say how often it happens, but it happens frequently And they go back and they correct And the thing that stinks is if you, in good faith, put in a trade and made money and then lost it, you lose it And there's no recourse and there's no way to appeal."

What we witnessed on May 6th, 2010 was a giant shakeout of the market.The Smart Money were expecting higher prices and wanted to catch the retailtraders by marking the price down heavily, before moving the price up Theywere bullish, the stocks were going to rise and they wanted to buy at the bestpossible price Wouldn't you want to do the same? Buy at the lowest price,knowing you can sell it for much more than you bought it for That's thetrading game, buy low sell high

Be a predator, a clever predator that understands exactly how the prey thinksand act It's like herding sheep, steering them, rounding them up and lockingthem in a pen

In 2009, gas and petrol prices skyrocketed around the world and oil was

supposed to be in scarce supply Some of the world’s top oil analysts werepredicting a price of $200 per barrel You can appreciate for yourself, justhow influenced someone can become when you see and hear information thatall points in one direction In this case, oil was to go to $200 per barrel, andmany traders and investors and indeed even the airlines got caught up in

the maelstrom of higher prices A headline in the New York Times stated;

"An Oracle of oil predicts $200 a barrel of crude" on May 21st, 2009 Exactlythree weeks later the price of crude oil plummeted

In April 2011, silver was very much in the news as the commodity to invest

in The price had steadily risen towards $50 and all the news was about therelentless rise of silver This commodity had a very bullish medium termoutlook and once again, retail traders bought in abundance, anxious not tomiss out Later in 2011, silver crashed once the smart money had finisheddistributing at the highest price, so maximizing their profit

CNN Money reported; "J.P Morgan scores big in latest quarter" is the

headline 14th October 2009 The words strongest performance, towered

above Wall St expectations are used directly below the headline All the news

is now bullish; the stock is going up and up because it's in an uptrend To theretail trader and the investing community, this appeared to be a great

opportunity to buy, because everything lined up and if you didn't go to themarket by now, you missed the move So, you buy, buy, buy What

happened? The stock plummeted spectacularly and the uninformed retailtrader said bye bye to their capital

These are just very few examples; the reality is that all markets are moved to

a greater or lesser extent the same way and it's why a small and enlightenedminority of traders are successful in the markets So we have seen how

markets rise and fall, and why they fall So how do you know when marketswill change direction

Traditionally, there have been two ways to try and predict price movement,

by technical analysis and fundamental analysis Let's begin with technicalanalysis Wikipedia defines technical analysis as "a security analysis

discipline for forecasting the future direction of prices through the study ofpast market data." Another definition, this time from City Index is "Analysis

of a financial market by charting its performance using historical patterns,and focusing on trends."

There are many technical analysis tools and methodologies out there, somelike Bollinger Bands, MACD, and Stochastics, use mathematical formulas to

identify trends Others like Fibonacci and Elliot Wave use historical patterns.

In summary, technical analysis tools look at historical price movement andbased on the price action, you can determine to some level where the pricewill go By looking at charts, you can identify trends and patterns which willhelp you find good trading opportunities

Fundamental analysis is a way of looking at the market through economic,social and political forces that affect supply and demand In other words, youlook at what economy is doing well and whose economy is strong The ideabehind this type of analysis is that if the country’s economy is doing well,their currency will also be doing well This is because the better the country’seconomy the more trust other countries have in that currency

Both these analysis models can provide valuable help for traders and

investors The question arises, well if they're good, why do over 90% of

people lose money in the markets? Well, the actual day to day movement ofthe market is shrouded in deep, dense fog, which is why the technical andfundamental analysis approach cannot be sufficiently successful on theirown That fog is deliberately generated by the market makers and the tradingsyndicates to force you, the retail trader, onto the wrong side of the trade

Technical analysis tools try to predict price movement, by analyzing in

various ways what the market is going to do, based on what it did

historically It's a bit like trying to predict what the weather is going to dotomorrow based on what it did in a similar period historically

That would be a more successful approach if the market behaved

consistently, unfortunately, it appears to be unpredictable The reason for this

is that the smart money, the trading professionals constantly monitor bothsides of the market, and know exactly when to move the market as it wrong-foots the retail traders The “Smart Money” do it in a very subtle and cleverway, which are invisible, hidden in the fog This means just as your technicalanalysis indicators tell you to enter the market, the market turns and you arelocked in at higher prices and you've lost

So, technical analysis on its own cannot alert you to the real movements inthe markets, because the market does not work in a vacuum Going back to

that real street market, if you are not an enlightened expert, knowing exactlywhat to look for, how likely are you to find a bargain when the people thatyou are buying it from are full-time experienced traders? The same is true inall the financial markets.

Fundamental analysis relies on research, whether it's researching an economy

or its currency, commerce or individual company performance That researchrequires reading articles, reports and listening to the news Taking too muchnotice of incoming news stories and reports in the media is one of the mainreasons why traders and investors make very poor trading and investing

decisions at the wrong time Here is an example, the chairman of the FederalReserve appears on television, and makes what appears to be a bearish

statement The markets fall alarmingly in response to this news

The news reporter appears grim-faced on television, reporting why the

market has fallen today - "The market has fallen dramatically today, on

negative statements made by the chairman of the Federal Reserve." To add tothe impact and drama of the announcement, any other negative information iscollected to support the story

Why is the news release leading you astray and harming your trading?

Because this is how the news should have been reported; "The market hasfallen alarmingly today Bearish statements made by the chairman of theFederal Reserve, caused the professionals to mark the market down, in amaneuver to discount the negative news This had an effect on weak holdersand uninformed traders, causing them to panic sell their holdings to

professional traders, who have been waiting for this opportunity to buy atlower prices."

It was highly likely professional traders, the “Smart Money”, were fully

aware of the forthcoming press release well in advance of the announcement,and they were ready to absorb the huge amount of stock They stand to profithandsomely in the days ahead as a result of the successful and expertly timedoperation Fundamental analysis can't accurately point to price movementbecause the media is all too often manipulated and used by the smart money

to wrong foot the retail trader

Remember it's perceived value and not actual value There is another

methodology which is the missing piece of the jigsaw, it's called VolumeSpread Analysis (VSA) and it forms the basis of TradeGuider's education andtrading systems.

Volume Spread Analysis lifts the fog, it identifies, when interpreted

correctly whether the smart money is buying, selling, or not

actively participating in the markets

3

WHAT ARE OPTIONS

“Don’t allow your emotions to control you, we are emotional but you have to learn to discipline your emotion If you don’t discipline and contain your

emotions, they will use you.” – Les Brown

Options should be one tool in every trader’s arsenal, as it can quickly growyour investment portfolio if used correctly It can also be detrimental to thosewho are not educated in options and use it incorrectly There are lots of

different strategies that can be traded with options such as spreads, iron

condors or butterflies to name a few These are trading strategies that areimplemented without holding stock and are high-risk strategies These

strategies can make you a lot of money, but you can also lose a lot of money

if you have no idea of what you are doing

In this chapter, I will be focusing on the basics of options and then I will leadinto the covered call strategy, a conservative income producing strategy.Stock market educators normally charge a large fee for the information that Iwill impart to you I think that is ludicrous and I sometimes wonder if thesecompanies are making money from actually trading their strategy or from theeducation they sell From my experience, the retail trader always gets shaftedand it's my aim to educate the retail trader and investor about how to trade thefinancial markets without the hefty upfront costs to learning it That money isbetter utilized in your trading

The Option Basics

There are two types of options used in the financial markets, one is known as

a call option and the other is a put option With every option, there is a buyerand a seller The buyer of a call option has the right to buy the stock that itrepresents at an agreed price, and the seller of the call option has

the obligation to sell their stock at an agreed price The inverse happens withput options, the buyer of a put option has the right to sell the stock it

represents at an agreed price and the seller of the put option has the

obligation to buy the stock at an agreed price

Call Option Right to Buy Obligation to SellPut Option Right to Sell Obligation to Buy

Table 1: Options Rights and Obligations

Let's run through an example for a call option If Trader A buys Apple Inc(AAPL) call option at a strike price of $110, Trader B is the seller of the calloption Trader A has the right to buy AAPL stock for $110 and Trader B hasthe obligation to sell AAPL stock at $110 Trader A is long and wants theAAPL stock price to go up in value in order to make money and Trader B isShort and wants the AAPL stock price to go down in value in order to makemoney

Let's run through an example for a put option If Trader A buys a put optionfor AAPL at a strike price of $110, Trader B sells a put option of AAPL at astrike price of $110 Trader A has the right to sell AAPL stock at $110 andTrader B has the obligation to buy AAPL stock at $110

The Lingo

You'll need to know some terminology if you would like to trade options.Don't worry it's very simple once you get the hang of it

Strike Price or Exercise Price

The strike price of an option is the price at which the underlying stock can bepurchased or sold In a call option, the strike price is the price that the optionholder can purchase the underlying security For a put option, the strike price

is the price that the option buyer can sell the underlying security

If Trader A purchases 100 shares, (1 contract) of AAPL call option at

$110.00 which expires in three months at a cost of $4.00 per share, the

$110.00 price is known as the strike price Trader A has the right to buy 100shares (1 contract) of AAPL stock at $110 anytime during the three-monthperiod It does not matter if the underlying share price is trading above orbelow the strike price

Likewise, with put options, if Trader A purchases 100 shares (1 contract) ofAAPL put option at $110.00 which expires in three months at a cost of $4.00per share, the $110 price is known as the strike price and Trader A has the

right to sell 100 shares (1 contract) of AAPL stock at $110.00 anytime duringthe three-month period The strike price, also known as the exercise price, isthe most important determinant of the option value Strike prices are

established when a contract is first written Most strike prices are in

increments of $0.50, $1.00, $2.50 and $5.00

Option Premium

The option premium is the income that the option seller receives by selling anoption and the amount that the buyer of the option must pay The option

premium refers to the current price of any specific option contract that has yet

to expire Option prices are quoted on the exchange such as the Chicago

Board of Options Exchange (CBOE) Option premiums are made up of

intrinsic value, time value and implied volatility of the underlying asset

intrinsic value of a put option is the difference between the strike price andthe underlying stock price

Only options that have intrinsic value are said to be In-the-Money For calloptions, In-the-Money refers to options where the strike price is less that thecurrent underlying stock price A put option is In-the-Money if its strike price

is greater than the current underlying stock price

E.g Trader Apurchased a $110.00 call option of AAPL at $2.50, at the time when the

underlying share price is $112.00 The intrinsic value of the call option is

$2.00, underlying stock price ($112.00) - strike price ($110.00) The 50 centsremaining from the $2.50 option price is known as time value

Time Value

Any value above the intrinsic value of an option is known as time value If anoption is Out-of-the-Money, 100% of the options value is time value Thisshows the amount of time value remaining until the expiration of the optioncontract An options time value is equal to its premium (cost of the option)minus its intrinsic value (the difference between the strike price and the price

of the underlying stock) As a rule of thumb, the more time remains

until expiration, the greater the time value of the option This is because

traders are willing to pay a higher premium for more time and will enable thetrader to have a longer period of time to become profitable

In general, an option loses one-third of its time value during the first half ofits life, and the remaining two-thirds of its time value is lost during the 2ndhalf Time value decreases over time, eventually decaying to $0.00 atexpiration, which is known as time decay Just think of an options life like anice cube that is melting and the expiration date as a heater As the ice cubegets closer to the heater, it will melt much more rapidly than if it was furtheraway from the heater Once the ice cube is at the heater, the ice cube willevaporate, just like an Out-of-the-Money option after expiration day will beworthless

Based on the table above, only the $105.00 Call and $115.00 Put will haveintrinsic value, being In-the-Money When the underlying stock is trading at

$110.00, both the $110.00 Call and $110.00 Put have no intrinsic value, butonly time value as do far Out-of-the-Money $105.00 Put and $115.00 Call

Implied Volatility

Implied volatility represents the expected volatility of the options underlyingasset, i.e it’s the estimated volatility of the security’s price It works on theassumption that implied volatility will increase when the market is bearishand decrease when the market is bullish The reason for this is that investorsthink that bearish markets are a lot riskier than bullish markets Implied

volatility will allow an investor to gauge the future price fluctuations of aninstrument

Implied volatility is the major component of the premium making up theintrinsic value of the option’s total price The option’s premium changeswhen the option’s volatility changes over time These expectations are

influenced by supply and demand and the overall direction of the underlyingasset If the demand for the asset goes up, then the implied volatility goes upand this will increase the premium of the option If the demand decreases,then the implied volatility will go down which in effect will cause the

premium of the option to go down

In-The-Money (ITM) Options

In-The-Money means an option that will produce a profit if it's exercised For

a call option, In-The-Money means that the strike price is below the marketprice of the underlying asset An example would be if Trader A purchases anAAPL call option at a strike price of $110.00, the call option will be In-The-Money when the AAPL is priced above $110.00 This means Trader A cannow exercise his option and buy AAPL stock for $110.00

The opposite is true for a put option, if Trader A buys an AAPL put option at

$110.00 strike, the option will be In-The-Money when the share price ofAAPL falls below $110.00 Once the put option is In-The-Money, Trader A

can sell his shares for $110 even though the underlying stock price is belowthe strike price.

How profitable an option is at any given moment depends on how much thevalue of the underlying stock exceeds the strike price of a call option or howmuch the value falls below the strike price of a put option.

Out-of-the-Money (OTM) Options

OTM refers to an option that will not produce a profit if it's exercised For acall option, if Trader A buys an AAPL call option at a strike price of $110.00,this gives the right for Trader A to buy AAPL stock for $110.00 at or before aspecified expiration date If the underlying stock price is currently $105.00,this means that the call option is currently OTM, meaning there is no profit ifTrader A exercises the call option There would be no need to exercise theoption because Trader A can purchase AAPL shares in the open market for

$105.00

Likewise, for a put option, if Trader A buys a put option for AAPL at a strikeprice of $110.00 and the underlying stock price is trading at $112.00, the putoption is OTM Trader A will not sell his shares for $110.00 because in theopen market he can sell them for $112.00

OTM options can be used to bet against future movement in the underlyingstock price Therefore, investors buy OTM options because they expect alarge move to occur Out-of-the-Money options are cheaper than In-the-

Money options When the option is OTM, this simply means that if you

exercise the option, you will be "Out of Money", losing money on the

transaction

At-the-Money (ATM) or Near-the-Money (NTM) Options

ATM refers to an option’s strike price that is equal to the price of the

underlying stock so if Trader A purchases a call option at a strike price of

$110 and the underlying stock price is $110, the option is said to be ATM.

An option contract is referred to being NTM when the strike price and theunderlying stock price are close ATM or NTM option contracts

typically cost more than OTM options A stock trading at $110.20 and thestrike price of the option is $110.00, would be considered NTM as the

difference between the strike price and the share price is 20 cents Generally,the difference is less than 50 cents where the option contract is NTM

Figure 3: Call Option In-Out-At the Money example

Figure 4: Put Option In-Out-At the Money Example

Expiration Date

The expiration date is the date on which the option will expire All optionshave an expiration date and it's prudent that you select the correct expirationdate according to your strategy Some option strategies require a longer

expiration date while others require a shorter expiration date You may select

an expiration date for an option a year in advance or a week in advance

Primarily with the covered call strategy, we will focus on options with an

expiration date of the current month or the week, depending on our view ofthe underlying stock.

Expiration

Options have a certain amount of shelf life and will expire at the close of theexpiration date As the expiration date nears, the time value of the optioncontinually decreases until it reaches $0 by the end of expiration, while theintrinsic value will closely represent the difference between the underlyingstock price and the strike price of the contract The expiration of optionsoccurs on the third Friday of every month (American Style Options) andthose options can be exercised at any time prior to the expiration date

Option Seller Vs Option Buyer

What is the goal of the option seller and buyer in a transaction? The goal ofthe option seller is to receive an income on their stock and reduce their break-even price So, a covered call investor may be looking to hold their stock forthe long-term and want to earn a monthly income to reduce the cost of thestock or there are other covered call investors who want to hold onto theirstock for a very short period of time and produce a return on a monthly basisand ultimately have the stock exercised by the end of expiration Doesn'tmatter what your goal is, this strategy will work for your needs

What is the motive of the option buyer? The motive of the call option buyer

is for the stock to appreciate in value As the stock appreciates in value, sodoes the call option and as the stock depreciates in value, the call option

value depreciates in value Now think of the amount of risk the option buyer

is taking He/she is outlaying money, hoping for the stock to appreciate invalue in order for them to make money So, there is only one way the optionbuyer will make money and that’s if the stock appreciates Does that soundfamiliar to you?

The option buyer is taking on all the risk, they only make money if the stockappreciates in value and more importantly, they have a certain amount oftime to make money It must be made prior to the end of the expiration

period If the option buyer does not see any appreciation in the stock price,and if the call option is not In-the-Money, the call option will expire

worthless and they will lose 100% of the investment will be lost So, if yousold a call option which expires in a week, the option buyer has a week forthe stock to appreciate in order for them to make money

With the covered call strategy, you are the option seller, meaning you havemade money up front because you were paid as soon as you sold the calloption You have made money regardless if the stock goes up, down or

sideways Ultimately, most of the risk is on the option buyer Depending onthe option strike price selection there could also be some risk to the optionseller

In my experience, it's better to be an option seller of a decaying asset, rather

than the buyer because by selling options:

1 You have the opportunity for monthly cash-flow with higher

annualized returns using low-risk strategies

2 Appropriate for most market conditions

3 Downside protection as we start with an option credit

4 Covered call writers also capture dividend

5 Opportunities to trade in retirement accounts using the covered callstrategy

How to Read an Option Table

To successfully select options to trade, all good brokers will have an optionstable with their trading platform, whether it's an on-line broker or a full-service broker The options table displays all available call and put options,their strike prices, and the premium of the options Other information thatmay be displayed in an options table is a price change for the day passed,volume and open interest

Figure 5 AAPL Call Options for expiry March 2017 Courtesy OptionsXpress:

http://www.optionsxpress.com

The options table above show the Call Options of AAPL that expire on

March 3, 2017 Down the middle of the options table, you have the strikeprices, and as you can see from $90.00 to $100.00, the strike price increment

is $2.50 Beyond $100.00, the strike price increments are $5.00 What doesthis mean? Why is there a difference in strike prices for the same stock? Thereason why there is a variance in strike prices is because, Apple had not

regularly traded above $100.00, but below it

To reduce confusion, the exchanges typically determine strike prices based

on the current share price If a stock is trading between $5 and $25, then thestrike prices will be in increments of $1.00 and $2.50, for example, $5.00,

$7.50, $10.00, and so on If a stock is trading between $25 and $200, then thestrike prices will be in increments of $5, for example, $25, $30, $35, $40 and

so on If the stock is trading above $200, then the strike price will be in

increments of $10, for example, $200, $210, $220, $230 and so on On

occasion, you will see $1 price increments for stocks that are low priced andheavily liquid (for example, Microsoft (NYSE:MSFT)) These stocks are