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"Michael is a gifted trading mentor. Over the course of several initial conversations he was able to assess my situation and recommend trading strategies that were harmonious with my personality; while at the same time attending to my family’s financial needs. I cannot stress enough how life changing this was for me." --JC, Kansas

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"This is a great book for novice and experienced traders. Soaking up its wisdom distilled from experience and introspection will help you become more successful. And that's true even if it doesn't make you a penny." --Aaron Brown, AQR
Blog

I received a great deal of email about the GOOG vertical spread trade. As you know, there is limited upside on a bull call spread because you’ve sold the upper strike price to underwrite the cost of the lower one. That’s a tradeoff that you’re willing to make.

More than a few readers are looking for a similar trade, but with unlimited upside. So in that case, you need to be thinking about the long-term fundamentals as much as anything and have a vision for what you think is going to happen.

Think in terms of probabilities and have some imagination and patience.

Like Yoda, think you must.

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tradingplan 300x158 Risk Assessment Tactics to Qualify Trades

If the chart pattern does is not conjugated with the average volatility of the instrument you’re about to trade, you could be in for a very frustrating time. A trade set-up might work for you when you compare what you’re willing to risk per trade and the 20-period ATR, for example. But what is your risk with respect to the rest of the chart?

This effects everyone in the market, not just newer traders with smaller account sizes. I just posted a video that help traders disqualify trades based on this key concept. Remember, your first order of business as a trader is to protect your capital. That process starts before you put on a trade.

You can spend days upon days wasting time in front of the computer screen and not make any progress in your trading career if you don’t understand this concept. Progress in this sense means growing your account balance. I don’t want you working for the occasional $200/day gain.

Michael Marcus did not turn the $30k into $80 million staring at screens all day.

register 300x181 Risk Assessment Tactics to Qualify Trades

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I am very excited right now as I’m working with a student who has some amazing natural talent.

This came about when he listed the goals for 2014. We reviewed his goals for 2013 and found out that he did not hit one of the most important goals: being profitable.

As a converting day trader, he’s amazed how much ego had gone into his trying to determine price targets for instruments he traded.

It’s one thing to get the instrument right, another to get the direction right, and a third thing to get the position sizing right. So we did a little exercise.

We built a spreadsheet of all his trades of 2013 and created 3 columns: entries, exits, and a “Where Are They Today” column. In 97% of the cases the longs were higher than his exit price.

When we multiplied it by the position size, we can see the money left on the table in dollar and percentage terms.

This represents the opportunity cost of being a day trader.

How much is being a day trader costing you?

Watch the free Volatility Study lesson.

Watch the free Vertical Put Spread lesson on AAPL.

Here’s a recent review of Inner Voice of Trading.

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I just received the best LinkedIn Recommendation that I’ve ever gotten from a student. His name is John Crowe and you can see it for yourself if you happen to connect with me on LinkedIn:

“Michael is a gifted trading mentor. Over the course of several initial conversations he was able to assess my situation and recommend trading strategies that were harmonious with my personality; while at the same time attending to my family’s financial needs. I cannot stress enough how life changing this was for me. As a trader I now believe it is crucial to find strategies that fit “me.”

My entire belief system regarding the markets has changed as a result of my mentor-ship with Michael. Michael has remained a constant guide as I continue to mature as a trader and manager of market risk. His guidance has provided me with the self-confidence I required to pursue a career as a money manager, which I am currently pursuing.

In short, I would highly recommend Michael’s mentor-ship and educational skills to anyone who is serious about improving their performance and self-understanding.” — John Crowe, Kansas

Can you perform consistently ?

Part of my mentoring traders is also the ability to teach students new insights about how to look at the market. I find that new traders spend way too much time (10 hours a day) making a losing insubstantial capital.

After 2 years, they’ve not really done anything to build a career except go through rituals – they look like traders to outsiders, but their P&L doesn’t delineate much more than confusion. If you immerse yourself in my program, you’ll get where you want to go much quicker.

Here’s the program if you don’t want funding.

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What to do when your Trading System is not the problem

You think you have great entries and exits, and you have position sizes that you’re comfortable with. Yet when you systematize them, the hypothetical results are not critical to the extent that you can use them to manage risk — or raise any capital to trade.

So you go back into the dashboard of your simulator and you start the tweak the living daylights out of your entries. That doesn’t work. You tweak your exits. That does’t work either. You test smaller positions. That doesn’t work.

You begin to add indicators to your rules. They bring small but positive changes, but the overall hypothetical results still stink. You layer another 47 indicators on top of one another and you finally have something that will make money. But now the problem is that the system makes only 3 trades over the last 10 years. It basically needs to be Leap Year for you to put a trade on.

You’re about to scrap the whole file and start over. You’re feeling enormous buyer’s remorse because although the simulator isn’t necessarily expensive, it feels so when you can’t get it to work. You may become so frustrated that you want to quit.

The problem could be with your data. Yes, it’s important to have clean data in that you don’t want any bad prints to trigger trades in your simulator that will otherwise destroy your ethos when it would otherwise yield results that would look promising on the first pass. I’m talking about the universe of names (tickers) in the data that you’re pumping through the simulator.

You may need to rake the data before you run it through the simulator. Gold does not trade like Sugar does not trade like Apple. Why would you have them in the same data universe? You wouldn’t and that’s an easy one to understand. Suppose your trading rules worked better in one asset class that another? Or suppose they worked well for one capitalization but not another? Maybe you should consider segregating the small caps from the large caps…

Here you are double-clicking your mouse for 10 days trying to get your system to work and the problem is not with the system, but in the data.

You can rake your data before you run it through your system and create your own universe of securities to test. Here are a few examples:

–NYSE listed securities only
–Average Daily Trading Volume (ADTV) > 10MM shares
–prices between $20 and $75
–omit Preferreds

Test everything at the portfolio level to make sure that your rules are robust, and try to keep your rules simple so that you can explain them very easily to a non-pro.

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