We will put this early beta out to a few of our members to test the functionality. This first release duplicates everything version 4.2.5 currently provides to you. We need to make sure everything is smooth for our users before releasing it as our official product.

If you have a current license, you will get the update as part of your yearly support fees. In addition to all the future modifications as long as you are current.

Our goal is to release small quick updates to the code. This complete rewrite will allow us to add more functions that you have been requesting. This is the code base that we will use to build a more robust platform.

Our tentative release date is 2012-FEB-15. Like all software we may slip a week or two. But the early testing is looking good.

We have tried to clean the menu up for your use. The journal and risk management features are now integrated into the main interface. As we go forward, we need to add alerts, and more reports as well as more calculations for planning your trades before you get into the trading day.

Thank you all for your patience. This has been a 16 month project and it is finally coming to fruition. Your support has allowed us to rebuild OTrader and focus more on your needs!

Happy Holidays to you and your loved ones!

The OTrader / RooTrader Team!

We rolled back to the previous release after testing the minor change we did to the DDE update option. We are still working on pulling Google updates and some other sites for our users.

However, instead of putting man hours into writing the software for our current version, we are putting the changes into the new version that is nearing completion. We only have so many hours in the week, so, the new software is our primary focus.

Version 4.2.5 is stable and used by our users this fall. So, the changes are not needed from a stability perspective. This was only to expand capability.

Sorry Sean, I forgot to update the blog and web pages. So, nothing but coal in my stocking this year!

I am hoping this was a joke. If not, then see below.

While I can appreciate someone getting a degree in a liberal arts subject, didn’t anyone make this young lady take a class in Economics? Exactly what is the worldwide market for a degree in Hispanic, Transgender, Gay and Lesbian studies? What university took this woman’s money?

The Occupy Wall Street movement has spawned clones around the world. Unemployed adults, some families, a few Hollywood stars, all sitting in, hanging out, and complaining about the current wave of Robber Baron’s ruining their futures.

Here in Vancouver, BC, it looks like a lot of energy, with no clear message, targeting the wrong people. Cities are starting to force the protestors off of the public squares where they have been camping. Who should they be targeting?

First, who sold you this degree? If you bought a car with no engine, you would attack the automaker. If you got a $96,000 education from a university, with no clear way to repay your student loans, go protest at the university! Do they not have a stake in making sure their graduates can actually use the degree they sold them? How about a few class action law suits against the Board of Regents for allowing the school to produce worthless educations?

Second, Wall Street is a business. The finance industry operates in a regulatory environment. The governments released the tight controls from the 1930′s and built the financial system that has grown over the past several decades. The laws and meetings can all be traced back to the politicians and regulatory officials who passed the new rules. These people are NOT in Wall Street. They are all in Washington DC. Get a map and go there to protest. In the US, that means you need to talk to approximately 336 people who run the government for the people.

Third, this is a non-event. The press popularizes these gatherings like a massive wave of protest. Having gone by two sites, one in Oakland, CA and one here in Vancouver, BC, I can say, it is a small minority of disaffected people. I have seen bigger gatherings at a high school hockey game. Just be glad this isn’t a global wave of hockey fans trying to make a point. There would be a lot more blood!

Fourth, this is a sad commentary on the state of higher education. If this is a “movement”, then the universities need to get these people back in the classroom and teach them political history. Then the university should explain why they can’t get a job with the worthless degree they sold them.

Finally, while unemployment is high, capitalism is nothing but a tool, based on human nature and economic theory. Man uses tools for good or evil. Do not blame the tool for how it is used or exploited.

In defense of good old fashioned capitalism, more people are fed, clothed, and housed right now, than at any point in the history of the world. While a lot of people are still struggling, the bright shining beacon of hope is not communism, socialism, or any other failed social experiment.

The beacon of hope for the world is capitalism. With a stable financial system (this is the role for the bankers), minimal taxes (you need an incentive to work), a level playing field (this is the role of government), entrepreneurs (small business), and a strong work ethic, capitalism will allow the greatest number of people to feed their families and reach their individual dreams in life.

The Tea Party movement dwarfed this lost Occupy movement. Maybe the Occupy Movement should hire some consultants to get a clear message, and then spend some money to get there message out. Oh wait a minute…

Menu->Edit->Preferences & Setup -> Security Codes -> Set all codes to update via <Choose Google>…then click Apply…that will update the entire portfolio to get updates from Google.

If you want to go back to Yahoo or your custom DDE price update settings, go back to Preferences and select your old choice.

We are still working on our central update server. We know some markets are missing from Google and Yahoo and we want to provide that data to you. This server will be tied to our next major software release later this year.

Happy Trading!

Nik

It has not been edited or scripted just a straight out recording of your phone conversation.

As always if you have any questions let me know.

Writing covered calls can provide you with an ongoing stream of income from the option premium. This is particularly important when stocks do not pay dividends or pay very small dividends.

The call option premium can also substantially increase total returns in flat or slower growth stock markets.

#2 Income paid up-front

The income from writing covered calls in credited to your account the next day, creating immediate cash flow that can be reinvested, withdrawn from cash management accounts or used to pay interest on margin loans.

Since the call option premium is paid up front it can be reinvested to enhance the total return of your portfolio.

#3 Predetermined Return

In a rising market, the immediate return from call writing can be evaluated prior to initiating the investment position. You will know what the call writing income will be and the maximum additional capital appreciation you may expect from your shares.

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#4 Risk Reduction

If a stock declines in price,(Not that they ever do that…) the call writing income will help to offset some or all of the capital loss. Writing covered calls will provide some downside protection when stock decline in value.

#5 Cash Dividends

As a writer of covered calls you will continue to be entitled to cash dividends so long as you own the shares. Beware dividends can lead to early exercise though.

#6 Novation

Exchange-listed option contracts like shares, are interchangeable with another contract with exactly the same expire month and strike price. This is known as ‘novation’. This enables the covered call option to be initiated through a ‘sell to open’ order, but also to close out the position if desired through a ‘buy to close’ order.

Got a question about covered calls? Let me know.

My personal favorite is the Iron Condor which is made by using a bear call spread and bull put spread.

With the Iron condor we are looking to sell time and volatility. We look to sell options with a > 75% chance of expiring worthless. The Options Probability Calculator will help you determine which options have a > 75% chance of expiring worthless.

In the coming weeks I will be releasing my report of how I trade Iron Condors. It is an eight step check list for opening and closing the spreads each month.

Let me know if you would like a copy.

Determining a Good Risk/Reward Trade

Contrary to popular thought, successful traders can take on any type of trade in terms of size and risk as long as they first understand the implications of the trade and are willing to stomach the losses should they occur. If a trader feels that they have the hot hand, they may choose to press a bet (to make a larger than normal purchase or sell on the belief that the odds are in their favor). They do this knowing that they may suffer greater than normal losses if the trade doesn’t pan out. Traders do this all the time.

It is critical, if you are to be successful, to understand that trading is a game of probabilities. Technical traders are simply looking for patterns with a greater than 50/50 chance of repeating themselves over and over again. Once such patterns are identified, traders attempt to recognize such patterns in current charts and then identifying entry and exit points based on those charts. Entry and exit points are typically associated with support and resistance areas of the charts. Ah, support and resistance areas. These were the tools of the early traders, traders that read the tape … traders that were successful at technical analysis long before the advent of all these derivative indicators, these answers to the problem of technical trading, this onslaught of technical wizardry. The oldest and purest form of technical analysis is support and resistance. Understanding it provides a large portion of the technical analysis that one needs to be successful at identifying entry and exit points.

Calculating the Risk/Reward Trade

In previous chapters we have talked about the need to identify potential trades based on chart patterns. The idea is that you collect a set of candidate charts, charts that have positive prospects for immediate or reasonably near term trading time frames. It is with these candidate charts that one can dig deeper into the possibility of trading that particular issue. The identification of a probable trade centers around the proper identification of realistic entry and exit positions based primarily on support and resistance. Once you have properly identified the support and resistance points you can take those numbers, plug them into a simple spreadsheet and calculate the risk reward. The simplest form of calculation involves nothing more than the following

• Entry Price
• Stop Loss Target
• Stop Profit Target
• The resulting Risk/Reward Ratio

Now, let’s apply this to a particular trade. The following graph shows NEM as it looked on May 17th, 2002. Gold is enjoying a significant run up and this trade actually goes against the prevailing trend, attempting to time a quick short trade based on chart patterns. On the fundamental side, there is concern that gold could continue to rise as the dollar continues to weaken and as world events dictate increased fear on the terrorism front. On the other side of the coin, the technical picture shows a potential short candidate given the annotations provided below.

View image here

Given the chart above, here’s an example of the most simplistic risk/reward ratio calculation.

In the end, it turns out that world events and the spot price of gold ended up making this trade a losing trade, but risk to reward calculation remains the same … regardless if the trade wins or loses.

Ranking Trades and the Spreadsheet

To see if a potential play is worth wagering money on, one must determine what the potential losses are if your analysis is wrong, and what the potential gains are if the analysis is correct. You should always shoot for a minimum of 2:1 ratio, that means that your potential profit should be roughly 2 times your potential loss. This is a rule of thumb that many traders use … especially the good ones. In the example above, if one enters a trade at the price of $29.12 with a define stop loss exit of $30.68 and a potential target exit for profits at $26, then the ratio is roughly 2:1 (a bit less in this case). That’s it. It’s really that simple.

Recognize that once one has entered such a formula into a spreadsheet and begins using it, one can easily play with the numbers to make them work. For example, let’s say that NEM looks like a great short right now, but that the exit is really $31, not $30.68. Now, one could stretch the target to $25 even though the support lies at $26 in order to justify the trade, but the trader inside you knows this is not the case. When setting support and resistance points, one has to realize that if the numbers are fudged, the person fudging the numbers is the one hurt. It’s their money that’s on the line.

An easy way around the temptation of making the numbers work, is to always look at the support and resistance points first and allow as much slack in the numbers as makes sense. Now, plug in the entry price. Does the risk/reward make sense? If it doesn’t change the entry price, not the stop or target prices. Jiggle the entry price to the point where it makes sense and then simply wait until you get that entry point or pass the trade up. There are always more fish in the pond.

Once a number of potential trades are identified, the next step is to take a position in the trade. It is important to realize that no trade is a certainty as they are all probability based. The likelihood of success and failure can be quantified to some degree based on certain risk factors. By quantifying the risk factors and ranking the potential trades based on these risk factors, one can take a systematic approach to trading … an approach that can pay huge dividends. This is a laborious process that takes time and organization. The simplest way to organize this is via a spreadsheet. Since spreadsheets can contain simple arithmetic equations, you can easily build equations to compute the risk factors described below. When first experimenting with trade rankings, one should error on the side of simplicity as having too many factors is no better than having any at all.

So how can you begin to construct a ranking system that allows you to increase your reward and reduce your risk? It’s not so much difficult as it is tiring. Looking back, you must first screen a large number of stocks and then flip through a large number of charts looking for technical patterns that have potential. The primary technical indicators you are interested in are those that have the highest percentage of success. Edwards and Magee go to great lengths to point out all types of technical trading patterns in their bible of technical trading, Technical Analysis of Stock Trends . The obvious factor when ranking trades is to balance the risk versus the reward with the idea that the higher the reward relative risk to the risk, the higher the probability over time that you will make money. The simplest way to calculate the risk to reward ratio, is to pick an entry price for a given stock and then ask yourself, where would you have to consider exiting the stock if it turns out that you are wrong on the trade. For the reward, you ask yourself the same question but the exit is associated with your having a winning trade. Based on how many shares you intend to trade, you can calculate the amount you will loose and the amount you will win. Don’t forget to add in your transaction costs as part of this.

This is the fundamental basis of all ranking systems. From there, you can begin to add other variables such as, how long do you expect to be in the trade. The shorter the period of time relative to the risk/reward, the more money you can make over time (assuming you win more than you lose). As your refine your ranking system you will find that stocks with higher betas are naturally more susceptible to short trading periods given their volatility.

Another key variable is a confidence factor. The confidence factor itself if typically based on several factors such as the probability that the technical picture is favourable, the probability of the market contributing to your individual stocks success. Regardless of the factors you experiment with, it is important that you keep your data available for study over time so that you can continue to refine your system. Without constant scrutiny, your ranking system can loose it’s value overtime as the markets are dynamic and always changing.

Embellishing the Formula

Once one has mastered the use of the simplest formula for risk/reward, one can consider embellishing the formula to include other criteria. For example, if one could reasonably judge the amount of time it takes a trade to play out, then that knowledge could be incorporated into the spreadsheet in order to rank the trades on a more favourable basis. Think about it. There is only so much capital to use when trading. Using that capital on the highest potential return over some period of time is the desire.

Another key element of gaining the highest potential return on ones money is to associate a confidence factor into the equation based on the stock, the technical pattern being traded, whether the trade is in the direction of short, intermediate and long term trends, etc. Again, there are a number of factors that can be added to the formula to rank the trades and use that ranking as a basis for decision making. The desire is to remove some of the gut feeling that goes into trading with a more logical and less emotional process.

Analyzing the Results

Another advantage of plugging numbers into a spreadsheet s that one than then have a historical accounting of trades taken be they successful or not. Keeping ones historical data allows later analysis of that data in order to improve ones performance in the future.

For example, examining historical data to determine where the largest losses were and then deciding if they were because of failed stop exits could provide fruitful insight to changing trading behaviours. The same is true for wins.

Another exercise would be to look over the charts a month after the trade and examine other data points for exits (both success and fail exits). In doing this, one could speculate on what if scenarios such as, “What if I had maintained the position longer. Would it had continued to perform or would it have turned into a bust?”. The imagination can run wild with such scenarios and if you are like most, the amount of time available to ones research is limited to the minimum analysis of old trade data, but there is value in it. It has been said that if mankind doesn’t understand the mistakes of the past then we are doomed to repeat those mistakes in the future. Dwelling on the past is not the issue, but learning from it does have benefit. The game of trading is a lonely game. In today’s world it is, for the most part, a game of solitaire where individuals from all walks of life stare endlessly at flickering screens while moving piles of money around. One has to show the motivation to sharpen their game as no one else will. As we all know, if one is not on top of your game, at least in this game, one doesn’t last long.

Summary

Always calculate your risk to reward ratio prior to making a trade. Refuse potential trades unless the risk to reward ratio is 1:2, that is for every dollar risk, there is a potential for two dollars in return. By calculating your risk to reward for every trade you will ignore marginal trades and you will identify your exit points before taking a trade. Recognize that you want to understand your exit criteria … at the beginning of the trade, not sometime later. Once you are comfortable with simple risk to reward measurements and are identifying support and resistance zones reasonably accurately, you can consider increasing the complexity of your formula to consider other variables such as time and confidence. Lastly, keep your data points and analyze your successes and failures over time in order to hone your trading strategy.

Article written by Technical Analysis Today – www.tatoday.com