The Option Investor Newsletter Thursday 12-05-2002 Copyright 2002, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Play of the Day: AIG - PUT Traders Corner: Fundamental Trading for the Intellectually Challenged Traders Corner: Wave patterns to trends – using “Elliott Wave” analysis; part 1 Futures Corner: Spread Trading Options 101: Just Do It! (Apologies to Nike for use of their slogan.) ********************* PLAY OF THE DAY - PUT ********************* AIG - American Intl. $61.15 -1.46 (-4.00 for the week) Company Description: AIG is the world's leading U.S.-based international insurance and financial services organization, the largest underwriter of commercial and industrial insurance in the United States, and among the top-ranked U.S. life insurers. Its member companies write a wide range of general insurance and life insurance products for commercial, institutional and individual customers through a variety of distribution channels in approximately 130 countries and jurisdictions throughout the world. AIG's global businesses also include financial services, retirement savings and asset management. AIG's financial services businesses include aircraft leasing, financial products, trading and market making, and consumer finance. (source: company press release) Why We Like It: "Sell the news" has been the mantra for insurance investors following President Bush's signing of the Terrorism Insurance bill. The legislation was largely seen as a boon for providers of property and casualty policies - so much so that some pundits criticized it as a handout to the large insurance companies. But while stocks within the sector moved higher ahead of the bill's passage, investors have had a distinct sell-side bias ever since. The IUX.X insurance index has dropped to the lower end of its multi-week trading range and is now threatening to fall below the 50-dma at 259. On a similar note, AIG is in danger of breaking to relative lows. The technical picture worsened considerably today after shares fell below the 50-dma ($62.10) and triggered a triple-bottom sell signal on the point-and-figure chart. With a loss of 2.3%, shares showed relative weakness versus both the Dow Jones and IUX.X. The descending oscillators don't lend much credence to the idea that AIG will rebound anytime soon. Bears, however, will point out that the stock is resting just above bullish p-n-f support at $61.00, which also provided support during a pullback on November 1st. Additional support lurks at $60.00, but we won't expect the bulls to put up much of a fight at this level if the IUX is breaking to new lows. In terms of downside potential, AIG has a large "fast-move" region below $60.00. Conservative traders can target a move under $60 to initiate short entry, which will break both daily and p-n-f support. Alternative entry would be on a bounce to resistance under $65. We'll be looking for shares to retrace the rapid gains from early-October and retest the $52.00 level. Shorter-term traders could target a move to $55. Our stop will be located at $65.51, slightly above the 200-dma. Those who aren't willing to harbor as much risk could use a stop just above Tuesday's high of $63.71. BUY PUT DEC-65*AIG-XM OI= 6802 at $4.50 SL=2.25 BUY PUT DEC-60 AIG-XL OI= 6352 at $1.65 SL=0.80 Average Daily Volume = 6.45 mil ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** TRADERS CORNER ************** Fundamental Trading for the Intellectually Challenged By Mike Parnos, Investing With Attitude Today, my dear CPTI students, we’re going to examine a whole new kind of analysis – fundamental analysis. To fully understand the concept, let’s first take a closer look at the word “fundamental.” Three simple syllables, that mean: a charity providing money for the intellectually challenged. FUND – A – MENTAL. Jerry Lewis is even thinking of having a telethon to aid investors who trade on news. There are some aspects of a company’s books and public information that are worth a look – the P/E comes in handy when comparing it to a growth rate or other stocks in a sector. Insider trading and short interest can give you some insight as well. Hell, when there’s nothing good on my 400 TV channels, I’ve been known to listen to company conference calls. It’s laughable to hear those CEOs stroking the analysts and shareholders – answering questions they like and providing doubletalk for the ones they don’t. At the Couch Potato Trading Institute we don’t gamble. We are conservative. We want to book everyone else’s bets because the casinos win most of the time and the retail investor is wrong most of the time. It doesn’t get much simpler than that. Let’s Get Silly Here is a perfect example of “fund-a-mental” analysis. A story came out in the Wall Street Journal in September 10th. It was a front-page story touting the benefits of Silly Putty. Apparently, it’s not just for children anymore. Adults are buying Silly Putty in 50 and 100-pound quantities. According to the article, heavy putty users say a “chunky handful, massaged and stretched and squeezed, is the perfect workplace stress reliever.” Apparently, bouncing it off the walls and sculpting everything from animal characters to human body parts are among its most popular office uses. I suppose it’s better for the Silly Putty to bounce off the walls instead of the executives. Silly Putty costs about $7.50/lb. in 50-pound quantities and is manufactured by Dow Corning. Remember Dow Corning? It used to be a stock, but trades no more. But this is great publicity. If this “nugget” had come out on a stock that still trades, the retail news junkies would have raced to phone their brokers to throw their hard earned pesos into XYZ stock, because they’re certain that XYZ would go through the roof. Silly Putty might stick to the wall, but believe me, it will never make it to the roof. One of my clients, bless his heart, has owned a certain biotech stock since last May. He bought 3,000 shares of it in the $40s. Today it’s under $15. I started working with him recently and suggested that he dump the stock. Remember, I’m suggesting this to a genius who has managed to turn $120,000+ into less than $45,000. “Oh, absolutely not,” he bristled. “The stock is coming back.” “In this lifetime?” I asked sarcastically (is there any other way?). “What makes you think so?” “I just read an article in the Wall Street Journal about the new drugs they’re coming out with,” he responded. “They’re going to make a fortune!” “Well, I don’t want to rain on your parade,” I said, “but, do you think they printed more than one copy of the Wall Street Journal that day? “Sure,” he said. “Do you think you’re privy to any proprietary information?” “Of course not,” he said. “Well, take your head out from where the sun don’t shine. What you know, everybody else knows!” I explained. “With all this glorious news, the stock is still trading under $15. The news is already built into the stock price.” “But the new drugs . . .” he insisted. “The stock isn’t going anywhere real soon,” I continued. The conversation continued for a while. What will happen? Who knows?” You can lead a horse to water, but . . . I hope that one of this company’s new drugs is a cure for “stupid.” Then, I’d even invest in that company. Until then, I better go out and buy my client 50-pounds of Silly Putty. Maybe that will keep him from turning his $45,000 into $10,000. No more itchy trading fingers. It will give him another option of something to do with his hands so he won’t go blind or lose more money. ___________________________________________________________ A Salve For Itchy Trading Fingers We teach CPTI students to not have an itchy trading finger. Why do people have to trade every day? If you want action, go to Vegas or Atlantic City, yank on a slot-machine-handle and go through a few rolls of quarters. Maybe that will get it out of your system. We, however, can make plenty of money without risking the farm. And we’re not going to bet on a horse because it has the best- dressed jockey – not if we want to end up in the winner’s circle. ____________________________________________________________ Do You Want Some Advice? I get emails every day from readers asking what I think of one stock or another. They heard something on CNBC or read something that says . . . yada, yada, yada. Those readers just want confirmation or approval to buy a put or to buy a call on the stock. They won’t get that from me. You want to impress me? Pick an index (or a stock if you must), give me your prognosis, select a strategy that you think would best take advantage of that scenario. Send it to me and I’ll critique it for you – step by step. We use strategies. Strategy is defined as “a plan of action intended to accomplish a specific goal.” A “plan of action” is more than reading IBD and hitting the “buy” button. ____________________________________________________________ CPTI Portfolio Update – As of Thursday’s Close. BBH Iron Condor – Currently trading at $88.05 We want BBH to finish the December option cycle anywhere between $80 and $95. We’re still looking good – right in the middle of the range. TTWO Short Strangle – Currently trading at $28.87. We want TTWO to finish the December option cycle anywhere between $22.50 and $35.00. Looking good! We’re about halfway between the strikes. IMCL Covered Call – Currently trading at $13.11. We want IMCL to finish the December option cycle over $10 so it will be called away. Looking good! We had a 5-point cushion, but IMCL has retraced a little. We still have a nice cushion with only two weeks to go. QQQ ITM Strangle – Currently trading at $26.20. Went as high as $28.75 recently. The QQQs finally made its predicted 3-point move – and then some – it turned out to be a $4.25 move. CPTI students, who were bullish and put on the $23/$25 strangle, could have sold the $23 call for $5.90 earlier this week. The original total strangle position cost only $4.35. The maximum profit here, so far, could have been $1.55. Plus, you now own the $25 put free and clear with 2+ weeks to go. Today, the QQQs traded as low as $26.13 and finished just off the low. The $25 put could have been sold for $.55. CPTI students, who were slightly bearish and put on the $24/$26 strangle could have recently sold the $24 call for $4.60. That would have put $.25 of profit in their pocket and own the $26 put at no cost with 2+ weeks to go. Today the market continued down (QQQs dipped to $26.13) and we could have sold the Dec. $26 put for $.90. We’re still looking for the market to hopefully continue down for a few more days. Hold on if you choose or, if you’ve been paying attention, you could have closed your trade and taken in substantial profits. We’ve worked hard (ha ha) and waited patiently for these profits. Don’t jeopardize them. If you decide to hold on, keep close stops. You gotta’ love it! Ain’t it sweet when things work out (at least so far)? -- and we haven’t had to budge from the couch. ____________________________________________________________ Happy trading! Remember the CPTI credo: May our remote batteries and self-discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Your questions and comments are always welcome. mparnos@OptionInvestor.com ************** TRADERS CORNER ************** Wave patterns to trends – using “Elliott Wave” analysis; part 1 By Leigh Stevens lstevens@OptionInvestor.com OK, I’m going to bite the bullet and write a bit about Elliott Wave patterns and theory. Nothing gets viewers more confused than to drop a bit about the wave pattern of a stock or index. On the other hand, no topic is surer to get me some e-mails on this subject (e.g.: “you’re an idiot, Stevens” or “the correct wave count of the chart you showed is actually ......”). First - why the confusion? Well, wave patterns, as in “Elliott waves”, are not discussed generally except by “practitioners” of this arcane art and it appears that only the “initiates” understand what the heck they (the practitioners) are talking about or think they do. TOO BAD cause it’s a nifty tool to have in your technical toolbox. AND, its not all that complicated, but a “language” is involved and a different way of “seeing” trends unfold so it takes a little bit of explaining and demonstrating. AND, not all patterns take on any obvious wave structure – I go for wave analysis as another technical tool WHEN I see certain obvious such patterns unfolding. Under such circumstances the theory is uncanny in predicting the unfolding trend – which, no doubt, it why the theory has many die hard adherents. I preface this Trader’s Column on Elliott wave concepts by saying that I am NOT a “true believer” (in wave analysis). I will use anything that works in predicting an unfolding market trend, even if that indicator, pattern or theory doesn’t “work” all the time or at least obviously so. Stochastics don’t “work” (i.e., they lack predictive value) all the time, nor does seeing an apparent double top always signal a downside trend reversal – however, such tools and ideas work very well enough often enough as an aid to trading the trend that they are part of my “checklist” in trading and trend analysis; e.g., what, if anything is the chart pattern, indicators or wave analysis telling me? FIRST however, let me digress a moment and follow up on my Trader’s Corner article of two weeks ago and revisit an updated chart. In my column about the On Balance Volume (OBV) indicator – you can see this at: http://www.OptionInvestor.com/traderscorner/112102_2.asp I used an example of how OBV, like all indicators, should be considered to be a secondary consideration for the trend and that first and foremost is the study of price patterns. In the example I used, that of Abbott Labs’ (ABT) chart below, OBV was trending higher – although this indicator had flattened out in the later days shown – but that this bullish consideration was “trumped” by the bearish rising wedge pattern. I indicated back a couple of weeks ago on ABT that “price action is far from bullish in that the stock has come right up to its down trendline. Moreover, the bearish rising wedge pattern would suggest that this rally is most likely going to fail” Of potential interest is to revisit the updated chart of ABT and show you what happened next to the stock, given the bearish formation that had formed - Astute observers of other aspects of the chart above – beside the obvious downside reversal in ABT – will note the minor bear flag that formed over the few day period after ABT broke below its up trendline and that the top of that flag was at resistance suggested by a return to the previously broken up trendline (support “becomes” resistance). To mention again: more on the wedge reversal pattern is at an earlier Trader’s Corner article at – http://www.OptionInvestor.com/traderscorner/082902_2.asp CONINUING ON ..... SOMETHING NEW: WAVE PATTERNS – I’ve been struck over the years by the tendency to make market analysis more complex than is necessary, perhaps due to the tendency to make some specialized analysis techniques an ideology out of methodology. This is especially true of Elliott wave theory and analysis. If you are like me you may come to agree, if you “try out” the principles, that the wave theory of Ralph N. Elliott is something that can lead to some profitable trading decisions. A check of the price pattern will then come to include noticing the basic wave structure WHEN it is apparent or obvious. I emphasize this last point because I am not an Elliott wave “practitioner” so to speak. That is, I have not joined the company of fellow investors and traders with a “technical” bent, that invest large amounts of time interpreting and re-interpreting the wave structure in detail at all times. As I explain in my book, Ralph Nelson Elliott, referred to as “R.N.” Elliott (1871-1948), was not quite a contemporary of Dow (Charles Dow was born in 1851 and only lived to 1902), but he was influenced by Charles Dow’s theories on the behavior of the stock market. R.N. Elliott was not well-known as a hugely successful stock investor and speculator as far as I know. However, his “Elliott wave principle” is better known today than it ever was in Elliott’s lifetime, which is not to say that he didn’t attract significant notice among some important market advisors and professional money managers at the time he wrote on the market. Elliott had an accounting background and worked with the railroads, including in Central America where he contracted a severe illness in the late-‘20s. Due to this he spent his next several years bed-ridden but which gave his active mind much time to turn to a study of the stock market – hey, it’s like when you’re home sick and you have CNBC on all the time. Well maybe its not like that. The build up and crash of the U.S. market over the 1920’s was something that Elliott knew well as he was an avid follower of the market. By 1934 and after, Elliott’s own comprehensive theory of market behavior became defined and his predictions at times began to amaze certain market professionals in terms of their forecasting accuracy. By 1945 Elliott was operating his investment advisory service from a Wall Street office – “The Wave Principle” based on his ideas was also written. Distilling what you need to remember about Elliott wave analysis is the idea (as with Dow) of their being three components to a trend. You will hear about “5” waves, but that is because a bull market is said to consist of 3 up waves or movements, interspaced by 2 corrective downswings. The waves up are 3 “impulse waves”, which is another way of saying that they are the three upswings to a bull trend. In a bear market, there are 3 part to a bear market trend - one of them is a corrective upswing. This (bear market) pattern is “down-up-down” in terms of the direction of the trend. The important thing to remember is that frequently, but not all the time, the wave pattern is clearly and easily seen – when it IS clearly and easily seen, you can better forecast how the trend is going to unfold. For example, the first impulse wave in a bull market trend is the weakest, but after the corrective downswing following it concludes, the next impulse wave – wave three by counting the up move as “wave 1” and corrective downswing as “wave 2” – is the “MONEY” wave. That is, it’s the middle or SECOND rally, upswing or “wave” in a bull trend that is often the most powerful. This insight might suggest, for example, going in more heavily in terms of trading index calls, on this second upswing. An example of a “3-wave” is the 1998-1999 Nasdaq advance which was a the strongest part of the 1990’s tech stock bull market – this of course is also an example of a mega-bull market, but within even a moderate bull market there will tend to be one stronger and longer advance that carries farther than the other secondary up trends. The duration and intensity of this second advance (wave 3) will often be the period of the biggest gains, in the most compressed time frame, of the entire bull market. In a downtrend also, it is the second downswing that tends to carry the farthest. Accurate depiction of where one is in an unfolding price pattern that is cyclical in nature – having distinct components that comprise a beginning, middle and END – is extremely valuable as you can see more accurately what phase we’re in. Fellow Market Technician Association member (and past president), Robert Prechter is the best-known of the market advisors and analysts that have made wave analysis popular from the 1980’s into the early new millennium. As Bob has pointed out, like the other principles of technical analysis, it is not always necessary to understand WHY a technique works, as long as you can employ the technique to a profitable end. Hey, it works for me! In a major bull market trend it is possible to count 3 up waves and 2 corrective down waves, for a total of 5 waves. Waves 1, 3 and 5 will be advances and are called “impulse” waves, with waves 2 and 4 being counter-trend moves or “corrective waves”. The totality of the component moves of a bull market may be referred to as 5 waves “up”. After the 5 waves of a major bull trend, a major bear trend, consists of 3 waves “down” --- however, each component move are not ALL down, only that they are part of the overall down or bear cycle. The 3 components together of such a bear market trend “correct” or are counter-trend to the bull market that preceded it. These waves are given the letters A, B and C, in capital letters, to distinguish between waves 1-5 that came before. The “A” and “C” waves are the declines, with the intervening “B” wave a corrective upswing. Note that the number or letter designation is put at the TOP of or at the completion of that wave - I am using an example of a stock here, but it could as easily be an index and the whole market. The entire bull market/bear market sequence is a 5-wave up, followed by an A-B-C down. Elliott talked about alternation in wave duration and strength. While wave three is typically longer and stronger than wave one, if it is of about equal length, wave 5 will tend to be the more prolonged advance. Conversely, major bear market down wave “A” is usually of shorter duration, but if prolonged he would look for the down move “C” to be relatively shorter. As with other technical analysis techniques, a surge in average volume will help identify the strongest part of an overall move. Longer term charts, such as weekly are favored over daily charts in terms of seeing and defining the dominant wave patterns. The above charts are examples of bull and bear market trends that unfold with the “classic” (Elliott) wave structure of a 5 up-wave bull market and a 3 down-wave bear trend. There are countertrend moves always. As a discussion of the countertrend moves adds another layer of complexity, I will save this for part 2 – maybe there will be a “part 3” also! Looks simple so far and this is the first impression I want to convey of wave theory and patterns. From California: surf’s up and the waves are good! While there’ll be a quiz later (kidding!) for now just enjoy the waves. ************** FUTURES CORNER ************** Spread Trading By John Seckinger jseckinger@OptionInvestor.com When spreading one futures contract against the other, it really comes down to which one has a relative advantage. Thanks to Point and Figure Bullish Percentages, we can greatly increase our odds for getting to that profitable answer. If not already familiar with the definition of a spread, it simply is the simultaneous purchase and sale of the same or similar commodity in the same or different contract month. Spread trading is usually considered to be a lower risk strategy than an outright long or short futures position, and therefore margin requirements are usually much less than being outright long or short futures. This is because the gain on the long position would likely offset the loss of the short position, and vice-versa. One side of the spread typically hedges the other, therefore the lower margin requirements. Keep in mind that spreads are not guaranteed to be less risky; there is risk of loss in all trading. This really is important to remember. The key to spread trading is following the relationship, or difference, between the contracts, without having to pick a market direction. However, in this example, there is definitely a bearish bias, and that is fine since one contract is still used for hedging purposes. The contracts in question are the Nasdaq 100 and the S&P 500 Index. According to the Chicago Mercantile Exchange’s site, www.cme.com, the initial and maintenance requirement for spreading the ES and NQ contact is 2,250 and 1,800 for a speculator, respectively; $1,800 for both maintenance and initial if a hedger or member. Remember: One point move in the ES contract is $50, while a point rise in the NQ is $20; therefore, a trader using a 1:1 relationship is not exactly hedged perfectly. One way of looking at spread trading is via Point and Figure analysis and the relationship between supply and demand. It seems as though it would just make sense to look at both contracts (NDX and SPX) and simply buy the one that has a better looking chart; however, when spread trading, the advisable approach is to compare risk. This is done via Bullish Percent analysis. Let us start with a P&F chart of the NDX, currently much higher than its bullish trend line (blue); however, the contract still appears to be trending up nicely. Just looking at this chart, it seems to make sense to go long, right? Well, not exactly. Note: As a good rule-of-thumb, after a bullish signal is given (830, ending much higher at 950 and defining the objective), the first sell signal is actually a good buying opportunity. Point & Figure Chart of NDX It is this next chart that really tells the whole story; The bullish percent index ($BPNDX). Think of the BP as a football field, with 30 and 70 as the beginning of the end zone on opposite sides of a playing (trading) field. Above 70, touchdown for bulls. But what does that mean? The Bullish Percent (BP) could go to 100, but the odds are that it will not. Since it is all about the odds, there is a good likelihood that this BP will continue to reverse and pick up speed to the downside and back to the center of the field (50, or 50-yard line). The word “continue” is emphasized because there already is some internal weakness going on (beginning of a correction phase to the far right hand side, defined by a series of O’s). Ok, now we need to compare this to the SPX. Nasdaq 100 Bullish Percent Index ($BPNDX) A Point and Figure Chart of the S&P 500 Index is almost the reverse of the NDX. The P&F chart has actually issued a sell signal at 910 and gives a bearish objective of 865. However, note how close the SPX is to its upward trend line. Not as much risk, right? I expect bids to enter the index between the 895 to 900 level, and traders could use a move below 885 area as a sign of more weakness to follow and a change to re-evaluate the relationship. Also, a move back towards 925 (or 927 level) should signal the relative strength we expect. Point & Figure Chart of SPX The following chart, when compared to $BPNDX, allows a spread trader the tools to make a decision between the two contracts. Could we have done this exercise without a chart of the NDX and SPX, and just used BP’s? Absolutely, and that is part of this exercise. Looking at the chart below, notice that there isn’t a column of O’s on the far right hand side of the chart yet? Exactly, relative strength. Moreover, the BP isn’t near such lofty levels as the NDX, even though that can be relative as well. S&P 500 Bullish Percent Index ($BPSPX) It seems so easy, yet there are some subtle caveats involved; looking primarily at BP charts being one. I highly recommend going to www.stockcharts.com and using their FREE charting service. Like on Thursday, when the ES and NQ settled basically on top of highly watched pivotal levels, using spreads can be extremely effective. Slippage is usually less; however, traders sometimes get concerned about how to exit a spread. As a rule- of-thumb, start with a very small position and leg into a larger one if it becomes profitable. If it is not profitable, exit based on financial loss. Remember, there can be greater commission costs incurred since there is a good chance a larger position will be put on (since using two contracts instead of one). Good Luck. Questions are welcomed, John Seckinger jseckinger@OptionInvestor.com *********** OPTIONS 101 *********** Just Do It! (Apologies to Nike for use of their slogan.) Buzz Lynn buzz@OptionInvestor.com Oh Boy - Back from a surreal Thanksgiving vacation! It contained enough excitement and interesting observations about the "Glitterati" (famous people or celebrities who spend a lot of money) to fill a Michener novel. If you've never been, Hawaii is God's country (most of it anyway), no matter which island you visit. It's also a great place to people watch and to see how others spend their money. Aside from the top-notch golf courses, beautiful undersea life encountered while scuba diving or snorkeling, you'll encounter even more reality-defying stuff if you visit places where the rich and famous hang out. That one dude flying in on his personal Boeing 757 was a dead giveaway that I might have stumbled onto what will be known as the second Babylon in a few thousand years. The astro-dollars spent on extravagance are beyond belief. Can you imagine an ocean front lot - yes, LOT; no sticks, rocks, or plumbing - selling for $9.5 million? Or how about combining three already expensive lots, which possess ocean views but lack ocean frontage, for a total of $21 million? One of technology's elites strolled into town and recently did just that. And he's not the only one. Actresses and rock stars round out the balance of equally unbelievable stories. If not in the stock market, the bubble is alive and well in resort real estate. I guess it's pocket change to these folks. Frankly, I could have stayed there another week. . .no wait, another month. . .OK, another year. But then I'd have to figure out a way to pay the bill for all the decadence, which was plenty - even after just one week. Aside from the occasional bout of motion sickness caused by unfortunately rough seas during a few boat outings, it was, as I noted above, surreal. Neat! But this isn't a book report on Buzz's Thanksgiving with the family. We all know the feeling where the vacation was so great that all we do upon our return is daydream about the great time we had. It's tough to get back into the swing of things; we can't get the lead out; work takes a distant second. In fact, as you might imagine from your own experience of taking in surreal surroundings for almost a week, trading isn't going to be at the top of anyone's list of things on which to refocus. Personally, snapping out of "aloha time" has been one of the most difficult things I've had to do this week. Focus has been out the window. Focus? What's that? Oh yeah, FOCUS! Ahem, yes, focus. That is the key. Don't get me wrong. I like to play catch-up on the financial news by reading the business section of the newspaper, or take in a few business television segments, and even catch the 2-minute business report on local radio. Heck, we can even open up the charts. That's easy. But when it comes to the business of trading, my head is not there. It's somewhere else. I'll find anything else to do but face the business of trading. Yes, sometimes we decompress a bit too much. Right now I'm suffering from excess vacation, or more correctly stated, vacation excess. Now for that "focus" part. Sure, we can do it. We can focus on it just like we focused on our golf swing. But it's hard work, and we fudge along evading the reality that we just don't want to. "Just don't want to" is the real reason we are stuck. Let's examine that for a minute by revisiting an old theme. Ready? Here it is: People do things to derive pleasure or avoid pain. That was pretty simple. And if you acknowledge that all of our actions boil down to those simple motivators, it becomes clear that "we just don't want to" is really avoiding something that we perceive to be painful in some way. Step back for a minute. Is making money by trading really painful? Heck no! When we are in the zone, we love it. And executed correctly, we can't get enough. That's the pleasure. But I'll be the first to admit that I'll avoid the pain first and seek the pleasure second. Avoiding takes less effort. But how do we recapture the "want to" when we are currently trying to avoid the perceived pain of the actions that get us the results we want? The answer is - and get this if nothing else from the article - focus on the GOAL. Somewhere along the line (probably Anthony Robbins), I learned that, "If you have a big enough "why", the "how" will take care of itself." By that I mean that if we focus on our GOALS with special emphasis on WHY those goals are important, we internalize it and attach feeling to it. We think of things like the happiness on the kid's face when they meet Mickey or Minnie Mouse for the first time, not that we bought a trip to Disneyland. We think of the euphoria we'd feel pressing on the accelerator of our new "super car", not that we just bought a new Porsche. We think of the security we feel by having a year's worth of living expenses in the bank, come thick or thin. By internalizing it, we attach good feelings to certain outcomes that we desire. It 's all about attaching the good feelings to the goals, which creates the desire. Desire is the result of attaching good felling to the big enough "WHY". Did you get that? An internalized, big enough "WHY" creates the desire to move forward. And so it is with trading too. Just today, I spent an intense amount of time focusing on the "why" and reattaching good feelings to trading. For me, the big enough "why" is my nearly nine-year-old daughter. I'm going off on a tangent here to try to explain the goal so that it provides a good roadmap for the thinking/feeling that goes into my actions. This my deal - only an example. It doesn't have to be yours, but everyone needs to have a have a "why" in some way. It's like this - when I was 30 years old and still deeply entrenched in the commercial real estate business, an extremely successful retailer-client of mine for whom I had a lot of respect told me that, "It will never matter how big your house is, where you vacation, what kind of car you drive, or how much money is in your bank account [I naturally frowned, for that was my reason for existence back then]. What matters is that five generations and beyond from now, the world will be a better place because you instilled good character and values in your kids, as you hope they will to theirs, and so on. While you pass along your genes, your character now determines [if only in a small way] the fate of the world generations from now. Be the father that you would want for yourself". Uh, OK, that was pretty heavy. But I got his message loud and clear. While it seemed superficial at first, I dwelled on that - unintentionally for the first two days, I might add - every hour of ever day (and night) for what must have been two weeks. But it sunk in and permeated every aspect of my thinking. For what were primal reasons, which some would consider arrogant - preserving of the species and all that - I began to act as though some small, but perhaps important part of the future, rested on my shoulders. No, I wasn't going to save the world. But I sure as heck would do my part to make sure that I did everything in my power to raise a daughter and nurture any ability SHE might have to change the world with hope that she would, in turn, do the same, and so on. Talk about wearing it on my sleeve! How is that related to trading? Pretty simple for me actually. She is the "why" for most of my big decisions, including the decision to trade. So in comparison, the distraction of my daydreams on Thanksgiving vacation is really trivial when I remind myself of WHY I trade. I do it so I can spend time with my daughter, which I hope will help to create a few "Kodak moments" for us to remember along the way, and to make the world slightly better many years form now. Suddenly, trading is no longer something to be avoided, but to be embraced! "Just do it!" is a whole lot easier. No longer painful, trading is a pleasure for all the good it can bring to the world! At least that's how I twist it in my mind to get re- motivated. How's that for a 180-degree turn? Sure, it's a stupid brain trick, but it works! Also, while I haven't spent any time on it today, a focus on the big enough "why" can almost instantly get you through any bouts of avoiding seemingly difficult tasks. If we can focus on our goals and attach enough meaning to them - meaning that we give them - we can change any behavior within ourselves that we want. With a big enough "why", working through any challenge isn't tough at all. As for trading, it isn't about getting all our facts down before we enter a trade. It's about the frame of mind from which we re- enter the trading world that determines our outcome. Until next time, make a great week for yourselves! Buzz ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. 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