Back testing is the simple process of creating a sampling based on certain criteria and seeing what the outcome would have been. We are looking to see what may have the highest probability of happening.

For example some individuals would like to see whether entering a trade at any time after the first hour of trading would yield any different results. Others would like to back test different stop loss results based on other types of criteria.

Back testing makes sense since we are shaving off years of trading with unreliable and inconsistent results preventing us from losing monies.

Back testing is designed to create a measure of confidence so that we can approach trading with measurable results.

How do we Begin a Back Test?

The very first think we need to identify is the time frame that we are seeking to be in a trade.

For example a person who is looking to be in a trade for several months does not need to look at a 30-minute bar and vice versa. The person who is looking to be in a trade from one day to the next will not need to look at a monthly chart.

So it all begins with a time frame.

A huge part of this process is the ability to analyze data so you need to keep good records.

Create a back testing journal.

What we are looking for are patterns in something happening more often than not and these patterns are not necessarily technical in nature.

For example I used to enter my trades between 9:30AM EST to 10:00AM EST since it was convenient for me to enter the trades at that time since I usually took a coffee break from work at that time only to find at the end of the day I usually paid the highest price that option went for that day.

What I did was realize was that there are times in the US when certain key economic data (that relates to housing starts, Consumer Confidence, etc.) can take place at 10:00AM EST and these events can impact our position.

So these days I prefer to place trades after 10:30AM EST.

A good idea is to locate all of the FOMC, Non-farm payroll and Earnings dates so that we can see that if a trade did not work out it may have been impacted by anyone of these key events.

In that case you would have either stayed out or created a hedged position prior to the event and have been negatively impacted.

The Back Testing Tools

We need to have access to reliable price quotes and price charts. The key word here is “reliable.”

We need to realize that when we use a free tool the data may not be totally accurate so it would be something that may be useful to use if direction is what we are seeking.

However when we are seeking precise price quotes then we will need to invest in a tool with accurate quotes.

When it comes to option trading it is virtually impossible to recreate the exact option quote since there are many.

There are option quotes for the every month and there are option quotes for every strike price.

Then there is the Earnings environment which can cause the volatility to go hay wire however it does not make itself manifest in a historical chart.

So we will need to make concessions here and go with the “average implied volatility.”

At least we will have something we can measure.

We will continue with the art of back testing in the next post… stay tuned!

The coming weeks will provide some outstanding trading opportunities (with no FOMC or Non Farm Payroll event on the horizon) and we have the biggest names in the market also announcing their earnings.

For our Smart Traders, you can take advantage of Earnings using the Weeklies and Investing After Earnings opportunities.

We are also fast approaching the month of May as well (remember the “sell in May and go away” theory) so if there is going to be a bit of a market pullback or correction as many market forecasters have been predicting for quite some time it may begin sooner than later and I will look to be hedged!

Meanwhile, I would also like to share with you my Jan 2013 graduates from Singapore, Malaysia and Indonesia

Singapore Jan 2013 Graduates

Malaysia Jan 2013 Graduates

Indonesia Jan 2013 Graduates

I am now in Singapore and will be commencing our 4-day April training soon. You can find out more at http://www.Wealth-Mentors.com.

May everyone have a safe, pleasant and prosperous trading week!

Another year and another set of doom and gloom forecasts. Of course this was the case for 2012.

There was one individual who indicated that a Bear market has three legs: the initial drop, followed by a rally (which he calls a Bear Trap) and followed by another bigger drop.

I am not sure that has been my experience (maybe my timeframe is just not that broad).

In any event with all that negative energy over the past year you can see that the SPY rallied from a low of 122.50 to a high of 145.

Our Retirement Portfolio was Bullish and Members have generated fabulous results all at a time when the general consensus was Bearish.

I am hoping that all of the Smart Traders can see the wisdom of knowing that price rules the market!

I do believe however that the coming year may create a potential for future price drops. Just realize that if that is the case then the opportunity for the generation of wealth is huge!

The only way to get an indication of future potential price movements is by keeping your eye on the $VXO. As the VXO goes down the stock market goes up and as the VXO goes up the market can drop.

Keep Your Eye on the $VXO
• When the $VXO is in the teens the market volatility is low and we can see low IV’s on stocks.
• When the $VXO is in the 20’s – 30’s the market volatility is high the IV’s on stocks begin to rise.
• When the $VXO is in 40+ we have a market volatility that is now at extremes

When I began trading I was told that when the VXO is low it is time to go (sell bullish positions) and when it is high it is time to buy. Nothing could be further from the truth!

June 2006-February 2007
The VXO hits a low of 9 in December 2006 and the market continued its uptrend into July 2007. So selling our positions and going short would have had negative consequences on our portfolio.

March 2008 – November 2008
The markets behaved just fine from July 2007 to August 2008 (a whole year). The VXO was between 10 and 38. By September 2008 the VXO was above 40%. Now it is time for us as Smart Traders to realize that something pretty big to the downside may be coming. In September 2008 the SPY drops from 115 to 67.50 in just 3 short months!

May 2009 – June 2010
In May 2009 the VXO was back in the 30% range so things started to look quite bullish for the markets. The SPY rallied from $80 all the way to $113 all the while the VXO dropping to 17%.

Feb 2011 to October 2011
The VXO hit a high of 40% on 5 August (probably coinciding with a NFP event) and the following week the SPY went into a slide that last into October 2011. The VXO has not hit those high levels since October 2011 and the SPY has rallied from 110 to yesterday’s high of 152.

Protecting our Portfolios

Remember that when the VXO rises the IV on stocks can also rise so that low IV styles of trading can be challenging and I would only do so if I was hedged.

As an alternative “Investing After Earnings” trading method (which our Smart Traders know how to trade under low IV environments) can also be a high IV style of trading.

Where to Invest in 2013?

If the VXO gets into the 30%+ range we need to be prepared to capitalize on some fairly large moves that only come around once every few years.

Gold: I do like the gold mining ETF so here is a chart (wait until there is a close above the 200dma and the VXO is rising).

SQQQ – This is a Bearish ETF on the Nasdaq. It is a Proshare (moves more than the actual index).

FAS – This is a banking ETF so best to be bullish when the VXO is low and bearish when it is high.

Here is a newspaper writeup that was featured in Hong Kong – The Standard.

Being a millionaire nowadays is no longer a dream. With the ample pool of investment opportunities around, you can easily grow your wealth to millions in just a short time if you can fathom some good strategies.

The good news is that you, as a  beginner, do not have to travel on a mysterious expedition in quest of a secret recipe. Investment is, according to Mirriam MacWilliams, an asset instrument that you can train yourself to be proficient in.

For those who do not yet know  about this distinguished figure, MacWilliams is a self-made millionaire trader from Florida who turned US$10K to over US$2 million during the nineties in just two years’ time. Having coached thousands of students in the USA, Hong Kong, Singapore, Malaysia and Indonesia after giving up her career at its height, MacWilliams is now the Chief Trainer of Wealth Mentors.

A compelling speaker herself, MacWilliams enjoys life as a female role model for any individuals who aspire to seek financial independence. This charismatic lady openly disclosed, with her own personal experiences, why she wholeheartedly embraces the opportunities to teach others how to make money in the market at the present moment.

“I attended seminars all over the country for two years. During the course of time, I invested an enormous amount of capital, in excess of US$32,000, without getting the results as promised. I then stopped that process and took time out to reflect. I finally harnessed the skills to make money on my own,” MacWilliams frankly recalled. “Upon the mastery of this investment science, I thought it would be a good idea if other investors did not need to go though the same painful process as I did, in order to achieve the results they are seeking. Therefore, I am here today to share with all who dream to generate capital in the market.”

So, what is the secret?

“I must confess that trading has no secrets at all. If there is any secret, it would be a feasible trading plan along with certain money management principles or techniques. You have to know the right time to buy a position and the right time to exit,” said MacWilliams. “The only secret to generate enormous and unequivocal returns in the market place with a small amount of capital is that you no longer buy shares, but options and derivatives. You leverage your capital whether the stock goes up or down. The amount of money you put at risk is just fractional and minimal. I would say this is something that average retail investors do not know.”

Investment education is truly about the understanding of how the market works. When is the right time to place your trade? And when might not be the time to do so? MacWilliams advised: “Identify who you are as a person and who you are as a trader; decide the windows of time that you are going to make your investments, and work within the parameters of your investment strategy.”

Like many experts, MacWilliams robustly concurs that smart investment can be learned – “get proper training, start with small investment capital, draw the line in the sand, practice first, then decide if it’s for you or not. Remember, instead of relying on others, you have your own responsibility to earn, grow and protect your capital.”

There has been quite a bit of discussion in Washington regarding the “fiscal cliff” and what that may mean.

First the fiscal cliff is merely a term that has been designated to a slew of tax cuts that were implemented during the presidency of George W. Bush which are set to expire at the end of the year.

Why is this issue such a big deal?

Remember that the US budget needs to get balanced and there are two ways of doing this: cut government spending (which can impact the elderly, veterans, schools, etc.) or raise taxes.

Our current President and the Democratic party regard these tax cuts necessary for the average personal however they are currently unwilling to extend them to the wealthy.

The Republican’s disagree saying the tax cuts should be extended to all and the way to balance the budget is for the government to cut spending.

That is where both parties currently stand. It’s a sticky subject since the individuals in the position to vote are elected officials who have a responsibility to the people who elected them.

I myself will continue to trade as I always do (based on price and time) and we shall see what transpires over the next few weeks.

Our markets are closed for Thanksgiving today since it is a US banking Holiday. The trend as we know is usually to the upside ahead of the event. If it doesn’t happen prior to the event then it usually happens right after any long weekend. All of this bullishness has certainly spilled over into this week.

Early next month, we have the Nonfarm Payroll (NFP) event on Friday. Remember this event announces it data at 8:30AM EST when the markets are closed. How can Economic news events impact our trading and how do we protect our positions?

Economic News and Trading

Economic news takes place almost every day at different times. Most of these news events don’t really impact our Investing, Trend or short term trades. However they would impact any Intra Day styles of trading. News events that most impact our markets are Federal Open Market Committee (FOMC) meetings and Nonfarm payroll (NFP). There are other news events that take place at 10:00AM EST.

I don’t really care about these events however if it is my day of exit for either Investing or ST trading and I see that the position opens positive then I do like to exit prior to 10:00AM EST just in case there is some type of news event that causes my position to go against me. Maybe the pull back is not by much however still best to exit prior to the event on that exit day.

FOMC and NFP

Both of these news events have different reasons for being volatile. FOMC deals with interest rates in the US. The lower the interest rates, the better for companies to borrow and grow their businesses, the better for the overall economy.

NFP is announced the first Friday of each month at 8:30AM EST (when the market is closed). It deals with the number of individuals who may be losing their jobs in the US. The US economy is currently fueled 2/3 by the consumer. It creates a domino effect. More individuals losing jobs, less purchasing power, the lower the Earnings on stocks, the lower the stock market goes.

The NFP is not an event I look at all the time. When I began trading I never looked at this number. However it takes center stage when the unemployment rate begins to climb and that economic domino effect may begin to take effect.

Protecting Our Positions

If I am in a longer style of trading (Investing or Trend Strategy) then I will make sure my stop loss is at my entry price (following the adjustment of my stop loss rules). I will then hold my position through these events knowing that in the event I am stopped then I have either captured my profits or at least did not lose. I do not hold any short term trade (those where I plan to be in for 3-4 days) through these events at all.

If I am not in either an Investing or Trend trade then I will not open a position a few days before these events since I am not giving my position any time to go through, adjust my stop loss and go my way. I don’t want to enter a trade, have any of these two events happen just two days later only to then get stopped out.

Usually what happens is the professional traders sit out the day or are hedged in their positions so we are left with the floor traders. They can run the stops on the Put options and then run the stop on the Call options and everyone gets stopped out. So best to be stopped with a profit!

Happy thanksgiving and may everyone have a safe, pleasant, blessed and prosperous trading week!

Our Members have heard me say that Fear is probably the greatest impediment to succeeding as a trader. Fear comes in two forms: loss of capital or loss of a future potential gain. Since absence of fear is the key to succeeding then how do we conquer that one stumbling block?

I like to approach the market with what I consider to be a deep understanding, level of trust and confidence in both my trading strategy and my ability to succeed as a trader.

What can keep me from gaining that deep sense of trust and confidence?

I must say that what kept me from getting to the next trading level was my inability to approach the market without a bias. You probably knew that was coming – not reading anything stock market related either prior to taking a trade or after you are already in one.

If information offers you a choice that would reinforce your trade or information that does not reinforce your trade – which would you follow?

You would naturally gravitate to the information that supports your trading decision not realizing that price – the true indicator of what is happening in the market – may be telling you otherwise.

Other tools for building confidence and trust are:

• Prior to taking a trade decide whether you want to be right or want to make money (they are not the same)
• The market can’t take away from you what you don’t allow (always trade with protection and never trade with capital that you cannot afford to lose)
• Use the trading strategy that is suitable to your lifestyle and your trading style
• Know that the market has a rhythm (known as its volatility) and you need to consider the market’s volatility prior to approaching any trading style

What to Trade When and When Not to Trade What

It all starts with knowing what the current market environment is. How do we measure the market environment?

By knowing what the current volatility levels are. Volatility is a measure of movement. When we understand the market’s movement (rhythm) we can tailor our trading accordingly.

The lower the Implied Volatility (IV) on a stock, the smaller the movement, the smaller the movement and vice versa.

Trading Methods for When VXO is in the Teens – Low IV

I have written an earlier post about VXO so you might want to check it out.

Here are some of my favourite trading methods under different trading environments.

Investing – We are looking to be in the trade for a 3-week window of time targeting a 10% move. This method is ideal for low VXO market environment because with the IV’s low the only place they have within a 3-week window of time to go is up whereas when the IV’s are higher they can really fluctuate for the time frame that we will be in the trade.

Investing After Earnings – This method involves purchasing a Call and Put option with no bias in direction. It is not suitable for higher IV’s since we have time decay not one but two positions and this method requires that we be in the trade for 2-3 months.

SPY Cash Generator – We make money when SPY goes towards our direction or sideways… how cool is that!

Trend Method – Designed to capture the maximum move the stock will give us, without any particular time frame of exit.

Trading Methods for When VXO is in the 20’s – High IV

Short term methods – I’ve got about 5 different short term trading styles. These methods capitalize on a 5% movement with a time frame of 3-4 trading days.

Trend Method – As above

SPY Cash Generator – As above

Trading Methods for When VXO is in the 30’s+ – Extreme Volatility

SPY Cash Generator – As above

Fading – This method is designed to be an intra-day trade. The concept is that stocks will become too separated from their moving average and the trend is back down to that moving average.

Other Considerations

Always trade with a carefree state of mind which means that we will virtually trade first to ensure we understand: the concept of the strategy, the appropriate option, the proper money management technique and the mechanics of placing trades online. That is why it is a very good idea to keep good records.

Practice minimal monitoring of the position. If you need to check your SPY Cash Generator every single day you are monitoring it too much.

Instead practice monitoring yourself. How do you feel about your trade? Are you confident in your trading decision?

Remember that feeling positively about yourself attracts abundance that will naturally flow in your direction. So don’t forget to practice your Universal Laws of Prosperity!

May everyone have a safe, pleasant, blessed and prosperous trading week!

Here’s an article published in the Standard Newspapers. Hope you will be able to pick up some good resources:)

How to win your first gold medal in investment

While there may be no direct correlation between investment and sports, Mirriam MacWilliams, a self-made millionaire and a much admired trader, sees both as challenging ventures that bring remarkable levels of satisfaction to her adventurous spirit.

“Both scuba diving and trading in the market create a sense of challenge in me. My personality drives me to achieve the highest; I want to be good at what I do. Just as I do not do hundreds of sports, I only focus on options trading when it comes to investment,” said Mirriam.

Starting with initial capital of US$10,000, she grew it to over US$2,000,000 in less than two years in the stock market. In recent years, Mirriam has been dedicated to sharing her passion and success in the market with students all over the world.

Over the years, she has established herself as an investment guru. Today, thousands of people from the US, Singapore, Malaysia, Indonesia and Hong Kong have attended her seminars. Are you ready to win your first gold medal in investment?

To start with, more people have larger capacity to generate wealth through the market than with any other vehicle.

“If you consider the mechanics and logistics involved, you will understand that trading in the market can start with the smallest amount of money. Starting any other business, may demand a huge sum of capital for labour cost, insurance, office leasing, equipment, and so forth,” explained Mirriam. “Once you have mastered how the market works, you can start investing more and possibly earning more.”

There is a less-known tip, however, for both seasoned traders and beginner investors. The two key components that have to be mastered by investors are direction and timing.

“After choosing a particular stock, an investor should be able to identify its potential direction and time the entry. It is all about calculation and should not be a difficult thing to do,” Mirriam revealed.

“The magic rule is that when you start making money, you eliminate one of the two mentioned components; and the one to eliminate is direction. As long as you are trading options, you do not need to have a direction. Instead, you can position yourself to make money regardless if the market goes up or down.”

It sounds easy, but still there are many experts and financial institutions out there warning that trading options is not an easy task and in truth most people fail to succeed. To this, Mirriam agrees and she shares the little secret of why it doesn’t always work.

“Lots of individuals do not know that not all options are designed to be bought with the expectation of making money as the stock goes your way. For example, if you buy a particular option and it goes in your direction, you make money. Next time, you try to do the same but you fail to make money. That can happen. This is because there are two types of option player in the market.”

“We have to identify, before we take in the trade, which options are designed to make us money when they go our way, and which are not.”

“Besides, many people do not strategically position themselves to make money as the stocks go their way. It will be very difficult for a stock to move a lot in a specific window of time.”

“In order to strategically position yourself at the right option, you have to realise that the price you pay may not have a bearing on that decision.”

Tools suggested by the investment guru

There are quite a number of good free investment tools. Mirriam suggests the stock scouter tool in www.money.msn.com if an investor is to know the strength and weakness of certain stocks.

“They give you a number; 8, 9, and 10 on the stock scouter are strong stocks; investors can give serious consideration to investing in those stocks. If below those numbers, pass on. This website is a starting place in a nutshell, delivering a lot of information about the company in terms of management and more.”

Then the VXO Index is quoted as one of the preferred volatility indices, by Mirriam. “Remember, this is only a reference tool. This is something far from being a crystal ball. In the last 20 years or so, whenever the VXO drops below 13, the market experienced a drop off the cliff. It is necessary to be patient. Investors should wait until the VXO goes into 20+% towards the end of October.

Although options have been around for a long time, there is always something new of benefit to traders.

Mirriam recalled a time when she started trading, the options had strike prices with intervals at 10 dollars, for example US$310, US$320, US$330. For anyone who knows options, this is huge. Some options expired on a weekly basis; investors can trade them for a couple of days and  use them to protect their positions. These are the new things on the horizon in the world of options.

She recommends the website of www.cboe.com which includes news bulletins, periodicals, training tools, curriculum and more.

Wealth Mentors offer easy-to-follow, step-by-step, time-tested and proven trading strategies.

The follow-up supports make its course outstanding over other similar courses available in the market. If investors can at least master one trading style learned at the workshop and understand the key principle of money management, they are set to trade in the real-life market.

Here are my top 10 trading tips for investors… enjoy!

Keeping Your Money Safe

1. Trade What You Can Afford

“Never trade with your life capital.  Every single trade has an element of risk and you should be prepared to lose what you invest.  Only trade what you’re willing and able to lose.  And before exposing yourself to that risk, spend some time practicing so you know what to expect.”

2. Have an Exit Strategy

“You have to know when you are going to get out before you enter the trade.  The exit strategy of any trade is the determining factor of the outcome.  For me, I simply want the stock to make a ten percent move from my point of entry.  That’s very achievable, and that’s the strategy I teach now.”

 3. Have a Stop-Loss Order

“Even when you are trading within your means, you have to make sure you are protected.  Use a stop-loss order to preserve your capital.  A stop-loss order is a very simple thing.  It’s an automated order to buy or sell once the price reaches a point that you aren’t comfortable with, so you don’t keep losing money on your investment.”

 4. Know the Risk

“It’s very important to know how risky a trade is.  Once you know the risk, you know how much you want to risk.  That’s called money management, and money management in trading is everything.”

5. Be Pro-Active About Learning

“When I first started teaching, I met many people who had sustained losses on the stock market and so were interested in becoming educated about trading.  I think they were doing things backwards.  You first have to be educated, because an informed investor is a smart trader.  You don’t just put money on the line and hope for the best.”

Putting Your Money to Work

 1. It’s Always a Good Time to Trade

“People frequently ask me when is a good time to trade.  My answer is, it’s always a good time.  You just have to identify the direction the market is going, and trade in that direction.”

 2. Understand the Price

“When you trade stocks, what you are actually trading is their price.  Price is very much a determining factor in whether you can make money from a stock or not.  You have to understand how to read it before you can work with it.”

3. Understand the Share

“If you observe people like Warren Buffett, you will realize that they always invest in companies where the value of the share is backed by what the company produces.  There has to be a correlation between what the share is worth and what it does.”

4. Buy High, Sell Higher

“Don’t look for bargains.  When the price of shares goes down, it usually keeps going down.  And if the price is low to start with, it’s low for a good reason!  Instead, buy when the price is going up.”

 5. Be Pro-Active About Trading

“If you are used to trading stocks, you will find that it is very easy to just hold a stock and do nothing with it, because you feel that as long as you have it, you aren’t taking a loss.  But when you do that, you are not generating any cash flow from it.  Take action instead.”

I often get asked when is the right time to begin to trade live. I would love to share a really cool technique and it is called “creating a sampling.” What does that mean and how do I implement? Let’s review:

Creating a Sampling

To try to figure out where you want to be in the future regarding your trading results you need to know where you are presently. As you know trading results are never measured on a trade by trade basis. This is something that took me a while to accept.

When I began trading and took a trade and made money 2-3 times in row I was pleased. However when I had 1 losing trade I scrapped my whole trading plan trying to find out why that one trade did not work totally disregarding the 2-3 trades that had gone my way. I needed to accept that trading is not 100% accurate. It does not exist. Trading losses are a part of trading.

The key is to follow the money management techniques that we share at our live event (small losses with higher gain potentials) and begin creating a sampling which enables you to make you are ready to go live so let’s talk about creating a sampling:

• Choose a style of trading.
• Look to virtually trade at least 10 trades (you can even have a higher sampling base).
• Make sure they are trades that you would consider taking live (do not experiment by holding a trade through Earnings or Non Farm Payroll just to see what happens).
• After you complete your pre-determined number of virtual trades:
1. See what the ratio of wins versus losses was and
2. When you are satisfied with the ratio of wins versus losses then see what the overall return is versus capital invested. You want to make sure you have not succeeded in 8 out of 10 trades and the two losers wiped out the 8 successes (it can happen).

When you reach a win ratio you are pleased with (mine is roughly 77% of my trades are successes) and your return exceeds the losses, you can then consider trading live and you must start trading live in the same fashion that you virtually traded. For example if you virtually traded one contract and took $2,000 and now your account is $4,000 you will begin trading live with one contract.

With time I did realize that there are really one two reasons why trades go nuts and that could be either a major economic events like FOMC or Non Farm Payroll. Aside from that it could be something that I call “crazy” and “crazy” does not happen often.