If you have any questions pertaining to the alert that went out on March 7th, 2009, please post them to this section so I will be able to help you.

Thanks,

AJ Monte CMT

Chief Market Strategist

The Market Guys, Inc.

Q&A from The Market Guys Webinar dated 021209

Joanne B. asks:

Q: Do I always want to issue a stop order when i purchase a stock?

A: The Market Guys philosophy for trading is to protect, protect and then potect again. The decision to get out of a bad position should be made even before the trade is entered into the market. We strongly suggest that traders use sell stops for any equity position held, especially in today’s highly volatile conditions.

Debie M. asks

Q: How do you make “trading” work including commissions and taxes, i.e., always having short-term transactions?

A: We make money in the market by putting our money in the direction of the money flow. In other words, money moving into a stock generally pushes the price of that stock up. We can easily see this in a price chart, so when we put our money in a stock that is going up in price there is a greater chance for us to profit in such a stock. After the stock has gone up in price we then look for signs of money moving out of the stock. This would be displayed on a price chart that displays a “pivot point” to the downside. Once we see weakness in the price we sell out of our positions and move to cash. Of course there is more to it than what I have just explained but the basics are simple. Buy when others are buying then sell when the sellers begin to push the price down.

David W. asks:

Q: What does a new trader do to analyze stocks and what does he need to know to figure out what it all means.

A: This question comes together with the question Debbie just asked. Our primary tools for analyzing stocks are price charts. Think of them as weather vanes of the financial markets that give us the direction of the money flow. The biggest mistake people make is when they try to buy low and sell high. The better way to look at the market is to look for stocks that are strong and buy them as they are going up with the intention of selling them higher. The “buy low sell high” can get you into real trouble in a bear market because when you buy in a falling market you increase your chance of losing on your trade or investment. Learn what support and resistance means to a trader and use these concepts to increase your odds for profiting. This is what The Market Guys talk about most in our seminars, webinars and radio programs. It’s essential that you learn these concepts before getting into the market otherwise you could be putting yourself at risk while trying to profit in the market.

Melissa N. asks:

Q: what are options?

A: Equity Options are contracts that are traded on most exchanges allowing the buyers of the option contracts to control a stock at a certain price. There are two types of option contracts, which are calls and puts. Buyers of call options lock in a buy price for a limited amount of time for a particular stock and buyers of puts lock in a sell price for a limited time. If you were to buy a call or a put you would have to pay what’s called a “Premium” to the person selling the call or put to you. It would be best to approach the world of options the same way you would approach learning a new language. Learn a word or a phase at a time and as you digest these concepts you will become more fluent in the” language” and over time you will understand many of the strategies used to trade options. We have produced a video for you through E*Trade Financial entitled Options for Beginners. Click on the link below and you will have a better idea of how options work.

https://us.etrade.com/e/t/jumppage/viewjumppage?PageName=trading_education_videos&SC=JGTMWEB

A:  We often trade in the last 15 min of the day. So if we see the pivot point holding, we will trade *that* day rather than waiting for the next trading session.  This assumes that the signal is one that doesn’t require confirmation.  An example would be a bullish engulfing pattern.  A doji is an example of a candle that does require confirmation from the next trading session.

Q:  In today’s climate and with so many stocks well below there 50 and 200 day moving averages, what can you take from the charts to give you confidence in future picks?  – Lee

A:  Well, for starters, you could include bear trading strategies such as put buying and short selling to profit from market downturns.  Then you would actually be searching for stocks that are below the 50 SMA and 200 SMA.  Beyond that, you can find short term buying opportunities and use the moving averages as profit targets as opposed to support levels.  Further, the candle patterns and role reversals that we identify are just as valid in downtrending stocks as they are in uptrending stocks. 

Q: Can you short sell and trade options in an IRA account?  – Ed

A:  Short sell – no.  But you have many options strategies available to you, including some that have similar profit scenarios as short selling.  All you need to do is submit an IRA Options Upgrade request to your E*Trade rep and you can begin trading options in your retirement account.

Q: So many 401K and retirement IRA’s do not permit individuals to invest directly into stocks other than the stock of the company which offers the plan. Most of these investments are limited to funds within certain selected mutual fund families. How do you advise clients on how to appropriately manage risk when limited to these investments?  – Brenda

A:  First, consider your overall portfolio.  In addition to your company plan, be sure to balance across your other savings.  Having done that, you need to do the best you can with the limited investments in your company plan.  Consider having a core of index funds and money market funds.  Index funds will follow the market and give you diversification with low expense.  In these volatile times, money market funds are good to temper the falling and volatile markets.  Don’t get carried away with many funds and switching too often – that usually results overall under-performance.  Finally, be sure your other investments balance the limitations of your company plan.  If you have a high balance in retirement index funds, don’t add more in your other accounts.

A:  You can trade for a living but you must be prepared to treat it like a real business.  You can’t just step in and start pulling cash out of the market.  You’ll have a period of learning where you will likely lose money. You also must have enough funds to keep you from trading scared – that is, feeling like you cannot lose any money.  When that happens, you will be much more prone to avoiding losses by letting them ride.  The best bet is to start trading on the side, while you have another income source.  Then you can make the switch when you’re confident in your ability to continue full-time.

Q: : Can you buy a put if you don’t own the stock and pocket difference if option is in the money at expiration? - J.H.

A:  You sure can!  You don’t need to own the underlying stock to trade options.  What you’re referring to is a long put trade which is similar to shorting the stock.  In both trades, you profit when the stock price drops.  You have to be careful about losing time value, though.  Consider subscribing to The Options Oracle to help you decide which option is the right one for your trade.

Q: If you sell to OPEN a PUT and you don’t want it to be a naked put, would you first buy the underlying stock or would you first short the underlying stock?  – D.D.

A:  Selling a put obligates you to buy the stock.  Therefore, in order to not be uncovered or naked, you would need to have the full amount of cash required to make the purchase in your account.  This is known as a cash secured put.  Shorting the stock does not hedge a short put position.  If the stock price rises, the short put will expire worthless but you continue to lose from the short stock position.