If we learned only one thing from last year, it is that Wall Street will stop at nothing when it comes to making their money. To make sure they get paid every single last penny to be had, they will borrow, beg, experiment and misrepresent while putting your money at risk to make more for themselves.
We, the taxpayer and individual investor, have simply become the means of Wall Street’s ticket to easy street, and are viewed as nothing more than instruments in its get-rich-quick schemes.
Usually, we look to the government to be the regulatory agency protecting us. However, last year Wall Street and its institutions seemed to get, if not the government’s stamp of approval, at the least, its acquiescence to stoop to new lows in a relentless and unadulterated quest for fortune.
Wall Street tried old and new experiments with investor and taxpayer money. As with any series of experiments, there were failures. Do the institutions that experimented in reckless behavior shoulder the blame and responsibility in the aftermath? Hell, no — you do!
Government bailouts use your money, either directly through taxpayer dollars or indirectly by the government printing more money, creating inflated prices and causing a lower standard of living that will affect us both now and in the future.
Take Charge of Your Financial Future in 2010
While we are making sacrifice after sacrifice, Wall Street insists on getting paid obscene bonuses, and the government allows them to. Despite elected officials promising change, nothing ever changes.
The only real way we can affect change in the way we live is to take control of our own financial destiny, to take investment matters into our own hands — and it should start with managing our own money. That should be everyone’s New Year’s resolution!
Your first step is education. You must get educated in the proper way to manage your own money. There is a lot to lose and this is something that you should take very, very seriously.
The money we are referring to is money that you and your family will depend on for your future financial stability and security, so this is not playtime. This is money that you have already worked hard to earn and accumulate. Investing it means putting it at risk. You can lose this invested money, as Wall Street has shown us so efficiently. So, it is necessary that you learn how to invest properly to minimize that risk.
Here is what I suggest as your curriculum for your “be your own money manager” degree.
Step 1: Master the Basics
Market Mechanics
The first step is to get an understanding of the mechanism for the financial markets, particularly in the products you wish to trade.
It would also benefit you greatly to learn about the different stock and options exchanges and how they operate. Additionally, you should explore the technology available to you from the different exchanges.
It’s also important to get a sense of who the players are at the exchanges … market-makers, brokers, institutions and any others playing a role in the mechanism of that exchange.
>
Rules and Regulations
Not only should you learn about the players and their roles, but also about the rules and regulations that govern the actions of these players — and the rules that govern you as well. Remember, not all rules are there to restrict your actions; some are actually there to protect you, so it is important to know all of them.
By knowing the rules and regulations, you will not only gain valuable information on what you can’t do, but also how you can do things.
As far as regulations go, do understand that you are working with several jurisdictions. As far as what you are allowed to do, the final say rests with the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC). Both are government organizations, with the SEC governing equity and equity-related securities, while the CFTC governs futures and commodities. There is some overlap, so you should know the exact government institution that has jurisdiction over the specific securities you are trading.
Picking the Right Broker
From there, your broker has some say over what you can do and can’t do. The SEC and the CFTC set a line in the sand that you can step right up to but cannot cross. Your broker will or will not allow you to get right up to the line or not. Different brokers will have different in-house rules. Be aware that, even though the SEC or the CFTC will allow you to do something, you might find that your broker says no.
If you are curious as to why, it is due to many potential different reasons. Your broker may not have the technology in place to allow you to go up to SEC and/or FTCF guidelines. You see this often in options markets under “margin requirements.” Your brokerage might not let you obtain the full margin leeway that the SEC now offers because it does not have the proper margin software.
Instead of spending some money to get the proper software, some brokers would just rather margin you at the older, higher rates … better for them, but worse for you. (Take our quiz to see if your brokerage is right for you.)
Additionally, your broker might not have the talent and experience necessary to “oversee” your investing and trading activity. If your broker does not understand your particular type of activity, they will not let you do it regardless of what the SEC/CFTC says.
With the advent of new products — options, futures, currencies, ETFs, etc. — and undoubtedly more to come, many brokers just don’t keep up. I would guess that only 1 broker in 20 knows anything about options, and only 1 in 50 really knows options. (Learn 7 Reasons You Need a Broker Who Specializes in Options.)
With all of the people to whom I have taught options in the past five years (well into the hundreds), I have not had a single one come back to me and tell me that their broker knows more about options than they do now. I have had countless students tell me that they now know more about options than their brokers. So, make sure you know your broker and what he knows about your planned investment choices.
If a broker does not seem” in the know” about what you want to do, then go get one who does! (Get 5 Tips for Moving Your Brokerage Account.)
>
After you have learned about your product, the mechanism surrounding the trading of it, and the rules and regulations governing it, you are ready to take the next step in your education.
Step 2: How to Find Out if a Company/Sector is Hot or Not
Technical Analysis
You now need to find out what to invest in … and when. In other words, you need to learn how to find and identify opportunities. In order to do that, you need to learn a couple of specific skills. The first is technical analysis.
Technical analysis is the study of historic pricing patterns of an asset to determine tendencies that can be used to determine probable future movements.
Although it’s not an exact science and definitely not close to perfect, technical analysis does give you a better percentage chance of guesstimating the potential direction and speed of movement of an asset.
There are about 300 different, acknowledged forms of technical analysis. Most experts use a proprietary mix of about five or six of the 30 most-used types of technical analysis when looking for trading/investing opportunities.
Like a lot of things in the investment market, there is no one, set, perfect form of technical analysis. But there are several good ones and, from these, you can amass several that fit you and your style.
In this way, you can customize your own proprietary blend that fits your goals and comfort zone. There is none better than any other, just some that are better for you. However, always make sure that, whichever styles of technical analysis you use, they are fractal, can be used across all asset classes, and are forward-predicting, not lagging.
Fundamental Analysis
The second way of determining and identifying opportunities is fundamental analysis. Fundamental analysis is the study of the economic strength and stability of a company, an industry and even an entire economy.
Although I do not use fundamental analysis heavily, I do tend to use it upfront to give me ideas about which companies and industries could be hot and those that might not. I use it to rate different companies in a single industry. I also like to look at it from a macro view through the overall economy.
You’ll find that fundamental analysis is a great help when it comes to understanding what is going on in the economy, a specific industry and an individual security.
A full working knowledge of fundamental analysis, combined with technical analysis, is a very, very powerful tool.
Step 3: Use Options for Bigger, Faster Results
The final piece of the puzzle is options.
Among other things, options afford the investor safety, protection and properly executed leverage. Making money is one thing, but keeping it is another … and investors must do both.
First, only options allow you to perfectly protect yourself from loss. Second, options allow you to acquire a similar position to an underlying position at a much lower cost.
There are many advantages to using options when properly trained in their functionality, strengths and weaknesses.
I know this all sounds like a lot to know. But, in my experience with individual investors, with a few hours a week on a very consistent basis, most see very good results between 12 and 18 months.
Now I am not talking about dedicating all day, every day to educating yourself on the markets. Instead, I am talking about five days for an hour or so a day, tops!
Those who give more tend to see very positive results faster. Those who can’t spend five hours a week simply take a little longer to start getting the results they want.
Once you commit to educating yourself to become a more successful investor, you put yourself leaps and bounds ahead of other investors who only invest their money but no time in learning how to make more.
Well, that is about it in terms of what you need to do. If you start now and follow my guidelines, you won’t need to hear me pontificate about the need to control your own investments in 2011. You will be well on your way.
So get started right now on your 2010 New Year’s resolution to become your own money manager and seize control of your financial future.
The Options Trader’s Guide to Technical Analysis
In his latest report, learn how John Lansing leverages the power of technical analysis to identify the short window when a trade is set to go straight up or down. Get your FREE copy here!
