TO THE HOME GAMER

I have been trading stocks and options since 2005. I have tried many sorts of trading stratagies. I have won lots of money and lost lots of money, but I have stayed in the game and intend to continue. I have learned many things; some of which I would like to share with you here.

You will find the most useful thing is learning about stocks and markets, not how much money you have. The stock market is so popular, people may think it is the only market. There are many markets all over the world. We are interested in the American stock market. In the stock market, a company's worth is divided into shares and those shares become more or less valuable over time. Major public companies will offer their shares through a stock exchange. There are two major exchanges in the United States: the NASDAQ and the New York Stock Exchange. These two exchanges together, along with many other less notable exchanges, are known as 'the stock market.' When you trade from home, you trade shares from either exchange the same way, regardless of where the shares are listed. Your broker (Ameritrade, Etrade, etc.) takes care of the details. Stock exchanges are privately founded companies regulated by the government's Securities and Exchange Commission. The market supercedes the stock. If the market is moving quickly in one direction, up or down, all stocks will move in that direction. The three major exchanges and major indecies move together. There are exceptions here, but these work as general rules.

Every stock has a personality and moves in a certain way. When you are familiar with many stocks, you see more opportunities. Let your interest wander here. Learn about and follow those stocks you hate and the stocks you love, but don't let your emotions cloud your judgement. It is good to be familiar with companies in different types of businesses for the purpose of diversification, but don't force yourself to learn about companies in which you have little interest. If you search hard enough, you will find many interesting stocks. Look for great strength and great weakness. I have found Yahoo! Finance, Bloomberg and The Wall Street Journal Online the most useful. Learn about stocks and markets the way you want to learn them, not the way somebody else tells you to learn. Keep it fun. Learn through experience; it is the only teacher. I have found actually being in the market a great catylist for my studying. It's not going to pay your way at first.

Another very useful thing is keeping a calm head. Never panic into or out of a position. Make rational decisions. The stock market can be a scary place. It can knock the calmest heads off balance. When you put money in, everybody else is trying to get that money. It is every person for themselves. It all comes down to your decision; nobody else's. Many people are so turned off by these facts that they do not participate. I see these facts as facts of life not contained to the stock market. These facts are not to be feared. Fear is opposed to truth. Only when you act with truth will you make money. Do not convince yourself of anything. Things change all the time and you should change with them. Try to see the current truth. If you do not want to be constantly reminded of the cold, hard realities of life, maybe you should not trade stocks.

I trade stock options, not stocks. Options are based on individual stocks. Options are more complex than stocks. Stocks just go up and down and the current share price is what 1 share is worth. Everything about options is affected by the most fundamental feature of an option, which is that an option is a right to buy or sell a stock at a certain price. If a stock is now at 80 and I have the option to buy 100 shares at 50, you can see how that would be valuable. I could turn around and sell those 100 shares for 80 and make a $3000 profit. In this case, the option to buy would be worth $3000. Stock options are sold in 'contracts.' 1 contract gives you the right to buy or sell 100 shares. The option price quotes you will see are given in per share prices. For our example, this option would be quoted at $30. 'Call' options are for when you are betting on a stock to go up. These options are the ones that give you the right to buy at a given price. 'Put' options are for when you are betting a stock will go down. They give you the right to sell a stock at a certain price. The price at which you are given the right to buy or sell is called the 'strike price.' Depending upon what the current share price of the stock is, options are called 'in the money,' or 'out of the money.' When you speak of call options, any option with a strike price lower than the current share price is called 'in the money.' Any option with a strike price higher than the current share price is called 'out of the money.' The reverse is true for put options. All options expire on their 'expiration date.' On this date, which is always the third Friday of the month, the option becomes void. Technically, options expire on the third Saturday, but on that day the market is closed so the last day you can do anything about it is the third Friday. When you buy or sell a stock with an option, it is called 'exercising' options. There is no need to do this. I never exercise options. It takes a lot of capital. Over time, options become more or less valuable and you may simply sell the option. On a superficial level, options trade very much like stocks. You buy them and they become more or less valuable, then you can sell them and be in cash again. Options are usually a lot more volatile than stocks. You can both make and loose more money. Options routinely become worthless whereas a stock retains more value. If an option's expiration date rolls around and that option is not in the money, it is totally worthless because only in the money options can be exercised. Spreads and broker fees are more significant with options as well. I am not telling first time traders to trade options. I suggest you start with stocks. Stocks are easy to understand. Options are more complex, but if you understand them, it will enhance your appreciation of the game.

The stock market is a fascinating thing. It has taught me so much. May I be so blessed as to follow it's teachings. The stock market is there for you to use, so use it to the fullest. If you are right, you win money. If you are wrong, you can learn. These days during market hours you can see stocks move on the Internet the same as they move on the floor of the stock exchange. You can make a momentum buy from San Francisco and the trade will be executed in about 5 seconds in New York. There are 2 cable television channels whose sole purpose is to cover the stock market and they provide live coverage from the New York Stock Exchange every market day all day. Everybody now has access to the vast majority of pertinent information. The Federal government mandates that all company information be disseminated to everybody at the same time via the Internet. The playing field is now level. You can get the information and you can execute the trade. I recommend a high speed Internet connection.

Picks: (as of Oct. 19, 2008) AAPL, GS, TM, SPWRA, CZZ, ISRG, ABB, UPS & INTX

TEACHINGS

-Always trade with the market in mind. First know the market, then the stock.

-Never be afraid to take a profit or cut a loss.

-Be patient.

-Learn to live fully invested in the market. Try not to worry about it too much.

-Play the market, don't let the market play you.

-Get up at 6:30 if it concerns you. It's part of the job.

-Have no preconceptions about the market. The market is to be followed not lead.

-Concentrate on the stock and market factors, not how much money you have won or lost.

-If you aren't sure, stay in cash (or go to church).

-Buy what you can see.

-Trade with faith and conviction or don't trade at all.

-Act with love and respect and your path will always be clear.

-I am not a day trader. I am a swing trader.

-After moves, stocks often establish trading ranges. Let the stock establish the range and buy at the bottom or sell at the top.

-Never panic in or out of anything. Let the market create the opportunities. This is where patience comes in. Think, "Do I have anywhere to go?" rather than, "I need to find somewhere to go." If you follow many stocks, you will see plenty more opportunities.

-Let it take a lot for you to take a position. Don't buy on whims.

-Portfolios rely on proportionality. Balance the bullish, bearish and cash. It is a constant process. The most difficult part of trading is gauging your level of conviction, then buying or selling accordingly.

-Never let the price of a stock shake your conviction. Open your long positions at the time of most doubt. Close them at the time of most exaltation.

-Change positions as seldom as possible because you have to make up the spread every time you do. But also know what really makes or breaks your money is not spreads but stock movements.

-Do not want to crush the competition. Win for your own self.

-Stocks are like the most unruly bunch of children and you are the yard duty teacher. A trader's job is to find peace and prosperity there.

-The market is an ever changing question. A trader's job is to find the answer.

-Operate on what you know, not what might be.

-Trading stocks is like a bull riding competition. If your grip is weak, you will be thrown.

-Do not act on any one person's word. Rely on consensus and your own judgement.

-Cursed is the man who wants what he doesn't have. Don't try to get rich quick.

-Trading is like a martial art. Your job as a trader is to enjoy the fight.

-Do the thing that makes you beg for the market open every day for the rest of your life.

-Up is not necessarily good and down is not necessarily bad. In fact, they are equal.

-All stocks go to zero, it's only a matter of what they do in the meantime.

-Buy more puts on options expiration morning if the world has not ended already.

-Trading or investing is not gambling. It is a sport. It is surmising a situation and acting well accordingly. The less homework you do, the more it is like gambling.

-Do not act on something you don't understand. Wait until you see what's really going on before you act.