Simple 8 and 34 System

Jimmy Gartman
Second Edition
c2013
 Contents
1. Acknowledgments......................................................................3

2. Introduction...............................................................................4

3. What Makes Trading As A Business So Exciting?...................5-6

4. Getting Started!..........................................................................7

5. Psychology of Trading.............................................................8-9

6. No Boss Around You............................................................10-11

7. Compare Earnings...............................................................12-13

8. Setting Up An Account........................................................14-15

9. What are Stocks?......................................................................16

10. What Are Options?..................................................................17

11. What Are Indicators?.........................................................18-20

12. Only 3 Hours Everyday............................................................21

13. My Monitors............................................................................22

14. Simple 8 and 34 System.....................................................23-28

15. Good Samples for You........................................................29-30

16. You Can Use Chart.............................................................31-32

17. I Use My Options Everyday......................................................33

18. Summary.................................................................................34

19. Glossary.............................................................................35-39

20. Bibliography............................................................................40

1
21. Your Notes...............................................................................41

2
 Acknowledgments
Thanks to Lucinda Ann Minnick who helped with editing and
correcting, thank you.

Also, a number of other people have helped in the process of

completing this book. Thank you all.

3
 Introduction
Back in 1968, I went to Gallaudet College. I realized I didn’t fit in
because I dreamed of adventures. I left college and traveled
around the USA. After traveling, when I started to work as a car-
penter, I tried to study the stocks and charts. I did not understand
them enough, so I stopped trying and continued to work on my job
for 15 years and other 20 years.

I started to work as carpenter for 15 years. The carpentry busi-

ness went downhill becasue of the “right to work” law. I changed
my career to a printing trade business. There, I was a desktop
operator for 20 years. That business, too, went downhill, and a lot
of employees were laid off. I made the decision to retire.

I started to think about stocks again. I bought books and attend-

ed many conventions. I have investing with stocks. I had tried the
“penny” stocks and “options”, but too risky.

Via on-line chats, my friends suggested Options that came from

the stock market. At first, I didn’t understand the Options system.
It took a long time to finally understand. It was so easy, and it’s a
lot less expensive to invest. But Options can lose fast or win fast.

In the old days, I gambled at casinos. I didn’t like them because

they give you 1% of your money back and they keep the 99%.
They always say, “only the lucky ones win”. I tried horse racing
and dog racing, but horses and dogs cannot be trusted. I often
picked the wrong ones, and they often lose. Again, “only the lucky
ones win”. I tried the lottery but it was always 1 to 1,000,000
odds. Ah, only the lucky one wins!”. The pyramid systems were
scams, for I tried those, too, and end up with nothing.

Anyway, let’s get back to Stocks and Options. I decided to write

the booklet for you. I want to help you learn the easy way and
understand more clearly, rather than reading other books that are
hard to understand!

I can think of no other business like this! Can you? Writing this
booklet, it gets me all excited, because I really want to help you.

4
What Makes Trading As A Business So Exciting?

Trading works well with uptrend or downtrend, no matter what.

It works well on Stocks and Options. You can look at and study all
the stocks and charts yourself.

What is more exciting than having the tools necessary to change

your dream into a reality?

In your dream, you have purchased the “Simple 8 and 34 System”

(to be discussed later on page 22). I know something about you.
I know that you are not completely satisfied with your current
earnings. Though you may be making enough money to get by, you
feel deep down that there is something more than what you are
doing. I know that you are willing to look, to learn and to try.

You are determined that you can change things for the better.
That desire to improve and the willingness to try is , my friend, to
take the first step. Though I cannot know the specifics of your own
dream for the future, but I can say for sure that you have not
achieved all that you can or should. It is now a matter of finding
the right way to get you where you want to go. The next step is to
get all the information needed. I will provide the information nec-
essary to establish your home based options trading business if
that is where you want to go. To develop your skills in investing
and trading, you will find practical information and tools within
these pages to help you.

You will begin by learning the basics of stock and option trading.
Next, you’ll learn how to double your money in the stock market
by using options from stocks. You’ll explore questions such as:
What are options? How do they work? How are options chosen?
You will learn how to control your negative emotions that can crip-
ple your plans for successful trading or investing.

I will walk you through the actual trades from choosing which
underlying stocks to consider, to knowing which option to buy and
when. We’ll explore the rules involved with knowing when and
how to sell for incredible profits. Finally, we’ll discuss money man-
agement, risk, and how much is enough to profit.

5
 Prior to studying and using investment techniques, you have to
first put in order the basics of personal finance and investing.
Though this booklet is not just intended to provide an in-depth dis-
cussion of investing basics, but I feel obligated to at least give you
a checklist of what you should do before making actual short term
trades. I suggest that you read as many times as you can to under-
stand better. A one-time reading is not enough.

You can attend many workshops and events, if there are any, in
your area and surf various websites to learn all you can. Also, re-
read my book. The more you learn and understand better, the
more you will love the Stocks and Options way, I believe.

6
 Getting Started!

1. A Computer
Any modern computer will do the job. Just a couple of years ago,
the speed of the processor and video card along with the amount
of RAM (random access moemory) were critical. These have been
virturally eliminated with computers of three years or newer. The
tasks that you will be asking your computer are web browsing and
creating graphic stock charts.
An improvement is that I have added to my computer system is
a second monitor. This certainly is not required but it is a conven-
ience. With two monitors, you can drag open windows to the sec-
ond monitor which allows you to view two screens at once. A chart
may be on one monitor while a quote screen is open on the other.
The dual monitor setup is an easy upgrade to accomplish. It
requires only the addition of a special video card for the second
monitor. Dual head video cards are available at many stores like
Best Buy.

2. Charting software
There is a software that collects daily price data for individual
stocks and indices, and it builds graphic representations of these
prices and volume movements over time. These pictures are called
charts. I personally use a program called TD Ameritrade,
http://www.tdameritrade.com. It provides the clearest and most
easily readable charts that I have ever seen. It is free to join. You
can put a small amount of money there to start from your bank
account. At the end of the day, I check graphic stock charts with
http://www.stockcharts.com. You can sign in for free. There are
many websites full of information on stocks. Just search and surf
through to educate yourself.

3. An Internet connection
Via the internet, you will do your trade research, study, interact
with other experienced traders. Visit http://www.stockplayson-
line.com. You can register there and it is free. You will love the
people to chat with because they are very nice and willing to help.

7
 Psychology of Trading
We come to a topic that is very important...

Novice traders may be disappointed by the results of their trad-

ing decisions for many reasons. Choosing good underlying stocks,
selecting correct options strike prices or expiration dates, and
using correct timing in executing the buy order or sell order are
each parts to the profitable trade. Getting any one of these com-
ponents wrong can have an unpleasant decision to your account
balance. (Cooper, page 17)

A clear decision making is mandatory to earning money as a trad-

er. A single overriding factor can affect each one of the aspects of
the successful trade. This factor is easily missed. Many traders do
overlook this critically important consideration. They cannot, how-
ever, overlook it for long. Others, who do recognize it, do not know
how to disentangle themselves from its facination until it is too
late. Too late because the longer it is ignored the harder it is to
see, even when you are nose to nose with its very presence.
(Cooper , page 17)

Your first entry teaches you this one important lesson. Without
an understanding of yourself, your chances of profitable trading
are limited. (Cooper, page 17)

I hope that introduction is sufficiently ominous to spark your

interest and command your undivided attention. If it is not, stop
right here and start this section over. When I began studying the
subject of stock market trading, it is that: “90% of trading success
is determined by mental and emotional control.” (Cooper, page
17)

You may look on and accept that successful traders are extraor-
dinarily brilliant, lucky, or otherwise possessed some rare gift
which assures them of success. I used to think that market traders
had to be smarter than me in order to win. Later I learned that
their extraordinary intelligence and analytical ability are generally
a barrier to what I am trying to learn and understand. (Cooper,
page 17)

8
 Some years ago I attended a convention in which a number of
famous traders were featured. The audience was made up of both
professional and novice traders. I am, by long practice, an observ-
er. I learned first by watching and listening. I sat through the new
information and applied it to gain my own experience and knowl-
edge. All I saw was this, discussion? Most of the traders talked
smart, thought smart, but acted dumb.” (Cooper, page 17)

These traders indeed had much to say on breaks and at lunch.

They were technically skilled with markets , but when it came to
the bottom line, “what are you up to this year?” That answer gave
way to cold reality, because most were not doing well at all. Later
as I played back in my mind, these converations including body
language, and facial expressions, it occurred to me that as brilliant
as many of these people were, they were also out of control. They
were not in control of their EMOTIONS! (Cooper, page 17)

Here is the lesson of my experience with the “big boys”: negative

emotions will always play a role in discouraging successful trad-
ing.

The three major negative emotions are:

1. The fear of missing the boat.

You listen to some stupid traders who tell you what best stock to
buy without checking the chart first.
“Listen is bad” (However, learn from their mistakes.)
2. The fear of accepting a loss.
You see your stock dropping and decide to keep it longer and hop-
ing that it will come back, but it continues there is dropping, or
attempting to add money to average it out, and it still drops.
“Greed is bad”
3. The fear of losing a profit.
You are paranoid to lose your money without believing the stock
will go up or down.
“Paranoid is bad”

Don’t let any negative issues get in your way.

Don’t try to use your important money for personal bills, food, etc.
to cover your trade. Find the money that you can “lose”, or stay as
a potato couch to watch TV or play games with no goals in mind.
It is up to you how you can begin to act or not to act.

9
 No Boss Around You
You are your own boss. You work at home with your pajamas on,
and a pair of rabbit slippers. And, of course, you have a cup of cof-
fee in your hand. Pardon me, I try to be funny and cool. It is a nice
job for you.

1. An overall thrill to enter stocks and options and get nice profits
from the right decisions and actions I make.

2. No employees.

3. No inventory of products.

4. No selling of products.

5. No billings.

6. No shipping and handling of products.

7. No advertising costs.

8. No offices to maintain.

9. No insurance costs.

10. You can work anywhere with your computer, and wherever an
internet connection is available.

11. You take time off anytime you want, and no pressure affecting
your personal life.

12. You don’t need to check in, ask permission, discuss with or
answer to anyone.

13. Very little time is required. I spend no more than 3 hours per
day in trading.

10
14. Very little money is needed to start this business. Think how
much money it takes to start up a business. It costs more to start
selling snow cones than it does to begin trading at home.

15. Finanical Freedom.

11
 Compare Earnings
401k is good for retirement. “Stable”
Bank savings are good but it takes a long time to grow. “Slow”
Stocks are good but slow in earnings. “Up and Down Income”
Options are best of all, easy and fast to make good profits most of
the times. “Fastest”

Let me explain these comparisons as follows:

1. Bank savings: you only get 1% or 1 1/2% interest while they

use your money for stocks and options. They earn more than you
do, did you know that? You can ask your bank manager if it is true.

2. Stocks are up and down. The amounts can kill you if they go
down.

3. Options are up and down. You can earn money when stock is up
or down in both ways. But you have to watch for deadlines! There
are expiration dates.

For examples listed below:

1. Bank savings - You deposit $100 dollars and only earn $1.00 in
a whole year. Nah!!!

2. Stocks - You buy $100 a share and it went up $1.00, your stock
worth is $101.00. If your stock goes down $1.00, your stock worh
is $99.00. You look at your stock going up and down for a long
time, you have to buy 100 shares, it will be better. As long as you
see stock hit bottom, then buy it and watch it grows til top.

3. Options - You buy $1.00 strike premium for one contract at

December Strike 250 call (see page 22) for $100. If your strike
premium go up 20 cents, it is worth $1.20. You earn $120 in a few
minutes or 30 minutes from one $100 contract. [Remember that
one contract equals 100 shares.] If you bought 10 contracts on the
same issue above, you will earn 200 dollars in
a few minutes. You can buy 1 or 5 or 10 or 20 or more contracts as
long as you have enough money. With one or more options every-
day, you can play and watch them go either up or down. When you

12
obey the 8 ma and 34 ma rules and follow them.

Remember to ignore the “weather” changes like the bad or crazy

news. Just follow your 8 and 34 trend.

It takes me 2 hours in the morning and one hour in the afternoon

before market closes at 3:30 pm CST. When you become experi-
enced, your time will be less.

I don’t like to show off that my system is working great but I want
you to be a better and successful trader.

I go with my family or do errands anytime. If you move to anoth-

er city or state, you can still have your “job” anywhere. If you and
your spouse are on vacation, you can check on how your stocks or
options are doing everyday.

Isn’t it great?

13
 Setting Up An Account
You may have noticed that setting up an account is not on the
getting started list. The reason for this is that I want you to list all
your trades on paper everyday before committing real money into
the market! Do you hear me? Do not run out and buy yourself
some options without learning the rules first and practicing them!

Good example is that you cannot drive a car without a license.

What would you do about the car? You have to practice driving
and study the manual for a driver’s test. Practice and patience are
keys to successful trading.

You can set up your account at “thinkorswim” under

http://www.tdameritrade.com. It has a virtual tour and you can
practice with paper (fake) money until you feel confident. It does-
n’t matter how long! I practiced for a long time until I felt strong
and confident enough to trade with real money.

Hear me real good!!! It is real, no scams, and you will thank me for
that.

See picture on next page.

14
www.tdameritrade.com/TOS

Look at the Green Arrows.

Paper Money for Practice!

15
 What are Stocks?
Stocks: You are part of owner on stock if you buy one share or
more. Nothing wrong if you can afford one share of stock. But you
are proud to own. Trade House is not required for you to buy lots.
You can hold it for long time if trending is good as following 20ma
steady. You can buy and sell. Good sample is if it is gaining 25
cents on one share, you pick good stock. I see between 5 dollars
to 50 dollars stocks that will gain 25 cents or more if they hit bot-
tom as 20 line of Slow Sto. If new news come, the stock will shoot
nice big than 25 cents. 50 dollars to 1,100 dollars stocks usually
gain more 1.00 dollar or more. It is depending on your budget.

Good Sample is: If you buy 100 shares of “SODA” at cost each
share is 40 dollars. Total is 4,000 dollars. You see SODA bottom of
20 line in Slow Sto. Hold one week as you see 80 line in Slow Sto,
it gains 3.00 dollars per share. It is gaining 300 dollars on 100
shares. It become 4,300 dollars. Job for 300 dollars as 10 hours a
week equal is 30 dollars per hour. Is it neat for easy job?

You can look the history of stockcharts as Slow Sto between 20

line and 80 line. It is important to see many times up and down in
6 months or one year. If you see one or nothing up or down, that
stock is not exciting to watch. I like to see many up and down as
20 line and 80 line in Slow Sto, then buy it.

All stocks must hit bottom of 20 line and hit top of 80 line of Slow
Sto. Then you grab to buy and sell. It is better than put your money
to save in your bank saving with 1 or 1.5% interest. You can fig-
ure the amount what you can earn.

Remember that Stock Charts will not tell you lie as you can see
how indicators are as proof.

Remember that following the rules in the right direction is a way

to go to gain experience and knowledge.

“The Trend is Your Friend”

16
 What are Options?
Call options: These are contracts that give the owner the right, but
not the obligation to buy shares of a stock at a specified price
(strike price) on or before the date of expiration. Call options are
used when you expect the price of the underlying stock to go up.
(Cooper, page 30) Call options = up

Put options: These are contracts that give the owner the right, but
not the obligation to sell a specified number of shares of a stock at
a specified price (strike price) on or before a specified date (expi-
ration date). Put options are used when you expect the price of the
underlying stock to go down. (Cooper, page 30) Put options =
down.

In a bull market where the broad market is going up, we will buy
and sell call options.

In a bear market, where the broad market is going down, we will

buy and sell put options.

Remember that following the rules in the right direction is a way

to go to gain experience and knowledge.

“The Trend is Your Friend”

17
 What are Indicators?
Moving Averages (ma) - Simple and Exponential - Chart overlays
that show the ‘average’ value over time. Simple Moving Averages
(SMAs) and Exponential Moving Averages (EMAs) are two of the
moving averages..

Moving averages smooth the price data to form a trend following

indicator. They do not predict price direction, but rather define the
current direction with a lag. Moving averages lag because they are
based on past prices. Despite this lag, moving averages help
smooth price action and filter out the noise. They also form the
building blocks for many other technical indicators and overlays,
such as Bollinger Bands, MACD and the McClellan Oscillator. The
two most popular types of moving averages are the Simple Moving
Average (SMA) and the Exponential Moving Average (EMA). These
moving averages can be used to identify the direction of the trend
or define potential support and resistance levels.

Relative Strength Index (RSI) - Shows how strongly a stock is

moving in its current direction.

Developed by J. Welles Wilder, the Relative Strength Index (RSI)

is a momentum oscillator that measures the speed and change of
price movements. RSI oscillates between zero and 100.
Traditionally, and according to Wilder, RSI is considered over-
bought when above 70 and oversold when below 30. Signals can
also be generated by looking for divergences, failure swings and
centerline crossovers. RSI can also be used to identify the general
trend.

MACD - A momentum oscillator based on the difference between

two EMAs (Exponential Moving Averages).

Developed by Gerald Appel in the late seventies, the Moving

Average Convergence-Divergence (MACD) indicator is one of the
simplest and most effective momentum indicators available. The
MACD turns two trend-following indicators, moving averages, into
a momentum oscillator by subtracting the longer moving average
from the shorter moving average. As a result, the MACD offers the
best of both worlds: trend following and momentum. The MACD

18
fluctuates above and below the zero line as the moving averages
converge, cross and diverge. Traders can look for signal line
crossovers, centerline crossovers and divergences to generate sig-
nals. Because the MACD is unbounded, it is not particularly useful
for identifying overbought and oversold levels.

Stochastic Oscillator - A momentum indicator that shows the loca-

tion of the close relative to the high-low range over a set number
of periods. (Slow, Fast, and Full)

There are three versions of the Stochastic Oscillator available on

ShoctCharts. The Fast Stochastic Oscillator is based on George
Lane's original formulas for %K and %D. %K is the fast version
that appears rather choppy. %D is the 3-day SMA of %K. In fact,
Lane used %D to generate buy or sell signals based on bullish and
bearish divergences. Lane asserts that a %D divergence is the
"only signal which will cause you to buy or sell." Because %D in
the Fast Stochastic Oscillator is used for signals, the Slow
Stochastic Oscillator was introduced to reflect this emphasis. The
Slow Stochastic Oscillator smooths %K with a 3-day SMA, which is
exactly what %D is in the Fast Stochastic Oscillator. Notice that
%K in the Slow Stochastic Oscillator equals %D in the Fast
Stochastic Oscillator

Delta - Options Delta - Definition (You will see in TOS)

Options Delta measures the sensitivity of an option’s price to a

change in the price of the underlying stock.

Options Delta - Introduction

In layman terms, delta is that options greek which tells you how much
money a stock option will rise or drop in value with a $1 rise or drop in
the underlying stock, which also translates to the amount of profit you
will make when the underlying stock rises. This means that the higher
the delta value a stock option has, the more it will rise with every $1 in
the underlying stock. Stock options with options delta of 0.7 is expect-
ed to rise $0.70 with a $1 rise in the underlying stock. Stock options
value is affected most by changes in the price of the underlying stock,
making delta value of stock options the single most important options
greeks to understand in options trading.

See picture on next page. The indicators are shown in green circles
on the charts.

19
www.stockcharts.com

Everyday, I use this in my stock charts all the time and at the
end of day, I check to see how the stocks go, then decide to buy
call or put options the next day.

Remember that www.stockcharts.com is free to use and study.

“What Are Indicators?”, published by Stock Charts

(www.stockcharts.com)

“The Trend is Your Friend”

20
 Only 3 hours Everyday
For the first time, you will be expected to take long hours to learn.
When you become familiar with scans, your time will be less and
less. Look for good stocks to scan at this free website
http://www.stockcharts.com. You can look at samples under
“Predefined Scans Results”, and find out whether or not the stocks
go up or down.

See picture with green circles.

www.stockcharts.com

21
 My Monitors

1st Monitor TOS

(thinkorswim)

2nd Monitor
stockcharts

22
 Simple 8 and 34 System

For Stocks and Options

UpTrend only
1. Check 8ma cross 34ma
2. Check RSI up
3. Check MACD up
4. Check Slow Sto up from 20 line bottom
5. Check .30 or better Delta for Call Options only
6. Check 100 OI (Open Interest) or better in Call Options only
7. Check if Futures (/ES, /NQ, /YM, and /TF) are nice and up
8. Buy Call only at Bid or Ask on Strike Premium one month
ahead or more in Options
9. Follow uptrend on 34ma until 8ma breaks down, then sell at
bid price

Suppose your stock is 150 dollars right now, you will look good
with delta (.30 or better) at 155 dollars in Strike Premium.

Remember that you see bid or ask, it means one contract. One
contract equals 100 shares. 10 contracts equal 1,000 shares, etc.
Suppose you see .25 on ask, it means 25 dollars for 1 contract to
buy call. If you want 10 contracts, it is 250 dollars to buy call,
etc.

When your call gains 20% or better, you can freeze your price to
sell later and let the price have room to play up or down. If it is
still gaining, modify your price to move up and freeze again. You
will not lose all of your money. It can play itself for a few min-
utes or a day or a week or a month, etc; depending on your 20ma
uptrend.

REGN Chart - see picture on page 25 Tip:

You can use 4ma as
REGN TOS chart - see picture on page 26
an early bird to
notice. If 4ma cross
8ma, it is a good sign
for the stock coming
out real nice soon.
shshsh!!!

23
DownTrend only
1. Check 34ma cross 8ma
2. Check RSI down
3. Check MACD down
4. Check Slow Sto down from 80 line top
5. Check -.30 or better Delta for Put Options only
6. Check 100 OI (Open Interest) or better in Put Options only
7. Check if Futures are ugly and down
8. Buy Put only at Bid or Ask on Strike Premium one month
ahead in Options
9. Follow downtrend on 34ma until 8ma goes up, then sell at bid
price

Suppose your stock is 150 dollars right now, you will look good
with delta (.30 or better) at 145 dollars in Strike Premium.

Remember that you see bid or ask, it means one contract. One
contract equals 100 shares. 10 contracts equal 1,000 shares, etc.
Suppose you see .25 on ask, it means 25 dollars for 1 contract to
buy put. If you want 10 contracts, it is 250 dollars to buy put,
etc.

When your put gains 20% or better, you can freeze your price to
sell later and let the price have room to play up or down. If it is
still gaining, modify your price to move up and freeze again. You
will not lose all of your money. It can play itself for a few min-
utes or a day or a week or a month, etc; depending on your 20ma
downtrend.

MDY Chart - see picture on page 27

MDY TOS chart - see picture on page 28

Tip:
You can use 4ma as
an early bird to
notice. If 4ma cross
8ma, it is a bad sign
for the stock coming
out real ugly soon.
shshsh!!!

24
REGN Stock Chart UpTrend

www.stockcharts.com

1. Check 8ma cross 34ma

Tip:
2. Check RSI up
You can see that the
3. Check MACD up 200ma line is below the
4. Check Slow Sto up candles ( )

This is good for stocks and options. It shows a strong

uptrend. If it is above
the candles, it is a sign
of weakness.

25
REGN TOS

www.tdameritrade.com/TOS

“The Trend is Your Friend”

26
MDY Stock Chart as DownTrend

www.stockcharts.com

1. Check 34ma cross 8ma

2. Check RSI down
3. Check MACD down
4. Check Slow Sto down

This is good for stocks and options.

27
MDY TOS

www.tdameritrade.com/TOS

“The Trend is Your Friend”

28
 Good Samples for You

www.stockcharts.com

I ask you about BIIB.

What do you see in the chart?
Is BIIB going uptrend or downtrend?
Can you play this one in Options?
You can easily answer this one and it only takes a few minutes to
look at the chart above.

Answer: Yes, it can be playable. It is uptrend. Buy call. It is a

very beautiful chart, and is easily readable.

29
www.stockcharts.com

I ask you about MSFT.

What do you see in the chart?
Is MSFT going uptrend or downtrend?
Can you play this one in Options?
You can easily answer this one and it only takes a few minutes to
look at the chart above.

Answer: Yes, it can be playable. It is downtrend. Buy put. It is a

very beautiful chart, and is easily readable.

30
 You Can Use Chart
You can see how I work on my own chart everyday. You can copy
the chart on the next page and do it yourself.

31
 I Use My Options Everyday

You can see what stocks (listed below) I use everyday. When I
see under 20 line in Slow Sto, I write on my chart and wait for 20
line to go above. Then I look at all indicators (4ma, 8ma, 34ma,
200ma, RSI, MACD, and Slow Sto) to play. You can look at the
Stock Charts and pick out the stocks you like. There are over
10,000 stocks in the stock market!
AAPL (Apple) MDY (SPDR S&P MidCap 400)

AMZN (Amazon.com) NFLX (Netflix, Inc)

AZO (Autozone, Inc) PCLN (Priceline.com, Inc)

BIIB (Biogen Idec, Inc) PCP (Precision Castparts Corp)

BLK (Blackrock, Inc) REGN (Regeneron Pharmaceuticals,

Inc)
CELG (Celgene Corp)
TSLA (Tesla Motors, Inc)
CEO (China National Offshore Oil)
NDX (Nasdaq 100 Index)
CMG (Chipotie Mexican Grill, Inc)
OEX (S&P 100 Index)
GOOG (Google, Inc)
RUT (Russell 200 Small Cap Index)
GWW (WW Grainger, Inc)
SPX (S&P 500 Large Cap Index)
ISRG (Intuitive Surgical, Inc)

LNKD (Linkedin Corp)

MA (Mastercard)

33
 Summary
Options trading is a sure-fire way to invest your money into a
lump sum of growth and profit, much more and quicker than you
would make from investing in stocks alone. In options, you have
the right to buy and sell contracts in either call (the “up”) or put
(the “down”).

There are several indicators on the stock charts to guide you

through, to pinpoint the call or put options, and strike prices on
or before the expiration dates. There is also a simple 8ma and
34ma system to use for buying or selling options.

If a bull market goes up, you can buy and sell call options. If a
bear market goes down, you can buy and sell put options.

In order to make a good decision, you have to feel confident and

comfortable, control your negative emotions such as fear and
greed. In controlling your emotions, you will be able to focus
more clearly and make the right decisions.

To gain confidence and understanding, you can study the stock

charts at www.stockcharts.com. Recognizing the indicators, the
ups and downs, and the 8 and 34 systems are important for a
more accurate decision-making.

Before you invest real money, practice “paper money” at TOS

(thinkorswim) under www.Tdameritrade.com. Practice is key for
developing knowledge and skill in trading.

There are conventions and expositions for traders, great for

learning all you can about investing stocks and options.

For questions and information sharing with other investors and

traders, go to www.stockplaysonline.com and www.stockhide-
out.com for chats. They are free to chat.

You can also download free books from google.com.

34
 Glossary
Cooper, 2003
ASK- The current price at which a secruity may be purchased.

AT THE CLOSE- The price at which a security is trading at the end

of the trading day.

AT-THE-MONEY- A term which refers to an option which has a

strike price that equals the current underlying
stock price.

AT THE OPEN- The price at which a security is trading at the

beginning of the trading day.

BID- The current price at which a security may be sold.

BUYING POWER- The total dollar amount that can be used to buy
securities in a brokerage account without the
addition of new funds.

CALL- An option contract which gives the right, but not the obli-
gation, to buy a specified number of shares of a stock at a
specified price, on or before a specified date.

CHANNEL- A term used in technical analysis to describe a well

defined area in which a stock price fluctuates. The
upper boundary is referred to as resistance and the
lower excurision of prices over time descends to a line
referred to as resistance.

COMBINATION- Refers to a hybrid option trade that involves

buying a call and a put or selling a call and put.
The two options will have different strike prices
and expirations as opposed to the straddle that
utilizes the same strikes and expirations. This
sort of trade is used as a hedged position.

COVERED CALL- The sale of call options related to underlying

stock which is owned by the seller.

35
EX-DIVIDEND DATE- The date at which the stock sells “ex”,
meaning without the dividend. On or after
this date the stock buyer will not receive a
previously declared dividend.

EXPIRATION MONTH- Option contracts expire on the third Friday

of the month for which they are named.
Technically speaking these options expire
worthless on the third Saturday, but since
trading halts at the market close of Friday,
this is the practical expiration.

FLAG- A group of consecutive price bars that form what appears

to be a stylized flag. This pattern may be Bullish if the flag
is right-side-up or Bearish if the flag is up-side-down.

IBD- Stands for Investors Business Daily newspaper, a publica-

tion used for stock screening.

IN-THE-MONEY- A term which refers to call options which have a

strike price that is less than the current price of
the underlying stock.

INITIAL PUBLIC OFFERING- (IPO) Often referred to as “going

public,” is the first sale of stock to
the public on a specific company.

INTRINSIC VALUE- Is a component of option pricing. It is the

amount by which a call option is in-the-
money.

LOAD- The sales charge a buyer of mutual funds may have to pay
in addition to the NAV (net asset value).

LONG- Refers to entering a position which is expected to gain in

price, such as buying a stock or call option.

LONG TERM EQUITY ANTICIPATION SECURITIES- Generally

referred to as “LEAPS”, these options feature an
extended period of time to expiration.

36
MARGIN ACCOUNT- A brokerage account in which the brokerage
firm will lend the client a percentage of the
account equity, to purchase additional secu-
rity postions.

MARGIN CALL- When a securities purchase is made in excess of

the margin account value, the brokerage firm may
demand that the client deposit outside funds to
cover the overage.

MOVING AVERAGE- A method of determining individual stock and

market weakness or strength. This indicator
is computed by adding the prices for a speci-
fied number of days and dividing by the total
number of days used.

NASDAQ- National Association of Securities Dealers Automated

Quotation system.

NAV- Or net asset value, is the total market value of a mutual

fund porfolio less liabilites divided by the total number of
outstanding shares.

OPTION- A contract which confers the right, but not the obliga-
tion, to buy or sell a security at a specified price on or
before a specified date.

TRADE CANDIDATE FILTER- Is a stock screening method that

employs earnings per share, relative strength,
industry group relative strength, closing price and
other factors to reduce the New York and NAS-
DAQ listings to a short list of candidates.

OUT-OF-THE-MONEY- Refers to a call option strike price which is

in excess of the current market price of the
underlying security. In the case of a put
option, an out-of-the-money option would
be one in which the strike price is below
the current market price of the underlying
security.

37
OTC (Over the Counter)- Refers to a security which is not traded
or listed on the recognized exchanges.

PUT- An option contract which gives the right, but not the obliga-
tion, to sell a specified number of shares of a specific securi-
ty at a specified price on or before a specified date.

RELATIVE STRENGTH- The relationship of a stock price to the

Dow Jones Industrial Average or another
grouping. This indicator is designed to
show how a stock is performing relative to
other stocks as compared to the market or
industry average.

RESISTANCE LEVEL- An area where a stock price tends to falter

due to selling. Once this level has been bro-
ken, the resistance level becomes the new
support level.

ROLLING STOCK- Is a stock which has the tendency to flucturate

in price within a discernable price range over
time.

SHORT- In options trading, one is “short” when an option has

been sold without owning the underlying security. In
general, a short postion is one which will be benefited by
a decrease in the security value.

SLIPPAGE- If you buy at the ask and sell at the bid, the loss
along with commissions is referred to as slippage.

SPREAD- Usually refers to the difference between the bid and ask
price.

STRADDLE- An option position that consists of two separate but

off-setting trades, one long and one short. In this
type of position one would purchase a call and a put
or sell a call and a put of the same underlying securi-
ty, strike price and expiration. This can be used when
the trader believes a market move is imminent but
does not know the direction.

38
STRANGLE- This cousin to the straddle is also a hedged position
but instead of buying or selling calls and puts of the
same strike price the strangle strikes are dissimilar.

STRIKE PRICE- The price at which an underlying security will be

transacted upon the exercise of the associated
option.

TREND LINE- A line drawn on a chart which demonstrates the

direction that a stock, index or other charted securi-
ty is moving.

TICKER SYMBOL- Is the abbreviation which is used to identify a

company as listed on the stock exchange.

TIME VALUE- Refers to the potion of the option premium which is

in excess of the intrinsic value.

VOLATILITY- Refers to the magnitude, over a period of time, of

the price fluctuation of a security or market.

39
 Bibliography
Achelis, Steven B. Technical Analysis from A to Z : New York, NY:
http://www.amazon.com/Technical-
Analysis-Edition-Steven-
Achelis/dp/0071363483; 2001.

Cooper, Stephen M. OnlineOption Trader :

www.onlineoption.com; 2003.

Nison, Steve M. Japanese Candlestick Charting Techniqes :

www.candlecharts.com : Paramus, NJ, 2001.

Turner, Toni. A Beginner’s Guide to Day Trading Online : Adams

Media, a division of F and W Media, Inc., Avon, MA,
2007.

Cramer, Jim Get Rich Carefully : Published by the Pegnuin

Group. New York, New York, 2013. You can buy
through Amazon.com.

40
Your Notes

41
 So great to learn good system to
improve your trading!
“Read this book if you want to know how the market works
and how to make it work for you.”

“By using the tools, trading tactics and strategies revealed,

you will be armed with the skills needed to help you win
your battle with the markets.”

“Read this book, and, two, reread this book. It will help you
achieve your trading goal, which is to make money in the
markets. Every trader, from a beginner to the advanced
professional, shoud have this book!”

Trading is highly profitable---and

highly tumultuous. Moreover, the
financial markets have changed
onsiderably in recent years. I give
you the latest information for
mastering the markets, including:

* Decimalization of stock prices

* New trading products such as

stocks and options

* Precision entries and exits

* The new breed of trader

Written in an accessible, step-by-

step manner, I show how to trade
stocks and options in today’s
market.