Example of One from My Last Option Trades - Call Option on ESI

In this post I want to show you example of one from my last actual option trades with call option on stock ITT Educational Services(ESI) with exact option name ESI GP. I don't want go into more depth, but only to show you how can option trade look like. In the picture below you can see chart of ESI(as underlying stock of this option) with enter and exit of the trade and other circumstances.




With use of technical analysis I saw chart pattern on the chart of ESI called channel breakout. Very important factor was also that volume was much higher in comparison with other days. So I decided to buy call option ESI GP with strike price $80, expiring July 19, 2008 for $2.70 per share, what is $270 for 1 option contract. Price went up and after few days it created line of resistance and did not go up so I decided exit from the trade and take my profit. I sold this option for $3.80 what is 40% profit. This is one example how can option trade look like.

Technical Analysis of Stocks - part 2

Technical analysis is based on principle that history repeats itself. Behind this principle is human psychology. Charts reflect psychology of the market. Chart patterns have been studied and categorized over one hundred years. Some of these patterns have worked well in the past, so it is assumed that they will continue to work well in the future. These are based on study of human psychology, which tends not to change.

Next very important premise of technical analysis is that everything what can influence the price like fundamental, psychological, political, or other factor is actually reflected in the price of that market. And how is the price created? From technical point of view price movements reflect relation between supply and demand. If demand exceeds supply, price should rise. If supply exceeds demand, price should fall. This is basic economic principle. Behind demand are buyers and behind supply are sellers. Behavior of buyers and sellers is what drives the market. These willing buyers and sellers come to an agreement of price but are in disagreement as to value.

From all this results that analyzing price and it's history is indirect analyzing of fundamental and other factors that influence market behavior. Although this argument is quite controversial, most of technicians would agree. The question of this post is - what is all this analyzing for? The purpose of studying price charts and supporting technical indicators is to show trader which way is the market most likely to go. This last sentence is very important and notice that technical analysis is not for predicting future actions as a sure thing. Technical analysis uses term probability. When graphical picture of change of price in chart is in some pattern there is some probability that price will go in certain direction. This claim is based on research and analyzing price movements in the past.

Oftentimes happens that some traders who are new to technical analysis are little disappointed when some of their trades doesn't go well even though according to the chart analysis it should. Well, it's not magic. And it doesn't have to be. Technical analysis helps many traders and institutional investors to make very profitable trades, so it doesn't have to prove it's value.

One of the main objectives of chart analysis is to determine the trend of prices. The key concept and discovery in technical analysis is that prices move in trends. A trend represents a consistent change in prices in some direction. The most of trading techniques are based on determining trends and trading in the direction of those trends.

One of the most interesting facts about technical analysis is it's adaptability. First is the adaptability to different time dimensions. Chart analysis is used in day trading and also in longer term investing. Next is the adaptability to various trading mediums. Charts are analyzed in trading with stocks, commodities, foreign currencies, and so on. This is because the same principles are so widely applicable. This is a big advantage against fundamental analysis where traders are more specialized.

The bottom line is that the same data like open, high, low, and closing price are available to all traders, but how they analyze, interpret, and act on the information available is one from factors that differentiate one trader from others.

Technical Analysis of Stocks

For some of you who don't know what is technical analysis and how it works, I will try to explain it to you what it is about. Technical analysis is trading and investing tool that involves the study of past share prices or indices and is helpful in showing you when to enter and exit the trade. For technical analysis are needed charts. One example of chart you can see in the picture below. It's chart of Apple.




The dedicated technician analyses the charts and indicators to forecast future share price and index movements. There are traders whose trade decisions are based strictly on price and volume movement and there are traders who also use other tools like fundamental analysis to support their decisions and I belong to this second group. But technical analysis is essential for my trading.

In future posts I will go into more depth and I will write about charts, indicators, chart patterns, etc.

Paper trading - ground school for traders

What is paper trading? It's trading without real money - trading only on the paper. And without money means without real risk of losing real money. As pilots are learning to fly first on the simulator so should do traders (to simulate trade). On simulators pilots don't risk loss of their life or destroying plane (and traders losing money). But they are improving their skills. I hope that this analogy can help you better understand reasons and benefits of paper trading.


I think and recommend that before putting real money into real trades beginners should first test their skills on the paper. With paper trading you can test your strategy without risking losing money. The factor that you are not using real money can have big impact on trading psychology - you are not under preasure of losing money and you can make more rational decisions without being influenced by emotions. By the time your trading skills are getting better and you gain confidence in your trading actions. When your skills will be on desired level you can then start real trading with real money.


As a good example of trading or investing simulator in my opinion I would like to recommend Investopedia Simulator that I personally use. It offers a lot of features, real data and a lot of informations mainly about stocks.


As I said before with paper trading you can trade without risk of losing money and still you can gain skills and experience. That's the main point of paper trading as I see it.

Major Stock Exchanges

To recognize on what stock exchange a symbol is traded use the following rule :
Amex 2 to 3 Letter symbol
NYSE 1 to 3 Letter symbol
Nasdaq 4 Letter symbol

AMEX (American Stock Exchange) New York

Trades small to mid-size stocks. The AMEX is known to have more liberal policies concerning company listing, as most of its companies are generally smaller compared to the NYSE and NASDAQ.

NYSE (New York Stock Exchange) New York

The New York Stock Exchange, also known as the "Big Board", is a New York City-based stock exchange. It is the largest stock exchange in the world by dollar volume and the second largest by number of companies listed.


The NASDAQ (National Association of Securities Dealers Automated Quotations system)

Nasdaq was the world's first electronic stock market. It is the largest electronic screen-based equity securities market in the United States. With approximately 3,200 companies, it lists more companies and on average trades more shares per day than any other U.S. market. Nasdaq became very popular in the 1990s because most of emerging high-tech companies are listed here.

Why do I trade stocks and options?

As probably everything what we do has some motivation my trading also has some deeper reasons. One from main reasons I like about stock and option trading are big profits. With stocks you can have common profits in tens of percent in time period of few months and with stock options are common gains even in hundreds of percent in few days or weeks.

Next reason is my freedom. In trading I am my own boss. I can trade when I want, how much I want, how long I want.

Very little time is required. I spend no more than one hour per day in trading.

Very little money is needed to start this kind of trading in comparison with starting up any other business that comes to mind. It costs more to start selling ice cream than it does to begin trading.

No employees.

No selling of products.

You can work from any place where a computer and an internet connection is available.

These are my main reasons for trading. I think that this list of pros can shut down any obstacles. With trading I can achieve my goals and dreams much faster. And also trading with stocks and options is my big passion.

Stock and Option Trading

This is my first post so forehand I would like to welcome you in my blog. My intention is to share my knowledge and personal experience with you. At start I will talk about stock and option basics and later I will move on to more advanced informations. I will talk about stock market, option trading strategies, trading psychology, money management, fundamental and technical analysis, trading tools and other topics belonging to stock and option trading.

For some of you it can be stock and option trading course but the main purpose of this site is to share valuable informations about stock and option trading. From part it will reflect my journey from beginner to more experienced trader.

I think one of the biggest mistake that a lot of people do is that they put their hard-earned money to some stock they know almost nothing about and they pray and hope that price of stock will go up. That’s stupid. They should spend some time learning and researching. And this rule applies to everything you put money in.