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Developing a Playbook:

The 5 T’s of Trading

By Tyler Craig

Is it realistic to expect consistent returns from your trading if you have an inconsistent, unsystematic approach? Of course not. Most traders would concede the fact that developing a trading plan is essential to becoming a successful, savvy trader. However, while most accept this, few choose to actually take the time to develop a plan.

We are all familiar with the cliché, “those who fail to plan, plan to fail.” Nowhere is that more apparent than in the financial markets. Some face the struggle of knowing the best way to structure a trading plan. To help Wealth Intelligence Academy students alleviate this struggle, we developed a trading plan in the advanced trading camp, the Master Trader™.

The five key components to a successful trading plan are as follows: goals, risk management, strategic playbook, analysis, and education. While each of these subjects merits its own article, we will focus on formulating a strategic playbook. The cornerstone of the strategic playbook is the 5 T’s of Trading. The beauty of the 5 T’s is their universality. Any style of trader using any trading instrument can use the 5 T’s to categorize their playbook. The following is an in-depth look at the 5 T’s of trading.

Trade Identification: This can simply be defined as the criteria that must be present before you are willing to place a trade. Those familiar with technical analysis know that there are many chart patterns that can be identified and traded, such as bullish/ bearish retracements, breakouts/breakdowns, and double tops and bottoms. Those using fundamental analysis may have other fundamental criteria they wish to be present before pulling the trigger. My recommendation is to focus on one or two patterns until you can properly identify and trade them. As you continue to learn and grow, you will come across other tradable patterns, many of which you will add to your play book. In turn, these new patterns will help you accomplish the goal of becoming a more flexible and successful trader.

Once a tradable chart pattern has been identified, its time to jump in, right? Wrong. To increase the odds of success, try waiting for price confirmation. This falls under our next T—Trigger.

Trigger: Price confirmation occurs when the price breaks pre-determined levels that signify the stock is moving the way you want it to prior to jumping into the trade. One example of a trigger for bullish trades is to buy above the previous day’s high or intra-day resistance levels. For bearish trades, one example may be to wait until the stock breaks the prior day’s low or intraday support levels. In order to develop consistency, it is important to decide when to pull the trigger and do it the same way every time. In my experience, the best trades are those that are profitable right off the bat, and waiting for price confirmation helps to accomplish this.

So far you have identified a bullish pattern, set your entry order, and, bam, it’s triggered! Now just sit back and watch the money flow into your account, right? Wrong. Thus far you have been completely objective and disciplined in identifying a pattern, waiting for the trigger, and then jumping in. Now comes the hard part. Now you’ve got money in play in the market. You’re married to this trade for better or worse. In addition, your evil-in-laws, Fear and Greed, have moved in and are here to stay for the remainder of your marriage. Their main objective is wreaking havoc on your portfolio and they will do all they can to instigate rash decision making. The next two T’s, target and trade management, will help you dispel these two evils.

Target: What are your pre-defined targets? Pre-set targets help keep you level-headed when in a profitable position and greed starts to whisper promises of windfall profits in your ear. A target serves as a benchmark for what price level the stock is expected to reach. Typically when a stock reaches your target, you take action—such as profit-taking or moving your stop loss up.

Having a specific exit strategy is another key to consistency. How can you expect consistent results in the long run if you continually sell on a whim? There are a myriad of ways to project a target, and as you gain experience, you will continually add techniques to your playbook. Having a pre-selected target also is crucial to calculating potential reward for your trade. Having an acceptable risk-to-reward ratio should be a part of your trade identification. After all, how can one decide whether or not to take a trade if he has no idea how much profit potential there is?

Trade Management: The adage, “maximize your gains and minimize your losses,” is the goal here. Having set rules in place will allow you to do just that. Trade management is where rules for stop placement and movement, hedging, and techniques such as scaling in and out, are determined. It is nice to have rules in place that dictate when to adjust your position, rather than making a decision on the fly. By pre-determining stop placement, you can then calculate your potential risk in the trade, thus allowing you to evaluate the risk-to-reward scenario and whether it is acceptable.

Tradable Instrument: Throughout your trading career, you will learn to utilize different financial instruments. Stocks, options, spreads, and futures are all tools used by savvy investors. As part of planning your trade, it is necessary to specify your instrument of choice for that specific chart pattern and trading style.

Equipped with the 5 T’s, every trader will be on their way to a more consistent, systematic approach to the markets. However, keep in mind that having a trading plan and following that plan are two different things. You must develop the discipline to follow your plan to the “T” (pun intended). Once your playbook is compiled and you have the self-mastery to follow it, you are one step further along the path of market proficiency.

Tyler Craig is a stock coach for Wealth Intelligence Academy®.

Posted 10:23 AM | Permalink | Comments (0)

Lisa and Mark H. of Melbourne, Florida, attended their first three-day training in 2002. They have attended five advanced trainings and have worked with their mentor. Their most profitable deal involved the purchase of a house, duplex, and three triplexes wrapped up in the same transaction. They used owner financing to make the purchase and then sold off the properties one by one for a gross profit of $450,000.

Today, Lisa and Mark’s real estate portfolio is valued at more than $2.7 million. They love being able to work together and they appreciate the freedom real estate investing has given them. In August 2008, Lisa and Mark were inducted into the Wealth Intelligence Academy International Hall of Fame.

Note: Lisa and Mark H. have taken the following advanced training class through Wealth Intelligence Academy: Commercial Real Estate; Rehabbing for Profit; Lease Option; Creative Financing; and International Land Development.

Disclaimer: Results from programs are based on individual effort and other factors, and are exceptional or atypical and are not to be expected by the average person using these programs or methods. Various advanced trainings are typically needed, each at a cost of approximately $4,990. Discount packages offered for courses purchased as a package.

Posted 10:19 AM | Permalink | Comments (0)

Keep It Covered: Insuring Your Real Estate Investments

As an investor, your insurance needs are different than a typical consumer—and as your portfolio grows, those needs will change

By Jacquelyn Lynn

As part of the terms of a mortgage loan, most lenders require borrowers to carry property insurance. But simply meeting the requirements of your lenders does not necessarily mean that you are adequately insured. To be sure that your real estate investment business is properly covered, understand what your risks are, how much liability you are able to accept, and what types of policies are available.

The basic types of business insurance include:

• General liability and property coverage. Liability insurance protects you if someone is injured while on your property. The insurer not only pays the damages, but also funds and handles your legal defense. Property insurance covers your physical assets—building, equipment, furnishings you own, fixtures, etc. In most cases, your property insurance will not cover the tenant-owned contents of a rental unit; your lease should clearly state that tenants are responsible for insuring their own belongings.

• Umbrella policy. Umbrella policies provide additional liability coverage after the limits of your underlying policy are reached. For example, if someone was injured on your property and required $300,000 in medical treatment but the liability limit of your underlying policy is $250,000, your umbrella policy will pay the additional $50,000 (provided, of course, the limit of your umbrella policy is at least that amount).

• Automobile. If your company owns vehicles or if you use your personal car for business purposes, you need appropriate coverage. Such insurance typically includes bodily injury liability for injuries you or another authorized driver cause someone else; medical coverage for treatment of injuries to the driver and passengers in your vehicle; property damage liability; collision (damage to your car from a crash); comprehensive (damage to your car not resulting from a crash); and uninsured motorists coverage. Be sure your vehicle insurance complies with the laws of your state and offers you sufficient coverage to protect you financially—which means you may want higher limits than the law requires.

• Life. Various types of life insurance can be designed to protect your company, investments, and family in the event of your death. Life insurance is often part of buy/sell agreements in partnerships, where the insurance is used to buy out the interest of the deceased. For example, let’s say you own property with a partner. Will your spouse want to continue as an active partner in the investment if you should die? If not, purchase life insurance and create a buy/sell agreement so the surviving partner can buy the property and your spouse will get the cash.

• Disability. There a number of options for business owners and investors when it comes to disability coverage. The most common type of disability insurance protects your income if you are disabled and unable to work. You can also buy disability coverage to fund a buy-sell agreement that addresses what will happen to a partner’s investment should he or she become disabled. Disability buy-sell policies can include a lump sum payment option or have benefits paid over a period of years.

• Workers compensation. If you have three or more employees, you are probably required by law to provide workers compensation insurance. Laws regarding this coverage vary by state; check with your insurance agent and state insurance department to find out exactly what you need and how it is purchased.

• Business interruption. This coverage is designed to replace lost income, pay ongoing expenses, and cover the costs of setting up in a temporary facility if necessary when a business is unable to operate due to a covered peril (such as fire, storm damage, vandalism, etc.). If you have rental units that cannot be occupied due to a covered peril, business interruption insurance may replace the lost rent revenue.

• Destroyed or damaged records. If your business records are destroyed or damaged by a covered peril, this insurance will compensate for the inability to collect income and the cost of reproducing the records.
Beyond the traditional types of insurance are a variety of specialty policies offering coverage you may or may not need, such as flood, earthquake, and terrorism insurance. Talk with your agent about what’s available, the cost, and your potential risk so you can make an informed decision. If you work from home, be sure your business equipment is covered and that you are protected for business-related liability. Most homeowners policies provide only nominal coverage for business equipment and activities, so check with your agent to determine if you need a separate business policy or if you can add an endorsement to your homeowners policy.

Managing Your Insurance
As much as you’d probably like to, insurance isn’t something you can take care of once and then forget about. In addition to making sure you have coverage each time you buy or sell a piece of real estate, you should do an annual review of your needs, your coverage, and what new products are available that might work for you. Keep records of all your assets in case you need them to document a claim. If you make changes to existing policies, follow up to make sure the necessary paperwork was completed properly. It may be your agent’s job to do the paperwork, but it’s your responsibility to make sure you have the right coverage in place.

Keep in mind that insurance companies often structure their policies differently, so if you change any of your insurers, study the new policy carefully to be sure you really have the coverage you think you have. Don’t buy a policy based on rates alone. Be sure the coverage is what you truly need and the company is financially sound with a reputation for good customer service.

Remember that insurance is essentially a gamble—you’re betting that you’ll need it and the insurer is betting that you won’t. Be sure that you can still come out a winner whether you win or lose the bet.

Jacquelyn Lynn (www.jacquelynlynn.com) is a business writer, speaker, and author of The Entrepreneur’s Almanac.

Posted 10:05 AM | Permalink | Comments (1)

Being an Investor Means Being an Investigator

By Mich Christensen

Why do we need to investigate properties when investing?

For the investor to choose a property wisely, he must find out everything about who owns the property, the history, and what is happening to the property. In anything we do in life there is a process—a procedure, a logical reason, and a methodology to accomplish our goals. Just as you follow a recipe for consistency in the kitchen, there is also an optimum plan when investing in property.

Organize yourself—give yourself the best opportunity to do your best!

When you have all your ducks in a row, you can go through the steps quickly and efficiently, without having to spin your wheels. Why re-invent the wheel when it is already there, right? So now, what do we do?

First, you need to ask yourself these questions: What am I looking for, where am I looking, and when will I do this? Obviously, you will need to manage your time, meaning you will set aside time to do your work. Then, you will take that time to determine what area to search in, what type of properties you seek, and how you will find them.

In the meantime, you need to put your Power Team in place and find your inner circle team members. They may consist of a title company or attorney to close your deals, a mortgage broker or bank to finance the deals, and a real estate agent to work along with you. You may require a CPA to do your books and taxes, a general contractor or handyman to do repairs or rehab, and an insurance company if you own rental properties. You may also need a surveyor or an appraiser. As your business grows, so does your team. Once all are in place… then we start having fun!

The Game Plan

1) Locate the properties. As we discussed in the August issue, we need to find our “farming areas,” the geographic areas we plan to work or farm for properties. Once we find the areas we want to work in, we determine which properties we want to go after, and whether we are cherry-picking or going for quantity.

2) Investigate. Look at the properties—determine how they are situated, what is happening in those particular areas, and what is planned, if anything, for those areas. What is the condition of the other properties in the vicinity?

3) Determine what repairs are needed. Eyeball the outside. Take a look at what type and how much work the yard and buildings need. Does it require landscaping, cleaning up, paint, roof repairs, or more? Is this property in need of only cosmetic repair? Or, does it need a significant “face lift” with minor or major rehab? Is this house obsolete because it is too small? For instance, a property could have only one bath and two bedrooms in an area with homes that have three or more bedrooms and two baths. These are questions you want to ask yourself.

4) Get the ownership information. Now the real fun begins—it’s time to get down to the nitty-gritty. We obtain the information on who owns the properties and write it down. We may keep a spread sheet on all the properties we locate, thus we have instant access to the data we have collected.

5) Look at the history. How long have the owners had this property, and what type of deed or mortgage(s) do they have? Who did they buy it from, and when did they buy it? Who is on the deed or mortgage(s)? Are they the same names? If not, we might want to find out why, and what the relationship is. There are several reasons why only one name might be on one document and two or more names on another document.

6) Are there judgments or liens on this property? Each county accesses its records differently. If it is modernized, the records will be computerized and that makes our job easier. However, if it is an antiquated system, we may have to look it up in the big black book. Be aware that in some counties, the regular judgments and liens may be in a black book, and federal judgments or liens in a red book. Make sure you ask in advance so that you don’t miss anything!

7) What is this property assessed at? What are the taxes on this property and where can we reach the owners? Remember, the tax-assessed value is not necessarily the fair market value. The county must assess a value to properties via a formula, and this may include any type of exemption, such as a homestead, a greenbelt-farming, or widow/widower exemption. Just remember each state has its own types of exemptions.

8) What are the comps in the area? The word “comps” is a short way of saying comparables. We need to find and compare similar properties that have sold in the last 12 months. This gives us an indication as to what the market is doing. For a fluctuating market (going up or down), although we may pull comps for the last 12 months, the last six to eight months give us a true picture of what is happening now.

These are the questions, and you need the answers. Thus, you become the investigator, and investigating leads to sound investing.

Mich Christensen is a real estate coach for Wealth Intelligence Academy®.

Posted 09:56 AM | Permalink | Comments (4)

Mr. John McCorry
Executive Editor
Bloomberg News

Dear Mr. McCorry:

Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a "bailout."

Let's look at the real facts about the FDIC insurance fund. The fund's current balance is $45 billion – but that figure is not static. The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income. We will propose raising bank premiums in the coming weeks to ensure that the fund remains strong. And, at the same time, we will propose higher premiums on higher risk activity to create economic incentives for poorly managed banks to change their risk profiles. The fund is 100 percent industry-backed. Our ability to raise premiums essentially means that the capital of the entire banking industry – that's $1.3 trillion – is available for support.

Moreover, if needed, the FDIC has longstanding lines of credit with the Treasury Department. Congress, understanding the need to ensure that working capital is available to the FDIC to provide bridge funding between the time a bank fails and when its assets are sold, provided broad authority for us to borrow from Treasury's Federal Financing Bank. If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks. As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years.

Finally, Mr. Evans' suggestion that the "government" could ever be "on the hook for uninsured deposits" demonstrates a misunderstanding of FDIC insurance. To protect taxpayers, we are required to follow the "least cost" resolution, which means that uninsured depositors are paid in full only if this is the least costly option for the FDIC. This usually occurs when a bidder for the failed bank is willing to pay a higher price for the entire deposit franchise. We are authorized to deviate from the "least cost" resolution only where a so-called "systemic risk" exception is made. This is an extraordinary procedure which we have never invoked. And again, any money we borrow from the Treasury Department must be repaid through industry assessments.

I am confident in the strength of the FDIC's resources to make good on our sacred pledge to insured depositors. And, remember, no depositor has ever lost a penny of insured deposits, and never will.

Andrew Gray
Director
Office of Public Affairs
Federal Deposit Insurance Corporation

Posted 04:19 PM | Permalink | Comments (0)

As of September 19, 2008, the Securities and Exchange Commission (SEC), acting with the U.K. Financial Services Authority, has temporarily prohibited short sales of the securities of 799 financial institutions for 10 business days. The temporary prohibition is scheduled to end Thursday October 2, 2008 at 11:59 pm Eastern Daylight Time.

It should be noted that the SEC may extend the prohibition beyond 10 business days if it is deemed necessary in the public interest and for the protection of investors. At this time, the SEC has stated that it will not extend the order for more than 30 calendar days in total duration.

If you need further clarification and information on this issue, visit http://www.sec.gov/news/press/2008/2008-211.htm

Posted 09:57 AM | Permalink | Comments (0)

According to a report by MarketWatch, the U.S. Treasury has established a temporary guaranty program for U.S. money market funds. For the next year, the U.S. Treasury will insure holdings of any publicly offered money market mutual fund, retail and institutional, that pays a fee to participate. President George W. Bush approved the use of existing authorities by Secretary Henry M. Paulson, Jr. to make available as necessary the assets of the Exchange Stabilization Fund for up to $50 billion.

Posted 08:22 AM | Permalink | Comments (0)

In the Peanuts Classic comic strip for Sept. 15, 2008, Lucy clearly has the right idea.

It's her birthday, and she's on a rant about the gifts she received.

In the first frame, she says, "Nobody gave me what I wanted for my birthday. NOBODY!"

In the second frame, she says, "What sort of presents do you call these? New shoes, a green sweater, and a bunch of stupid toys."

In the third frame, Linus asks, "What were you expecting?"

And in the fourth frame, Lucy's wisdom shines through when she answers, "Real estate!"

Here's the link to see the strip for yourself: http://www.snoopy.com/webmail/SendAStrip?AppName=SendAStrip&ComicName=/comics/peanuts/&Attachments=/comics/peanuts/archive/images/peanuts2815180080915.gif&EmailDate=September-15-2008

Posted 10:08 AM | Permalink | Comments (0)

Do you invest in rehabs? If so, what are some of the products and techniques that have worked for you when you're getting distressed properties in shape to either rent out or sell? Share you favorite tips by using the comment function on this entry.

Posted 09:34 AM | Permalink | Comments (0)