This is for Adult Eyes Only…
This Trade of the Week issue comes with an adult content warning. If you have delicate sensibilities, you may want to jump to the middle of the article…
Because before I get to today’s investing lesson on how to pocket the kind of profits that are on every adult’s wish list, I will be addressing some hard truths about Christmas.
This week, the dreaded “Santa” question came up at our house.
Like every parent, I have loved seeing the joy Santa Claus brings to my children each year. It is truly a magical part of childhood. But sadly, a day comes when children grow up a little and learn the truth. Over the past week, I’ve been working overtime to keep that truth hidden from my four-year-old son, Maddox.
This whole thing started a few days ago when I reminded Maddox that Santa is watching, so he better be good. Maddox was not impressed and immediately informed me that we live nowhere near the North Pole, making it impossible for Santa to watch him every second. To emphasize his point, he hid behind the couch cushions and asked if Santa could see through cushions too.
I’m not completely sure whether Maddox was actually questioning the existence of Santa or simply thought he’d found a loophole to the whole “being good” thing.
What I definitely realized is that I’m not ready for my four-year-old to stop believing in Santa. So, I brought out the big guns — science.
Here’s how our conversation went:
— I patiently explained to Maddox how Einstein’s theory of relativity makes it possible for Santa to quickly travel around the world to deliver toys.
— Maddox agreed to this point.
— I then pointed out Santa has elves working with those same scientific principles to help him make his “Naughty & Nice” list.
— Maddox declared this “creepy” and moved on to watching YouTube videos.
My little “science” lesson seems to have been enough proof for Maddox for now, as he has strived to earn a place on the “Nice” list over the past few days.
I know I need to accept that my children will eventually stop believing in Santa, but I’m trying to buy a little more time. This year, it was the theory of relativity, and I’m already working on an explanation involving string theory for when the Santa question inevitably comes up again next year.
What Does This Have To Do With Investing?
I saw a chart this week calling for a market top a few days before Christmas. The forecast included an estimated hour when the top will occur based on a confluence of cycles derived from Fibonacci ratios and several exponents of phi — a number known as the golden ratio.
I’m not going to get into the details on this, but explaining market action with the golden ratio is basically the same thing as proving to your kids that “Santa exists because of string theory.” Both discussions are relying on complexity to obscure the truth.
While I don’t mind taking advantage of physics to keep my son believing in Santa for a little bit longer, it irks me when people dress up scientific-sounding principles to make market forecasts.
Because these complexities are often drawn on charts, some people associate the techniques with technical analysis. Let me be clear: They are not.
The truth that guides technical analysis is much simpler, as the truth almost always is.
Technical analysis is the study of market action to understand factors that impact the supply and demand of a stock. Price charts show us nothing more than whether demand or supply is stronger. If demand exceeds supply, prices rise. If supply exceeds demand, prices fall. The concept is simple because it’s the truth.
Simplicity pays off when it comes to investing strategies too.
Many traders attempt to beat the market with complicated options strategies like butterfly spreads or iron condors.
But simple strategies are often the best and most reliable. In fact, one simple strategy has led me to close 105 straight winning trades.
I know it sounds too good to be true, but let me explain how it works.
Trust me, you don’t need string theory or golden ratios. Instead, just imagine you have a friend who likes to invest. He’s the nervous Nellie type, so he only invests in solid, blue-chip growth companies, like Home Depot (NYSE: HD), for instance.
Your friend is worried that the share price of Home Depot is going to drop. He asks if you will buy his shares if the price drops 10% over the next two months.
You think about it. You know Home Depot has been one of the best-performing stocks for years, and its fundamentals still look strong. You wouldn’t mind buying a great company like Home Depot at a 10% discount.
But there’s more to your friend’s offer: He says he’ll pay you $300 today for simply agreeing to the deal. And that $300 is yours even if the shares don’t drop 10%.
Pretty simple — and a pretty sweet deal! You agree and he pays you $300. And that money is yours to keep no matter what happens to Home Depot’s stock price.
This kind of agreement is actually possible — and it’s possible by just filling in a few boxes in your online brokerage account. You can enter into an agreement to buy a stock if and only if shares fall below an agreed upon price (the strike price) by an agreed upon date (the expiration date).
And you instantly collect a payment, or “premium,” from another investor — the options buyer.
That’s it. A far cry from pseudo technical analysis or strange-sounding spreads.
And we have made money doing this 105 times in a row. Average traders are making $800, $2,000, even $5,700 or more every month.
If you want to see a step-by-step guide of how you enter this kind of trade, we’ve filmed a video showing how someone with almost no trading experience used it to pocket $274 in a mere two minutes.
Just image how much money you could make before I have to use my Santa string theory argument! Click here to watch.