[Link].

com

Presents

Mastering the Markets

Your Path to Financial Freedom
 DISCLAIMER
Neither MasterMind Traders or any of its personnel are registered broker-dealers or
investment advisors. We may mention that we consider certain securities or positions to
be good candidates for the types of strategies we are discussing or illustrating. Because
we consider the securities or positions appropriate to the discussion or for illustration
purposes does not mean that we are telling you to trade these exact strategies or securities.
Keep in mind that we are not providing you with any specific recommendations or
personalized advice about your own trading activities. The information we are providing
is not tailored to any particular individual. Any mention of a particular security is not a
recommendation to buy, sell, or hold that or any other security, or a suggestion that it is
suitable for any specific person. Keep in mind that all trading ALWAYS involves a risk
of loss, even if we are discussing strategies that are intended to limit risk.

Also MasterMind Traders’ personnel are not subject to trading restrictions. Myself and
any others at MasterMind Traders could have a position in a security or initiate a position
in a security at any time.

MasterMind Traders 2
 TIME SENSITIVE INFORMATION

NEWS
EARNINGS
ECONOMIC NEWS
TODAY’S NEWS
MERGERS

POSITION OF STOCK
(Support or Resistance)
MasterMind Traders 3
 BASICS OF THE STOCK MARKET
In the Market, there are always two parties to every transaction:

THE MARKET MAKER AND YOU

TYPES OF EXCHANGES
OPEN OUTCRY AUCTION MARKET ELECTRONIC TRADING FLOOR
“Big Board” “Automated Electronic Match”
NYSE (New York Stock Exchange) NASDAQ (National Association of Securities
– almost 3000 stocks traded Dealers Automated Quotations)
AMEX (American Exchange) – over 4000 stocks traded
– almost 2000 stocks traded

OVER THE COUNTER BULLETIN BOARD

OTCBB
– Includes Penny Stocks (Highly Speculative)
PUMP AND DUMP
• The Ticker Symbol

MasterMind Traders 5
 BASICS OF THE STOCK MARKET
STOCKS INDEXES
• Sectors • DJIA
• Industries • S & P 500
or Sub Sectors • NASDAQ COMPOSITE
• S&P 100
• Russell 2000, etc.
EXCHANGE TRADED FUNDS (ETFs)
• Diamonds (DIA) 1/100th of DJIA
• Spiders (SPY) 1/10 of the S &P 500
• The Q’s (QQQ)
• Russell 2000 (IWM)
• Russell 5000 (IWN)
MasterMind Traders 5
 BASICS OF THE STOCK MARKET
3 CENTS
BID ASK
- X -
4.17 4.20
Bid = Sell SPREAD Ask = Buy

1/3 X .03 = 1 CENT

(In the spread)
MasterMind Traders 6
 STOCK MARKET DEFINITIONS
BULLISH – When the market, or a stock in general is going up, it is called BULLISH.

BEARISH – When the market, or a stock in general is going down, it is called BEARISH.

OPEN A TRADE – When you enter into a position in a specific stock or option.

BTO (Buy to Open) or STO (Sell to Open)

CLOSE A TRADE – When you exit out of a position in a specific stock or option.

STC (Sell to Close) or BTC (Buy to Close)

FILLED – When the order to buy or sell you’ve placed actually goes through.

EXECUTED - The completion of a buy or sell order.

LONG – When you actually buy a stock or option, the position you are in is called LONG.
SHORT - When you borrow shares of stock from a broker-dealer and sell
them in the market, the position you are in is called SHORT.
MasterMind Traders 7
 ORDER TYPES
DO NOT USE A MARKET ORDER TO ENTER THE TRADE
MARKET ORDER – A market order tells the broker to buy or sell a stock or option at the
current quoted price. Using a market order is not recommended, because control is taken away
from the trader and puts control totally in the hands of the broker, market maker, and floor
trader. A market order is the default option and is likely to be executed immediately because it
does not contain any restrictions on the buy/sell price or the timeframe in which the order can
be executed. This order is sometimes used in a quickly moving market if an exit is necessary,
but even then it has some risks involved.

LIMIT ORDER – A limit order tells the broker to buy or sell a set number of stocks or options
at a specified price, or better. This allows the trader greater control of buy and sell orders. Limit
orders also allow you to limit the length of time an order can be outstanding before being
cancelled. For example: when you give your broker an order to buy 500 shares of PFA at $120
limit order, you have told him to pay $120 or less per share for PFA but not to exceed $120.

USE A DAY LIMIT ORDER TO ENTER THE TRADE

DAY ORDER – An order to buy or sell a stock or option that will automatically
expire if not executed on the day it was placed. The order will be canceled and
will not be filled if the price was not met during that day’s trading session.

MasterMind Traders 9
 ORDER TYPES

GOOD ‘TIL CANCELLED (GTC) – An order for the broker to buy or sell a stock or
option at a set price at any time, that stays active until the trader either cancels the order or
the order is executed. Each brokerage firm has it’s own policies, but generally the GTC order
stays on with the broker for 60 – 90 days, and then if not filled, it will automatically cancel.
It is ultimately the trader’s responsibility to monitor any outstanding orders.

STOP LOSS – A protective order that automatically closes out a trade when the trade has
gone against you a pre-determined amount. Stops are highly recommended since they save
you time and help to protect against large potential losses on your trades. Stop Loss orders do
not protect your trades from “gaps.” If a stock or option jumps past your stop price and
opens lower, your trade will be filled at the lower price.

STOP LIMIT – Also a protective order that helps to protect you from extended losses.
A“Stop Limit” differs from a “Stop Loss,” in that a Stop Limit order will only sell at the
limit price and not at a lower price.

DON’T USE
MasterMind Traders 9
 ORDER TYPES
CONTINGENCY ORDER – An order that is only executed when certain conditions have
been met. The order will not be filled until and if an event you have specified occurs.
For example: "Buy 15 PFA 70 calls at the market if PFA stock trades above 65.”
CONDITIONAL ORDER – An order that allows the trader to place both a GTC (profit target)
and a Stop Loss in the broker’s system at the same time. The orders are not sent to the market
until the target prices are reached, therefore, the market maker cannot see the order.
For example: The trader enters a limit order to buy 15 shares of PFA at $45, but only once the
shares have first reached $50. The limit order at $45 per share will only be submitted to the
broker once the shares have reached the $50 price.
TRAILING STOP LOSS – Allows the trader to set a price at a defined distance away from
a stock’s current market price. It is like raising or lowering a ladder to the next floor as a stock
moves in that direction, ratcheting up as the stock/option price climbs. A trailing stop for a long
position would be set below the stock’s current market price; for a short position, it would be
set above the stock’s current price. A trailing stop is designed to protect gains by enabling a
trade to remain open and continue to profit as long as the price is moving in the right direction,
but closing the trade if the price changes direction by a specified percentage.
d
STOP ALARM – A Stop Alarm is set by the broker. If the stock triggers an
alarm, the broker is directed to call the trader to ask for instructions, or an alert
may be sent to your cell phone, computer, or email.

MasterMind Traders 10
 RETURN ON INVESTMENT

Your Rate of Return = How Hard Your Money Works

Profit
= Return on Investment
Investment

$1000
= 50% ROI (Return on Investment)
$2000

MasterMind Traders 11
 FUNDAMENTAL ANALYSIS
FUNDAMENTAL ANALYSIS - A method that the trader can use to evaluate a company’s
related financial information to help determine the strength or weakness of the stock. There
are several basic fundamental indicators to consider when evaluating a stock to purchase.

AVERAGE DAILY TRADE VOLUME – The first element to consider is a stock’s average
daily trade volume. Do not buy the stock if it is not trading at least 300,000 shares a day.
And if a stock is not trading at least 1 million shares a day, it is very rare that you would ever
trade options on that stock.

52 WEEK HIGH AND LOW – Looking back over the last year to identify a stock’s 52
week trading range and seeing where it is currently trading gives us a great deal of valuable
information.
• If we see the stock is now trading near its 52 week high, we’ll study its underlying
technicals to determine whether it may be ready for a pullback, or if it is going to move
higher.
• If we see the stock is now trading near its 52 week low, we need to consider whether the
stock is ready for a rebound or if it is going to drop further in price.
• If we see the stock is now trading between the 52 week high and low, we need to look for
the well established price targets that gives us an indication of how much
the stock can potentially move.

MasterMind Traders 12
 FUNDAMENTAL ANALYSIS

MARKET CAPITALIZATION - The total dollar market value of all of

a company's outstanding shares. To determine market capitalization, we multiplying
a company's outstanding shares by the current market price of one share.

Large Cap Company – 5 billion or Greater

Mid Cap Company – 500 million to 5 billion
Small Cap Company – 150 million to 500 million
Micro Cap Company – 150 million or less

BETA – A measure of the volatility, or systematic risk, of a stock in comparison to the

market as a whole. Its an indicator of the tendency of a stock’s price to respond to swings
in the market.

• A beta of less than 1 means that the stock’s price will be less volatile than the market.
• A beta of greater than 1 means that the stock’s price will be more volatile than the
market.
For example: If a stock’s beta is 1.2, it’s theoretically
20% more volatile than the market.

MasterMind Traders 13
 IMPORTANT TOOLS OF A GREAT TRADER

• A Cell Phone
• A Computer with Internet Access
• Charts
• A Good Broker – we recommend a
TradeMonster Account via our link on
[Link] for Real Time
Streaming Quotes,
Trading Platform, Alerts and
Intraday Charts

MasterMind Traders 14
 LEARNING TO CHART

We’ll Start with the Basics by:

• Learning how to determine Support

and Resistance as well as how to draw
our lines.

• Determining trend lines and how they

are drawn.

MasterMind Traders 15
 LEARNING TO CHART

CLOSE

CLOSE
CLOSE
CLOSE CLOSE

CLOSE
CLOSE

 = Close of the Period. The Period could be Daily,

Weekly, or in minutes (1, 5, 10, etc.)

MasterMind Traders 16
 OPEN BAR CHARTS

HIGH
____________

CLOSE
____________

OPEN
____________
LOW
__________

MasterMind Traders 17
 CANDLESTICK CHARTS
THE SHADOW
WICK
THE FULL BODY

CANDLESTICK
________________________

THE SHADOW
WICK

MasterMind Traders 18
 BULLISH CANDLESTICK
HIGH
____________

CLOSE
____________

WITH A BULLISH
CANDLESTICK
THE FULL BODY
IS OPEN

OPEN
____________

LOW
_________

MasterMind Traders 19
 BEARISH CANDLESTICK
HIGH
____________

OPEN
____________

WITH A BEARISH
CANDLESTICK
THE FULL BODY
IS FILLED IN

CLOSE
___________

LOW
_________

MasterMind Traders 20
 HOMEWORK!

Practice by Charting Your Own Watch List

as well as any other good stocks you find.

Here is an EXAMPLE LIST of stocks

we’ve traded in the last year or so:

AAPL GOOG AMZN

CAT NFLX GS
LVS SHLD MA
V CF ANF
VZ FFIV CLF
FCX ISRG GLD
CME BIDU PCLN
MasterMind Traders 21
 CHART PATTERNS

Chart Patterns
Pictures we see in the charts
as to trade from.

Candlestick Patterns
Patterns giving us signals of possible
signs of reversal or continuation.

MasterMind Traders 22
 CANDLESTICK PATTERNS
ONE REVERSAL DAY PATTERNS
These candlesticks send messages of indecision. Appearing at a critical
point (Support or Resistance), means the stock may reverse directions.
Most importantly, whatever happens next is SIGNIFICANT.
Doji Star Body Spinning Top

Open equals close or Small body with wicks that don’t Small body with wicks two to
prices are very close. exceed the size of the body, three times the size of the body,
usually half the size. but no smaller and no bigger.

( / ) Small bodies can either be bullish or bearish.

The body color has no influence on bullishness or
bearishness.

MasterMind Traders 23
 CANDLESTICK REVERSAL PATTERNS
ONE DAY REVERSAL PATTERNS
R

HANGING MAN SHOOTING STAR

HAMMER INVERTED HAMMER

S
Small body colors have very little significance. They can be
either bullish or bearish, no matter where they appear.

MasterMind Traders 24
 CANDLESTICK REVERSAL PATTERNS
TWO DAY REVERSAL PATTERNS
DARK CLOUD PIERCING DARK CLOUD BEARISH
COVER COVER ENGULFING

S PIERCING BULLISH
LINE ENGULFING
THRUSTING
Colors have to be as diagrammed. With reversal patterns,
PATTERN
most importantly, whatever happens next is significant.
MasterMind Traders 25
 CANDLESTICK REVERSAL PATTERNS
TWO DAY REVERSAL PATTERNS
BEARISH BEARISH BEARISH
HARAMI HARAMI HARAMI CROSS
R

S BULLISH BULLISH BULLISH

HARAMI HARAMI HARAMI
CROSS
MasterMind Traders 26
 CANDLESTICK REVERSAL PATTERNS

TWEEZERS TOP
Two candlesticks that have the same highs.
There can be one, maybe even two candlesticks between
the candles with the matching highs but there will be
a better reversal with no center candlesticks.

MasterMind Traders 27
 CANDLESTICK REVERSAL PATTERNS

TWEEZERS BOTTOM
Two candlesticks that have the same lows.
There can be one, maybe even two candlesticks between
the candles with the matching lows but there will be
a better reversal with no center candlesticks.

MasterMind Traders 28
 CANDLESTICK REVERSAL PATTERNS
THREE DAY REVERSAL PATTERNS

EVENING STAR ABANDONED BABY

EVENING STAR

The middle candlestick (the Star) should be a message

of indecision, most likely a Spinning Top, Shooting Star,
Star Body or a Doji. The smaller the body (such as a Doji)
the stronger chance of reversal.
Star body color has no significance.

MasterMind Traders 29
 CANDLESTICK REVERSAL PATTERNS
THREE DAY REVERSAL PATTERNS

MORNING STAR ABANDONED BABY

MORNING STAR
The middle candlestick (the star) should be a message
of indecision, most likely a Spinning Top, Hammer, Star
Body or a Doji. The smaller the body (such as a Doji)
the stronger chance of reversal.
Star body color has no significance.

MasterMind Traders 30
 CONTINUATION PATTERNS

RISING THREE METHOD

BULLISH MAT HOLD

Small candle body color has little or no significance.

MasterMind Traders 31
 CONTINUATION PATTERNS

FALLING THREE METHOD

BEARISH MAT HOLD

Small candle body color has little or no significance.

MasterMind Traders 32
 CHART PATTERNS
REVERSAL PATTERNS

DOUBLE TOP

DOUBLE BOTTOM

MasterMind Traders 33
 CHART PATTERNS

REVERSAL PATTERNS

HEAD AND SHOULDERS TOP

HEAD AND SHOULDERS BOTTOM

MasterMind Traders 34
 CHANNELING STOCKS
A channeling stock is a stock that is moving in a predictable and repeatable
pattern between two specific prices over a short time frame.

Sell Point @ $4.75 (GTC Order)

Resistance @ $5

Support @ $3
Buy Point @ $3.25 (Limit Order)

Protective Stop Loss @ $2.75

MasterMind Traders 35
MASTERMIND RULES FOR CHANNELING STOCKS

• CHART FILTERS
Where to find your candidates: _________________________
• Conditions to be met:
$15
 Priced Below _______
 Channeling once or twice already.
300,000 shares per day.
 Average daily stock volume of greater than_____________
SUPPORT
 Moving up off of ________________.

• SUPPORT & ____________________

Chart the stock. Draw the _________________ RESISTANCE lines.
• 20% line to signal a buy.
Check the Stochastics. They should be moving up through the ______

• ENOUGH shares of stock.

Buy _______________

• GTC and your _________

Set your __________ STOP exits.
• Wait for the trade to complete and do it all over again.

MasterMind Traders 37
 BASICS OF CHANNELING STOCKS
3 DIRECTIONS:
• PRICES MOVE IN _____
UP
1) _______ DOWN
2) _______ SIDEWAYS
3) ___________
• CHANNELING STOCK: PEAK
– Bot _____________________________________
– Top Line
– Inside _____________________________________
TROUGH
-- Breakout ________________

-- Breakdown ________________
•

_____________________________________
– Top Line
– Inside _____________________________________

MasterMind Traders 37
 BASICS OF CHANNELING STOCKS

Trending up is a BULLISH Trend

Trending down is a BEARISH Trend

MasterMind Traders 38
 WHAT IS MARGIN?
Basically, MARGIN is the amount of your own money that you are required to have in a trade. Your broker
determines the margin amount that must exist in your account before you can begin “buying on margin.” When you
“buy on margin,” you are borrowing money from your broker in order to be able to increase your purchasing power.
The broker may agree to loan you anywhere from 1% - 50% of the amount of your trade. The broker will charge
you interest if you choose to “buy on margin,” typically 1% per month or less.
FOR EXAMPLE: You have a portfolio value of $15,000. The maintenance margin is 50% or $7,500 (the amount
you must maintain as cash in your account) and your equity (cash value) dips just a dollar below $7,500, the broker
can initiate a “margin call.” This means you must deposit additional money to bring the balance back to the margin
level ($7,500) or the broker has the right to sell anything existing in your portfolio to recover his investment.
Buying on margin can create the potential for greater returns. But it can be very risky as well, because it also creates
the potential for greater losses. For example: You buy 1000 shares of PFA, currently trading at $14 a share. Instead
of buying the stock with $14,000 of your own money, you only put up one half, or $7,000, while your broker puts
up the other half, or $7,000. One month later, when the stock reaches $16, you sell your 1000 shares for $16,000.
What has the use of margin done for your profits? You earned $2,000 profit on $7,000 instead of putting in $14,000
of your own money. This significantly increases your profit. You earned a 28.5% rate of return in only one month,
and you only had to pay your broker 1% in interest ($70) for the margin amount (the additional $7,000).
And what happens if the stock goes down in price? If your portfolio goes down in value below the maintenance
margin amount, you will get the dreaded “margin call.” Your broker does not care how much you lose, but they do
care about how much they could lose, so they have the right to “call in” their portion of the trade. If you do not have
the money in your account to pay back what you owe, your broker has the right to sell any other stock that
you may have in your account to satisfy the margin requirement. A good rule to follow is to
not borrow money if you do not have the ability to pay it back!

MasterMind Traders 39
 GLOSSARY OF TRADING TERMS
ASK PRICE - The price a seller is willing to accept for a stock or option.

AT THE MONEY – When the option’s strike price is identical to the price of the underlying
security.

BETA - A means of measuring the volatility of a stock in comparison to the market as a whole.
A beta of 1 means the price will move with the market. A beta >1 means the price will be more
volatile than the market. A beta <1 means that it will be less volatile than the market.

BID – ASK SPREAD - The amount that the ask price exceeds the bid price.

BID PRICE – The price a buyer is willing to pay for a stock or option.

CALL OPTION - An option contract giving the owner the right, but not the obligation, to buy
a specified amount of an underlying security at a specified price within a specified time.

CANDLESTICK CHART - A price chart that displays the market’s high, low, open and close
for each day over a specified period of time.

CONSUMER PRICE INDEX (CPI) – A measure of price changes in consumer

goods and services such as gasoline, food, and automobiles. Also referred to as
"headline inflation.”
MasterMind Traders 40
 GLOSSARY OF TRADING TERMS
DAY ORDER – An order to buy or sell a security that automatically expires if not executed on
the day the order was placed. A day order is good for that day only.

DELTA - The ratio of change in the price of a the underlying asset to the price of a derivative.

FLOAT - The total number of shares available for trading. Float is calculated by subtracting
closely-held shares from the total number of outstanding shares.

GOOD TIL CANCELLED (GTC) - An order to buy or sell a security at a set price that
remains open until you cancel it or the order is filled.

IN THE MONEY - For a call option - an option's strike price is below the market price of the
underlying stock. For a put option – the option’s strike price is above the market price.

LONG-TERM EQUITY ANTICIPATION SECURITIES (LEAPS) – A type of option

contract that expires longer out than 9 months, and sometimes up to 2 years. Standard options
generally expire within nine months.

LIMIT ORDER - A limit order gives your broker a specified price (or better) at which you
are willing to buy or sell your stock or option.

MasterMind Traders 41
 GLOSSARY OF TRADING TERMS
MARKET ORDER - A type of order that tells your broker to buy or sell your stock or option at
whatever the current quoted price is when your trade reaches the trading floor.

OPTION - A contract sold by one party to another that gives the buyer the right, but not the
obligation, to buy or sell a security at an agreed price during a certain time frame or specific date.

OPTIONS CONTRACT - Options are sold in a certain measure, called a contract. 1 contract
consists of 100 shares. The price of an option is quoted per share, not per contract.

OPTIONS EXPIRATION DAY - Options expire on the third Friday of their expiration month.

OPTION GREEKS – How incremental changes in factors affecting an option price are measured.
These help to understand the risk and reward potential of option positions.

OUT OF THE MONEY - For a call option - an option's strike price is above the market price of
the underlying stock. For a put option – the option’s strike price is below the market price.

PREMIUM - The income received by an option seller from the option purchaser.

PRODUCER PRICE INDEX (PPI) – A group of indexes measuring the average

change in selling prices received by domestic producers of goods/services over time.

MasterMind Traders 42
 GLOSSARY OF TRADING TERMS
PUT-CALL RATIO - A ratio of the trading volume of put options to call options. An indicator
of investor sentiment in the market. A high volume of puts compared to calls indicates a bearish
sentiment.

PUT OPTION - An option contract giving the owner the right, but not the obligation, to sell
a specified amount of an underlying security at a specified price within a specified time.

STOP ALARM - A Stop Alarm is set by the broker. If the stock price triggers an alarm, the
broker is directed to call the trader to ask for instructions, or an alert may be sent to your cell
phone, computer, or email.

STOP LIMIT ORDER– A type of order that tells your broker to buy or sell at a specified price
(or better) after a given stop price has been reached.

STOP LOSS ORDER - A protective order that closes out a trade when it has gone against you
a pre-determined amount. You enter an order that will “stop” you out of the trade automatically,
if the stock or option trades at or below a specified price.

STRIKE PRICE - The specific price per share for which underlying stock may
be purchased (a Call) or sold (a Put) by the option holder up to the expiration date
of the contract.

MasterMind Traders 43
 DISCLAIMER
Neither MasterMind Traders or any of its personnel are registered broker-dealers or
investment advisors. We may mention that we consider certain securities or positions to
be good candidates for the types of strategies we are discussing or illustrating. Because
we consider the securities or positions appropriate to the discussion or for illustration
purposes does not mean that we are telling you to trade these exact strategies or securities.
Keep in mind that we are not providing you with any specific recommendations or
personalized advice about your own trading activities. The information we are providing
is not tailored to any particular individual. Any mention of a particular security is not a
recommendation to buy, sell, or hold that or any other security, or a suggestion that it is
suitable for any specific person. Keep in mind that all trading ALWAYS involves a risk
of loss, even if we are discussing strategies that are intended to limit risk.

Also MasterMind Traders’ personnel are not subject to trading restrictions. Myself and
any others at MasterMind Traders could have a position in a security or initiate a position
in a security at any time.

MasterMind Traders 44