With a brand new year among us it’s time for another epic edition of Tools of the Trade. 2011 was a year to remember (or to be blocked from memory) as somehow amongst $1 trillion+ in new US Debt and a whole heck of a lot of drama in Europe the S&P 500 managed to squeeze out a $.04 gain. What’s up with that?

I am not sure about you readers, but for me the market atmosphere was anything but ideal in 2011. I invest entirely as a hobby and only when free time permits (StockBrokers.com receives most of my undivided attention now a days). As a result, I spent most of 2011 sitting in cash amassing a thrilling return of .0000001%. But, for the times I did dip into the market in 2011, I almost always was stopped out for a quick loss as the market gyrated like the witches wheel ride at your local carnival.

Remaining optimistic however, perhaps this year will be different. I mean really who knows how far this “more debt, no problems” philosophy will take us in 2012. I for one am eager to see what happens. If worse comes to worse, I figure that atleast by the time my wife and I have a family and our kids are grown up everything will be back to normal. Here’s a toast to the future.

Stock market aside, I hope you enjoy this years Tools of the Trade post. After you finish reading please feel free to leave a comment and spread the love via Twitter and Facebook. I’d love to hear from you!

2011 Blog Highlights

• Acquired TraderMike.net in January from the infamous “Trader Mike”. In November all stock market recaps were switched to being posted here at StockTradingToGo and the two blogs feeds were merged. This boosted the RSS count past 17,000 .
• Was interviewed on WIOX Radio NY “Money Train” with Chris Gaddis in April (Audio). StockTradingToGo was also featured in Money Magazine that same month.
• Had my first nationally published article in Futures Magazine, July 2011 (tip, blogging is much easier than writing a print piece!).

Computer Setup

Three 24″ LED monitors on a Windows 7 PC with a 128GB SATA 6 GB/s SSD Hard Drive, Core i7 3.07 GHz processor, 6GBs DDR3 Memory, and two XFX 6870 video cards running in Crossfire mode. I also have a 50 MBps internet connection (5 MBps upload) to ensure that the internet is always flowing like cool-aide on a hot summer day.

Here is a screenshot with thinkorswim by TD Ameritrade maxed across all three screens (note this is definitely not my standard setup. Instead, I usually run MarketSmith on the far left screen with the center screen housing my web browser and the far right screen occupying thinkorswim):

Brokers

My retirement account is with OptionsHouse and my regular trading account is with TD Ameritrade. Truth be told I have brokerage accounts with over a dozen online brokers because we test them all throughout the year at StockBrokers.com. Every broker has its pros and cons and it really all depends on what matters to you most as an investor. If you are considering switching brokers, read my stock broker guide here on StockTradingToGo then head over to StockBrokers.com.

Investment Sites, Services & Subscriptions

Here is a list of the non-paid and paid services and subscriptions I currently utilize in no particular order. In full disclosure, because of the blog and the relationships I have built over the years, many of these services are provided to me for free. There are also many other services I am given subscriptions to but I do not use them regularly.

With that said, the services & subscriptions below are a part of my daily routine and the ones I personally recommend. There is no artificial marketing hype here; this is true love:

• Investors.com – $259 per year – I am a big Will O’Neil fan. I use Investors.com, MarketSmith, and my favorite stock book of all time is How to Make Money in Stocks. As far as Investors.com goes though, I like tracking the IBD 50, reading the featured articles of the day, and if time permits I do enjoy browsing through the latest issue of Investors Business Daily (IBD) web edition.
• MarketSmith -  MarketSmith ($999 per year) + eSignal real-time quotes ($34.95 p/m) + Pattern Recognition add on ($14.95 p/m) - MarketSmith is outstanding charting software that makes performing basic technical analysis very easy. There were many enhancements added in 2011 including an iPhone and iPad app (great to use before bed), the pattern recognition tool, and the inclusion of much more historical data which makes studying decade old charts possible.
• SentimenTrader – $25 per month – Through SentimenTrader.com Jason provides daily market sentiment reports every morning which are a great way to start any morning email session. Jason analyzes every trade indicator known to man including seasonal trends and over 80 years of historical data to produce a daily report on the market. The reports are easy to read and highly educational.
• ChartPattern.com – $89 per month – ChartPattern.com is home to Dan Zanger (Read my full Dan Zanger review) who is the world record holder for the largest portfolio return in one year. His claim to fame is turning $11,000 into $42 million during the late 90s. Dan sends out a nightly newsletter several times a week with technical analysis and personal notes. He also has a chat room for subscribers. Overall if you enjoy my easy to read charts, you’ll really like Dan’s newsletter.
• StockCharts.com – Basic package $14.95 p/m – StockCharts.com is the site I use to produce all the stock charts for the nightly market recaps here on StockTradingToGo. The primary reason I have the basic package is so I can have access to more than three years of chart data and save my chart layouts. The free version is the exact same as any paid package less a handful of technically non-critical features.
• FINVIZ Stock Screener – Free – FINVIZ’s Stock Screener is the best stock screener available on the web. Having it be free is like getting your birthday drink free each year at Starbucks. It makes it that much more awesome. Once you get the hang of using this screener you will bookmark and return in dedicated fashion. Really.

MarketSmith Screenshot

Top 5 Favorite Stock Blogs

Improving upon last years Tools of the Trade post, I want to include a list of my favorite stock blogs this year. There are many fantastic writers on the web today. Here are my favorites in order:

1. ZeroHedge
2. The Big Picture
3. MarketMontage (Previously FundMyMutualFund)
4. Bespoke Investment Group
5. StockCharts.com Blog

I could probably push this list to ten, but I want to keep it to my absolute favorites. ZeroHedge reigns supreme because it is the only blog that can actually make me “giddy” before reading each day. The writers, in particular Tyler Durden, are unbelievably talented and so ridiculously smart it blows me away. I also love the subtle humor tied in with most posts that only a super star blogger can achieve. Not to be excluded though, Barry Ritholtz of The Big Picture is also an all star. So is Mark of MarketMontage alongside the Bespoke and StockCharts.com teams.

Screening & Watch List

The majority of stocks that make it to my watch list are discovered within blog posts or on websites like investors.com. If I am screening though, it is done with FINVIZ or through the MarketSmith screener (great because you can include IBD ratings criteria).

Overall my watch list total on MarketSmith fluctuates. Right now I have 150 securities in my watch list. For most of 2011 though the number hovered around 100 or below as the market offered little opportunity.

Investment Philosophy

I am a CANSLIM investor at heart. I have learned to respect both fundamental and technical analysis equally, and I leave the fundamental research predominantly to the investors.com team. Success revolves around going long when the market is moving up and buying the absolute best stocks (fundamentally and technically), adding to my positions as they prove themselves correct.

I always use stop losses and typically I shoot for a profit to loss ratio of 1:3. This means I can be wrong three times in a row, have one winner, and still be profitable. Any success beyond that is just icing on the cake.

Allocation wise I run a concentrated portfolio. When the market is favorable I have no problem investing 50% of my portfolio in one stock (buying in increments as it moves up in price and presents follow up buy points). If I go on a losing streak I try and cut back my initial position size until I get a winner. This prevents me from losing more money if I start making undisciplined decisions. Overall I very rarely hold more than five positions at a time.

Looking at the market as a whole, I see it as a life long game and a source of quality education that can usually be applied to life. Every trade is another lesson to be learned and even though I have over a decade of “experience”, I am anything but perfect and am often making repeat mistakes. Staying disciplined is probably the toughest aspect for me, but each year I get better.

So that’s that. I hope you and enjoyed and please feel free to share your own tools of the trade via comment below. I’d love to hear from you. Stay frosty out there and I hope 2012 brings all of your portfolios great success. Thanks for reading!

This is a guest post by Mike Scanlin of Born To Sell.

“Covered call” investing is a popular and conservative options-based income-oriented strategy. According to a recent Wall Street Journal article, 84% of Charles Schwab option-enabled accounts trade covered calls. Because of the downside protection granted from the call premium received, they are more conservative than their nearest cousin, the buy-and-hold strategy.

However, like all investment strategies it is possible to lose money with covered calls. There are ways to reduce your risk and stack the odds in your favor. A lot of it has to do with staying away from high risk situations, but there are also positive things you want to look for.

Here are the top 10 ways to improve your covered call investing:

1. Avoid leveraged ETFs. Leveraged ETFs, which are like normal ETFs except they use 2x or 3x leverage to magnify the results compared to an unleveraged ETF, are mostly day trading instruments not designed to be held over night. Not appropriate for covered calls. You can usually identify leveraged ETFs because they have words like “ultra” or “leveraged” in their names.

2. Avoid companies with earnings release dates before option expiration. Stocks are extra volatile just before and after an earnings release date. While that volatility can make for attractive call premiums, you don’t want the underlying stock to drop 20% overnight because of bad results or poor guidance.

3. Don’t count on the FDA. When there is an FDA announcement, biotech and pharmaceutical stocks tend to get cut in half or double instantly. In either scenario, covered calls are not the best strategy to take advantage of that kind of volatility. You will rarely get enough premium to cover the downside case and if you’re going to take the risk then why put a cap on your upside?

4. Avoid thinly traded stocks. Large volume makes for small spreads. The opposite is also true: thinly traded stocks and options have large spreads. These large spreads will cost you if you need to exit your position early or make an adjustment to your position. Better to stick with highly liquid stocks, or at least avoid the illiquid ones.

5. Avoid options with low open interest. Similar to #4 above, you don’t want to be in an option series that has low open interest. If you ever need to exit early you are unlikely to get a fair price in a series with low open interest. The series should have at least 2000 contracts of open interest, but as little as 1000 is probably okay.

6. Don’t chase highest return without knowing why. It’s easy to find the top yielding covered calls but those need to be viewed with a skeptical eye. Why are those options priced so high? Is there some pending news announcement? Or is the stock a momentum play? Or a short squeeze? There’s almost always a discoverable reason for juicy premiums and you want to make sure you know what it is before getting involved. Do some research.

7. Position sizing is important. Don’t put all your eggs (or even 20% of your eggs) into a single investment. If you have a small portfolio, limit each position to no more than 10% of the portfolio value; larger portfolios should target no more than 5% in a single position. If you can’t meet those goals then consider doing covered calls on diversified ETFs which have built-in diversification.

8. Dividends before option expiration are good. If the stock is going to pay a dividend then set yourself up to receive the dividend as well as the call premium. Look for ex-dividend dates before option expiration. Be aware, though, that if there is very little time premium remaining in the option on the day before the ex-dividend date then you may be subjected to early exercise.

9. Diversify. Don’t put all your covered call trades in the same industry sector. Spread them around to different sectors to avoid too much sector concentration and correlation. And, again, if your portfolio is on the smaller side then consider broad-based ETFs as they are a basket of stocks and remove much of the single-stock and single-sector risk.

10. Be prepared to own the underlying stock. Even the best laid plans sometimes don’t work out. If you’re selling short-term in the money or deep in the money options with the expectation that they will be called away, realize that they may not be called away. You may end up owning the stock after expiration. If you’re not comfortable with owning it then choose a different stock for a covered call.

Mike Scanlin is the CEO of Born To Sell, a web site dedicated to covered call investing. He has been investing in options for over 30 years. You can read more articles from Mike on his Covered Call Blog.

The NSE ASI closed down by 43.35 to close the year at 20,730.63 points. overall the market recorded a loss of 16.31% while the the highest loss was the Oil & Gas sector down by35.04%.

The end of year rally ended on a strong note in terms of huge volume as First bank shares pulled off a total of 826 million shares valued at N7.6bn.

Technically, We did see the DOUBLE TOP formation in action as the NSE ASI pullback within its resistant  levels as profit taking was present.

However, a significant loss of bullish momentum along with a short term bearish divergence turned up on my short term momentum indicators today which seems to suggest that even if this bull run last through New Year, we might still not see the “January Effect” of old.

The January effect has been known  as a continuation bullish pattern from December rallies up to February and March for years

For now the NSE ASI continue to make a cool and steady climb above its 5DMA  and there is still no clear sign of weakness in this climb towards the October highs of 20,900 points

For now, the NSE ASI remains in a short term bull trend, intermediate bull trend within a primary bull trend.

Lets continue to bask ourselves in the season and look forward to a better 2012! (I would also do a wrap up on 2011 video report and what I expect 2012′s market to be like later this week.

Kindly click on market Yearly Gainers & Losers on how your stocks performed this year.

Happy 2012 New year in advance. 

That reminds me KEITH SWEAT (An American POP singer was on the floor of the NSE to close the market for the year, Also learnt he is a broker and traded under the Mercantile Stock Exchange).

YEARLY GAINERS & LOSERS

TA SIGNALS FOR DECEMBER 30, 2011

The market resumed jumping out of the window type of bear trend today down by 35.51 points below 20,000 with a huge dive on strong volume to close at 19,967.84.

Today’s “rally” is merely a textbook drop after a drastic drop. Almost all big drops are followed by a small pullup,

The simplest way to tell is to see if the candlestick today made a lower high, lower low and a lower close. Yes today’s rally was down on Huge volume but it has not threatened the last short-term support Low of 19,961.20 recorded in 24th Nov 2011. Until this line breaks along 19,800 13th October Lows before I accept the NSE ASI is indeed in trouble.

Today marks the beginning of the December effect (Seasonal stock Market patterns) where many hedge funds, institutional investors, and high powered individual traders are taking advantage of to bring home major profits on short term trades.

Below are reasons why you should start planning your Entry Levels despite continuous downward trend:

The Best Months For Stocks

In order from top to bottom, the best months for seasonal stock market trends are January and December.

According  to Market analysis, December is the #2 best month of the year. bit of an anomaly in seasonal stock market trends due to what traders call the “December Effect.” The NSE ASI average gain is+100-490 points from last 2 weeks of December into January.

While there is no such thing as a foolproof recurring pattern in the stock market, certain trends do often occur based on the time of the year. These tendencies are not usually stronger than overall market conditions, but they do play into price fluctuations. In the event of a relatively tame stock market, a seasonal trend may offer greater influence on price movement. When market conditions are particularly dramatic, however, seasonal trends usually have little influence.

Window Dressing

Years End

January Effect

VOLUME PRICE ANALYSIS