Trader’s Talk:
TEI’s Louis Horkan Interviews Mike Curtis

In this month’s Traders Talk, we’re chatting with Mike Curtis, an experienced trader and one of Preston’s most experienced coaches. Mike’s been an active trader in the derivatives markets for eight years, trading options, futures and foreign currencies. He shares his take on the “The 1% Solution” and some insight from personal experiences in the markets.

TEI: Can you briefly explain why the market cycle that Preston talks about frequently is so important?

MC: Understanding the market cycle is so important because it gives you a feel for whether we might be heading for a correction or are actually heading higher. We base our trades around the prevailing market cycle. Not paying attention to the market cycle is much like trying to play all offense and no defense in a game. You have to know when to protect your trades and your account. If the market cycle is changing and heading into a correction, you can react accordingly by structuring some bearish positions and taking steps to protect other positions that you’re currently in.

TEI: It’s detailed in Preston’s book, “The 1% Solution,” but can you tell us the main element you look for when attempting to discern the market trend?

MC: We monitor Investor’s Business Daily’s proprietary formula that calculates accumulation/distribution grades for the S&P 500 and the Nasdaq Composite indices. When we see a two-grade shift, such as from an A to a C grade, we know we’re looking at a significant move. The market cycle is shifting, so we come in and make adjustments accordingly.

TEI: Given that we’re in the midst of earnings season, what’s your advice for traders contemplating positions?

MC: Holding positions around earnings is a lot like gambling, you just don’t get the free drinks. We see traders try to structure trades leading into an earnings announcement, but we don’t suggest it. Premiums are priced very expensively right before the earnings announcement. Right after the announcement the implied volatility gets crushed and the options really devalue. A trader could play it correctly and have the stock actually move in the direction they anticipated, but make very little or actually take a hit because of what tends to happen with the implied volatility.

TEI: Preston identifies pre-announcements as a favorite strategy in “The 1% Solution.” Can you explain the strategy and what to watch for?

MC: The pre-announcement strategy involves companies that come out and say, “Hey, we’re going to do better than all of you analysts on Wall Street expected,” generally a couple of months before earnings are due to report. This sparks a whole bunch of excitement and energy, and we usually see a lot of volume with the announcement. The news is good and the stocks tend to react positively. They usually continue to make a nice move over the next couple of months, allowing you to build that trade and hold it for a month or two leading into the next earnings report. Additionally, you have that implied volatility working in your favor, which helps increase your return on the trade as well.

TEI: Preston mentions the fact that his Ideal Set-Up trade strategy will likely make many traders a little nervous, given they are buying at breakout levels, which seems counter-intuitive. Can you explain why that makes sense?

MC: Most people are going to feel uncomfortable starting a new bullish position after a stock has already made a nice strong move to new highs. They’ll feel like their late to the party and missed the boat. Fact is there is generally some good news and something going on that propelled it to new highs. These kind of scenarios can spark a rally lasting months… Yeah, the stock may have jumped up 10 percent on the news, but it might have another 20 percent or much more over the next couple months. You need to keep in mind that when this happens on big volume, it points to institution buying, which can last for some time as they establish positions. There’s the additional issue of buying activity tending to attract new buying.

TEI: You just mentioned institution buying, which is talked about a lot in the book because of how it drives market cycles. Can you briefly explain that?

MC: When institutions enter a position in a stock, they’re generally buying upwards of hundreds of thousands of shares at a time. It can take days, if not several weeks, to establish a position. That’s the game that these institutional traders have to play. They’re coming in and building positions over time. Fact is, their buying is what tends to drive cycles and also works to propel stocks to new levels, which is all the more reason to consider jumping on a stock trading to new highs instead of automatically being afraid of doing so.

TEI: While these scenarios can be profitable, you have to be very careful in identifying them, correct?

MC: Absolutely. Preston identifies four key criteria in the book that must be met to justify this kind of trade.

TEI: The powder keg trade is basically a stock split scenario, correct? How profitable are they?

MC: Powder kegs are a ton of fun. You’re talking about the same excitement and buzz of a preannouncement. Think of a stock that’s just exploding, and then take a gas can and dump gas on that fire— that’s what powder kegs are like. Almost anytime you get a stock split it’s a very positive catalyst for the announcing company. Good things are already going on for the stock to trade up to the point where a split is justified. The split announcement is essentially the company puffing up their chest and announcing that they are doing very well. Given what are usually a number of positive factors going on in the company and with the stock, you’re really stacking the odds in your favor. You can get spectacular moves in these situations.

TEI: Please share some about weekly options and why ya’ll suggest them?

MC: We’ve got several strategies that we build around weekly options, but in general we’re selling premium. Doing so allows time decay to work in our favor. Weekly options get created Thursday morning and expire the following Friday afternoon, which provides for extremely rapid time decay over those seven trading days. We sell the new options each week to capture profits from time decay. To give you an idea of how powerful they can be, when weekly options originally hit the scene and became available, our income strategies pretty much we doubled.

TEI: Preston talks about information overload and how it hurts traders. What are your thoughts?

MC: So many times we’ve got eight different newsletters coming in and we’re reading four different books. This is a lot to focus on, which can inhibit any trader, especially newer traders, from getting good at any approach. You have to be discerning in what you read and follow. Not doing so waters down your time and efforts.

Another related issue is that of traders believing they can go out and try to tackle multiple strategies. While they might understand them in theory, they generally aren’t equipped to understand each strategy to a level where they can trade them safely and effectively.

TEI: Aside from information overload and trying to trade too many strategies, what are other key mistakes you see newer traders make?

MC: They take on too much risk. This is generally due to the fact they don’t really have a structured plan of attack as far as position sizing, risk tolerance and overall account management. Unfortunately, taking on too much risk invariably strips the trader of a chance to be successful. They begin letting emotions come into the picture and that starts to compound their problems.

TEI: Before wrapping up, I wanted to touch on your background, given that one’s own perspective is generally helpful to other traders, both new and seasoned. How did you get involved with the markets?

MC: I’ve been trading almost nine years now. My interest in the markets started early. I actually remember being about 12 years old and my dad
teaching me about trading companies and looking up ticker symbols.

TEI: What was the size of your first account and did you blow it up or manage to build it up?

MC: I think my first account was just a few thousand— $5000 or less. My first trade was a covered call. I made the mistake of not checking the earnings. The stock gapped down when earnings were released, so I took a decent hit… fortunately I managed not to blow that account up. The experience made me go back and question what I was doing and begin to learn more about creating a successful approach.

TEI: When did you begin to feel you were turning a corner in your trading?

MC: To begin with and for some time thereafter, I would buy calls or puts and try to hold them for a few days. Basically I had some winners and some losers, but I felt like a hamster on a wheel. I started branching into becoming an option seller. Eventually the results really started to improve for me. I went from simply trying to pick direction and using the “hope and pray” method, to feeling as if I was taking more control of my trading.

TEI: What’s your best advice to traders now?

MC: Well, it amazes me how many people go out there and try to start a trading business without obtaining training. You wouldn’t do that in any other business, yet a lot of newer traders do just that. They simply flip on their computer and jump in after having read a few articles and a book or two. In my view most people would be benefited by training. I can honestly say that what helped me become successful so quickly, and at such a young age, was the fact that I was able to surround myself with experienced traders that had been there…that had made mistakes and already gone through the trial and error. I was able to tap into them and learn their systems and methods without trying to figure it out all on my own.

TEI: Regarding training, how can individuals take advantage of the training offered through Traders Edge Network?

MC: Once they purchase “The 1% Solution” or become a member of one of our subscription services, we’ll talk to them about the potential of coaching. They can also dial our office directly with questions or to discuss utilizing our coaching service. We’ll talk or meet with them several times to determine their needs, decide whether coaching makes sense and devise a personalized program.


Featured: Mike Curtis has been an active trader in the derivatives markets for 8 years. He has mastered the world of equity and index options along with spread trades, futures and foreign currency. He loves teaching and has personally coached over 500 individual investors needing help learning to apply a consistent trading method. Through his mentoring, he has helped hundreds of people change their financial situation through trading in the financial markets. He is a husband and father of 4 young children and currently lives in Salt Lake City, Utah.

You can contact Mike at 801-717-3993 to learn more about the Traders Edge Coaching Program.

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