Weekly Newsletter   Challenge account


Posted by Martin January 03, 2020
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How will the US air strike on Iran impact the world’s stock markets?


I don’t think there will be any impact at all. There may be some dip and overreaction of the markets as is typical these days, but then the markets return back to their normal behavior. If you look at the overnight US futures and market opening we were about 1.22% negative (when I saw it, I think we dipped even further down) and as of this writing we are down only 0.62% so we literally recovered half of the losses intraday. In a few days, we will be back up, reflecting the US economy rather than some overreaction.




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Posted by Martin January 02, 2020
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What is the easiest way to make small profits on the stock market?


There is no straight answer to your question. It all depends on many factors:
 

  1. How much money you have
  2. What is your risk tolerance
  3. How much time you have to stay invested
  4. What is your knowledge about investing in the stock market
  5. What is your “profit” expectations
  6. What would you do if your investment loses 50% of its value during your investment holding period?
  7. What do you expect from your holdings – regular income? Growth? Or some speculative swing trade income?
     

Based on these answers and many more you can set up a strategy. Many will recommend you mutual funds. I do not like mutual funds as these outperform the overall market grossly (most of them). I am a strong believer in individual stocks. However, overall, in the stock market, there is no easy way to make money. It would be similar as to asking what is the easiest way to perform a brain surgery.




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Posted by Martin January 01, 2020
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What are some tips you would give to someone who has never invested in stock or shares? What are some things they must know and learn to get started?


First you need to answer and set a goal. You want to invest – why? What do you expect? What do you want to achieve?

Once you know answers to it, you can start learning what investing or trading strategy can get you there and focus on that. If you do not know what you want from your investments, it will be difficult to figure out where to start and what to learn. There is tons of information out there but not everything is suitable for everyone.

Another question you need to know answer to is how much time you have to dedicate to your investing management (there are types of investments where you can pay a very little attention to over time – but also expect lesser returns, and investment which may need daily monitoring – more aggressive and profitable). So you need to choose this too before you commit money.

Then you need to see how much money you have to invest as your strategy will be different if you can invest $50 a month or $2000 a month.

Next, what if your age and time horizon. If you are in 20’s and have 40 years in front of you, then your strategy should be very aggressive than if you are in 50’s.

Once you know these answers, you can set a strategy, pick the right books, read, save money, ans start slowly allocating your cash into the selected stocks.

Here is an example I did myself:

I wanted an investment strategy which would generate income no matter what the stocks are doing – in other words, generating income even though we are in a recession and panic, so I do not have to sell the stocks in order to pay my bills and thus incur a loss (when selling assets in a recession). What kind of stock can do this? Well, dividend stocks. But not all dividend stocks are being created equal. Some are good and some bad and actually lose you money. So how do you find out which dividend stocks are good stocks and which are trash? To find out, I recommend you one of the best books ever written on this topic – The Single Best Investment by Lowell Miller. Read it if you are interested. It tells you you need about dividend investing.

Later on, once you gain some confidence, you may adopt a more aggressive strategy (yet still extremely safe and in my opinion safer than buying stocks out right) – options. Options will help you to boost your income which can be reinvested. You will be collecting dividends AND premiums from the option and you will be effectively lowering your cost basis. For example: you want to buy 100 shares of a stock which currently trades at $30 a share. Instead, you sell a cash secured put (or if you are in a margin account you can do a partially secured put – meaning securing it only by a margin requirement). You sell a put with 26 strike price and receive 0.40 or $40 premium. If the stock stays above $26, the option expires worthless and you keep the premium and do the same again. If the stocks drops to $26 or below, you buy 100 shares of the stock at $26 a share. If you bought a stock out right at $30 a share, you will be sitting on a $4 a share loss by now. If you bought via a put option, your cost basis is $26 minus premium received – total $25.6 a share in lieu of $30 a share. Now you have 100 shares, start collecting dividends, reinvest dividends, and start selling covered calls for more premium (overwriting the account). For this strategy I recommend you reading books by Alan Ellman. With this strategy, some call it a “Wheel strategy” you can boost your revenue to 30% annually.

But, this is what I do and learned to do. you need to define first what you want to do. It all starts there.




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Posted by Martin December 21, 2019
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WHAT DO I EXPECT NEXT WEEK (Dec 23 – 27)?


Last two weeks I was quite busy over the weekends and had no time to write my overview and expectations. Today, I am going to catch up on this deficit. My goal is to have these reviews on regular basis, if possible.
 

Let’s review the market
 

Two weeks ago, I posted my expectation of a measured move of the market and where we may go ①. Fast forward two weeks, and we are right there already.
When we broke from a base, my expectations were that we may reach 3225 level. This Friday, the market reached 3221 level (note, the numbers are not an exact science and it can be a number in its vicinity). I think, we reached the level as expected.

 
SPX
 

But, looking at the chart ① I must admit, I no longer like it. I think, we are over-extended and due for a serious pullback. Now the question is, how deep a pullback and when will it happen?

Before I get to my expectation, let’s take a look at SPY chart ②. The trend would be OK if it wasn’t accompanied by a HUGE VOLUME. We may be experiencing a bull trend capitulation and if so, we are due for a serious pullback here.

 
SPX
 

Where can we go?
 

There are a few possible levels – an obvious one is a 50 day MA at 3100 level. Or we can go and retest the breakout level at 3030 level.

Personally, I think, we will see the large pullback early next year (possibly March 2020) and minor pullback either next week or in the first two weeks in January. I do not have a crystal ball so we have to sit and wait to see when it really happens and how deep. Nevertheless, it will be a great opportunity for sure. So, when trading these few weeks, trade cautiously and do not over-extend your trades.

There is one thing which may come into play and cancel all this pullback thinking. If you look at the longer time frame of the chart ③ you will see that for the last two years (since 2018 which started with a large selloff) the market went nowhere. It was pretty much flat.

 
SPX
 

We had a breakout in July but that breakout failed and we went sideways for another 3 months before we finally broke up in October and rallied since then to the level where we are today.

When we look at the previous decline, we can see, that the market went from 2942 and dropped to 2399 level, a 543 points drop. If we use a measured move again, then from the breakout level at 3030 our next move expectation would be at 3573 level, see chart ④. This is my expectation for the move until possibly in March 2020 (or maybe sooner, maybe later). This is also why we decided to place our SPY trade (details here: https://tinyurl.com/wco3pyl) to take advantage of this move. After that we expect a pullback or a bear market to hit us. Thus, I expect only a minor pullback in the coming two to three weeks, possibly to 3100 level only.

 
SPX
 

Open trades:
 

#46 – IWM long strangle – https://tinyurl.com/vq8gtcs
#48 – OXY bull put spread – https://tinyurl.com/v4nq6n5
#49 – DHI bull put spread – https://tinyurl.com/uuxl9bh
#50 – SPY calendar call spread – https://tinyurl.com/up4vxo4
#52 – SPY long call butterfly – https://tinyurl.com/wco3pyl
 

During last two weeks we opened a few new trades. You can review them one by one above. Also make sure to follow the comments under each trade as we post our adjustments, comments, and reviews for each trade. You can also review those trades in our spreadsheet ( https://tinyurl.com/y2lzx5vs ) which contains a link back to the Facebook page listings.
 

Last Friday (December 20th) was expiration Friday and we had two of our trades expiring that day – PBCT ( https://tinyurl.com/sajds2z ), and PPL ( https://tinyurl.com/r6u4xjw ). Both trades expired worthless for a full profit. Both companies report earnings in January, therefore we will not be re-entering those trades at this time and wait for after earnings reports.
 

We also closed our IWM long call trade ( https://tinyurl.com/yx6ae54e ) for a profit. Although the stock seems to be in a good trend move to the expected level of 170 and possibly to the previous 175 high, see chart ⑤, I think we are extended to re-enter the trade now. We will wait for a pullback to re-enter a bullish trade.

 
SPX
 

Stock holdings:
 

3 HP (+1)
1 MCD
2 MSFT
1 PBCT
3 PPL (+2)
4 OXY (+3)

 




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Posted by Martin December 04, 2019
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Stocks watch list December 2019


Here are the dividend paying stocks we will be reinvesting dividends, options profits, and trade options (exceptions apply) in December 2019:
 

Helmerich & Payne Inc. (HP)
Meredith Corp. (MDP)
Mercury General Corp. (MCY)
Weyco Group Inc. (WEYS)
3M Company (MMM)
Consolidated Edison (ED)
Archer Daniels Midland (ADM)
Sonoco Products Co. (SON)
Johnson & Johnson (JNJ)
Automatic Data Proc. (ADP)
 

Stocks added:
Mercury General Corp. (MCY)
 

Stocks removed:
People’s United Financial (PBCT)
 

Monhtly dividend stocks:
 

EPR Properties (EPR)
Gladstone Investment Corp. (GAIN)
Gladstone Land Corp. (LAND)
Main Street Capital Corp. (MAIN)
STAG Industrial Inc. (STAG)
 

The first batch of stocks above are dividend champions (aristocrats) which meet our screening criteria for this month. The second batch are stocks which increase dividends regularly but are no necessarily champions. The reason I pick them is that they pay dividends monthly and they are on the list of dividend growth stocks.

Next month, we will update this list and stop buying stocks which do not make it to the list, however, we keep them if they stay in a CCC list, (see the link for the CCC list). We sell these stocks if they do not make it to our narrower list but are also removed from the CCC list.

We will be selling naked puts against these stocks (although if opportunity occurs we may take a different stock too, such as SPY, IWM, MSFT, etc.).




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Posted by Martin December 01, 2019
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WHAT DO I EXPECT NEXT WEEK (Dec 2 – 6)?


During this holidays season I was lazy at home and had not have much time (and will) to do any review of the market and our positions. So, I will keep it simple today:

The markets broke up through their resistances recently and they are in clear uptrend (see SPX chart and IWM charts below). Both have a great potential to go up. And I expect that uptrend to continue.

If we use measured move on SPX our price target is at 3,225 level and I believe we will get there. We had a small pullback to 3,100 level, which was a healthy pause for more growth. We are now clear to move higher again. The question is how fast we are about to move. We may move up alongside the upper trend line in which case it would take longer to get to the target (definitely not this next week), or we may break out that trend line and move faster. In that case it can be worrisome as that would be too fast move (like a parabolic move) and due for a significant correction. But, as of now, for the next week I expect mostly bullish move (FOMO chasing and window dressing).
 

SPX
 

IWM is in the same boat. We broke a fairly long sideways channel after forming a bullish flag. Our target is still at 173 level as before, which is a measured move of the previous channel width (14 points channel, breakout at 159 + 14 points = 173 target). Let’s see how long will it take to get there. The trend is a bit steeper for IWM so the move to 170 level may be faster.
 

SPX

 
Open trades:
 

#43 – PBCT naked put – https://tinyurl.com/sajds2z
#44 – PPL naked put – https://tinyurl.com/r6u4xjw
#45 – IWM naked put – https://tinyurl.com/yx6ae54e
#46 – IWM strangle – https://tinyurl.com/vq8gtcs
#48 – OXY bull put spread – https://tinyurl.com/v4nq6n5
 

Stock holdings:
 

2 HP
1 MCD
2 MSFT
1 PBCT
1 PPL
1 OXY
 




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Posted by Martin November 23, 2019
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WHAT DO I EXPECT NEXT WEEK (Nov 24 – 29)?


After a Friday’s strong rally a week ago the market went up on Monday and then stalled. I mentioned to be cautious although I believed we had room to upwards ①. After that, the market went mostly down ②.
 

SPX
 
SPX
 

But, it was evident, that this market was not in panic, it was resilient to bad trade deal news from Trump. It literally refused to go down. Every dip down was bought in the end. This turned the market into a healthy pullback, a healthy gains consolidation. Of course, it may all change, but I do not think it will happen. I think, we will clear this pullback, and the market will resume its uptrend ③. Then, I think we will move towards the end of year rally and go to approx. 3150 level ③. After that, we will see what the market wants to do next.
 

SPX
 

My expectation is a bull market continuation. In fact, it appears, that the selloff we experienced in December 2018 was a major bottom ④ which will not be revisited again in the next future of this market (like many previous bottoms except one in 2000).
 

SPX
 

Next week we still may see some weakness but it appears that 3100 level holds. If it keeps holding, we are heading up. Remember, that market, which refuses to go that has nowhere else to go but up.
 

Open trades:
 

#43 – PBCT naked put – https://tinyurl.com/sajds2z
#44 – PPL naked put – https://tinyurl.com/r6u4xjw
#45 – IWM naked put – https://tinyurl.com/yx6ae54e
#46 – IWM strangle – https://tinyurl.com/vq8gtcs
 

Stock holdings:
 

2 HP
1 MCD
2 MSFT
1 PBCT
1 PPL
 

#42 – We closed our remaining SPY spread trade as expected and added additional $17 dollars profit to our overall trade. We treated this trade as two separate trades but overall, we made 1.54 credit or 45% in 12 days.
 

#43 – Our PBCT naked put is still doing well although last week the stock went down from $16.48 when we opened the trade to $16.05. At the end of the week, the price recovered and the stock closed at $16.30. This makes our trade safe so far and we can do nothing as of now. We will sit on it and wait. Again, if the market keeps weak next week and the stock goes down we may attempt to roll the trade into the next expiration cycle and the same strike if for credit or a very small debit. Weekly chart indicates weakness and that we broke below two supports ⑤. If this weakness continues, we may act and roll the trade. The daily chart is a bit more promising that this level may hold ⑥. We have still plenty of time in this trade so we will keep holding it as is.
 

SPX
 
SPX
 

#44 – We took our profits from previous trades and opened a new naked put against PPL last week. We collected nice $41 credit which we immediately reinvested into the stock and bought 1 share of PPL. The naked put seems to be working well in our favor. The stock still follows the trend ⑦ ⑧
 

SPX
 
SPX
 

#45 – We added a long call using IWM as underlying. The trade worked well on Monday and Tuesday. Later on the trade started losing but not too much. If our overall market expectation is correct, IWM shall go up with the market again.
 

#46 – We also opened another far OTM long put and long call trades for which we paid literally $20 but the premise was that since we are in a low volatility market if the volatility spikes, this trade should pay off. It briefly happened with our put which gained some momentum. However, when on Friday the market recovered sharply, the momentum got lost. I expect though, that the market will keep crunching higher and higher and eventually, we may reach the 200 dollar mark. If so, our calls will have a nice paycheck for us. Overall, we only risk 20 dollars in this trade and I am willing to lose it if none of my expectations happen.
 

SPX
 




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Posted by Martin November 17, 2019
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Stocks watch list November 2019


Here are the dividend paying stocks we will be reinvesting dividends, options profits, and trade options (exceptions apply) in November 2019:
 

Helmerich & Payne Inc. (HP)
Meredith Corp. (MDP)
People’s United Financial (PBCT)
Weyco Group Inc. (WEYS)
3M Company (MMM)
Archer Daniels Midland (ADM)
Realty Income Corp. (O)
Consolidated Edison (ED)
Sonoco Products Co. (SON)
Johnson & Johnson (JNJ)
Automatic Data Proc. (ADP)
 

EPR Properties (EPR)
Gladstone Investment Corp. (GAIN)
Gladstone Land Corp. (LAND)
Main Street Capital Corp. (MAIN)
STAG Industrial Inc. (STAG)
 

The first batch of stocks above are dividend champions (aristocrats) which meet our screening criteria for this month. The second batch are stocks which increase dividends regularly but are no necessarily champions. The reason I pick them is that they pay dividends monthly and they are on the list of dividend growth stocks.

Next month, we will update this list and stop buying stocks which do not make it to the list, however, we keep them if they stay in a CCC list, (see the link for the CCC list). We sell these stocks if they do not make it to our narrower list but are also removed from the CCC list.

We will be selling naked puts against these stocks (although if opportunity occurs we may take a different stock too, such as SPY, IWM, MSFT, etc.).




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Posted by Martin November 16, 2019
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WHAT DO I EXPECT NEXT WEEK?


The market rallied to 3100 as I expected last week. It was probably a bit too fast though. Now, that we are at this level, what’s next?

I think, we still have some room to go higher, unless Trump spoils it with his trade wars, which I think is less likely since he now has other problems than a trade war, but you never know. One tweet can change it all. But, looking at the weekly chart ① we can see that we are at the top of the rising wedge with some small room to go. Will we go higher or are we bound to reverse? The daily chart ② assumes that we still have room to the upside. But I would be cautious.
 

SPX

SPX
 

IWM also indicates on its weekly chart ③ that we are on top of the long sideways channel and that we may be reversing to the downside. However, on the daily chart ④, it is forming a nice bull flag, indicating that we may in fact clear this resistance level and breakout to the upside. We need to wait now and see. Overall, I think, we may see going to 3150 and then we will see where we go next.
 

SPX

SPX

 

Open trades:
 

#42 – SPY long call box – https://tinyurl.com/y6cv5r22
#43 – PBCT naked put – https://tinyurl.com/sajds2z
 

Stock holdings:
 

1 MCD
2 MSFT
1 PBCT
 

#40 – We took profit in our MSFT butterfly this week. The stock had a nice breakout and then entered a consolidation, or high base from which we broke up again as expected ⑤. But, it seems, the trade is now extended to the upside. It may fade next week or continue higher. If it fades, we would look like geniuses that we took profits, if it keeps blasting up, we will look like idiots for not letting it run. But, if MSFT fades, and consolidate, we may re-take the trade. So far, we made 295% profit in this trade. We then took the profits, and purchased 2 shares of MSFT to build our wealth.
 

SPX

 
#42 – We closed our 308 SPY long call trade but we still hold the debit spread of the box. We expect this trade to go away next week (unless the market sells off). As of now, we have a profitable trade and in good shape. By closing the 308 long call we achieved a 52% profit. Not as great as last time, but the market slowed down and we were running out of time. So we decided to close the trade and take profits. If the debit spread closes early next week, we will add more profits to this trade.
 

#43 – We were also able to release some of the bad SPX trades this week and re-allocated our funds to our equity trading plan. We opened a new naked put against PBCT stock. The stock is a dividend champion, paying nice dividend (current yield 4.31%), and increased the dividend for consecutive 26 years. The stock recently broke from a downtrend on a weekly chart ⑥ as well as daily time frame ⑦ and is now in a consolidation pattern. We think this pattern will hold and the stock will resume its uptrend. If not, and the stock dips below, we will take assignment, buy 100 shares and sit on the holding, collect dividends, and if the stock returns up and above our purchase price, we may start selling covered calls. We will not be selling covered calls if the stock is below our cost basis. The reason is, that this stock has thinly traded options and doesn’t offer much ability to roll or otherwise adjust the trade.
 

SPX

SPX

 




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Posted by Martin October 20, 2019
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Equity Options


One trading strategy does not work all the time and in every market. There will be time when one strategy stops working and another strategy has to be used while waiting for new opportunity to trade the first strategy again.

We traded SPX options lately, Iron Condors, Put Spreads, Call Spread, or Iron Flies, but in this market, I started seeing being whipsawed way too often. This is a hard market to trade. Of course, there will be traders out there who would thrive in this market. There will be traders who would make killing trading this volatility but, sadly to say, I am not one of them. I do not have means and time to sit behind the computer and adjust our trades minute by minute. I can’t respond to a market which is up 0.80% in the morning and down -1.20% in the afternoon because of a tweet.

And even if I was able to adjust my trades it all turned out to be wrong again and I got whipsawed. I tried to adjust and do something about my trades just to find out, it didn’t work. So, in situation like this, the best thing one can do is to stop trading, step back, and evaluate the situation. And that is exactly what I did. I rolled all my bad trades away to gain time and see what I can do next and stopped trading.

That’s why you may have seen no activity, no posts, no trades in our Facebook page.

And, while evaluating our trading I found out that I was trading way too aggressive and too much. Trade often, trade small. Well, I think I was trading way too often and not small. And this contributed to my “piss off” mood. I was at attention all the time, constant stress, watching the monitor all too often… That was exactly the time to step back and calm my soul again.

And when the whipsaw mode went to the point when I shouted “I can’t trade this market anymore!” I realized, this was a time to change.

 
So, what will we be doing?
 

1) As of now, we will not be trading SPX trades as often as you may have seen. We will be primarily rolling our bad trades to get out of them. This may take months or years, but it is important. Time to time, we may open a small trade, usually right after a large selloff, consolidation, or breakout. But it will be more of a wait and trade than a regular weekly trading.
 

2) We are adding equity options trading, meaning we will be trading options using dividend stocks as underlying. We will be selling naked puts and covered calls.
 

3) We will be selling naked puts against dividend stocks with 25 – 30 delta and 30 to 45 DTE. If the puts get in the money, we will attempt to roll the puts into the next expiration cycle only if the roll will be a credit trade. If it cannot be a credit trade, we will take assignment and buy 100 shares. In this case, it is important to have enough cash in a trading account to be able to buy 100 shares without getting into a margin call.
 

4) Once we get assigned, we will start selling covered calls. The strategy however is to build a dividend stocks portfolio with intention of NOT selling our stocks. We want to keep all stocks we acquire. If the calls get in the money, we will hedge the position to protect our position. One strategy may be to sell new puts to get back into the lost position. For example, a stock is trading at $30 a share. We sell a $32 strike covered call. The stock moves to $34 a share. We may let the calls call our position away but we sell new $34 strike puts to get back in. We will also adopt rolling the calls gradually up and away (as long as it is a credit trade), or simply closing the position.
 

5) Here comes the wealth building part. These days, many brokers cut the commissions to zero. That is a great opportunity to build your portfolio at no cost! You can literally buy only 1 share of a company stock and it will cost you nothing. What an opportunity! This will also allow us to invest all proceeds – premiums and dividends – into dividend stocks. If, for example, we sell a naked put, and collect $34 credit, we can buy 1 share of a stock trading at $34 or less. And even 1 share will allow us to start receiving dividends and participate in a price appreciation! And the more credits we receive and more dividends we receive, the more shares we can buy at no cost!
 

6) One important thing to mention, trading this strategy requires enough savings in one’s account. We will be trading in a margin account to lower the capital requirements. In a margin account, a stock trading for $30 a share will require approx. $1,300 buying power. In a cash account, a trader will need $3,000 buying power. If you do not like trading on margin, you must save the entire amount before you start selling puts (in this case cash secured puts). The worst thing which can happen to you is to be forced to close a newly acquired 100 shares (when assigned) at a loss because you got a margin call due to lack of buying power.
 

7) As mentioned above, we will be investing all dividends and all credits from options into dividend stocks from our watch list – cheaper stocks at first, more expensive stocks later (as the cash flow increases). Our watch list is shown below:
 

Watchlist
 

And, what about SPX?

We will still trade SPX. This is not an abandonment of a strategy. We are just adjusting our trading to mute what stopped working for us and add a strategy which, in my opinion, would better suit this market, our time available to be dedicated to trading, and peace of mind. As our trades will be repaired more and more, this market calms down a bit and shows direction again, or I will get more confident trading SPX more often, I will start adding more and more trades. As of today, my state of mind is fear. Fear of being wrong, fear of losing money. Fear of being whipsawed again. Fear of not knowing what to do. I think, it is bad, very bad for any trader. I want trading to be not just a business but also fun. And these days, it was not fun; it was frustration. Let’s make trading fun again.
 




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