Submitted by: Janet Schlarbaum

Author: Dan Underhill

For those who rely on day trading or swing trading to provide an ongoing income stream into their account portfolio, much time is spent learning all the aspects of trading their own systems effectively. Priority is spent of developing techniques surrounding how to improving their win rate which is certainly time well spent, however there is another side of the equation that a minority of investors and traders should devote time to understanding. That is effective money management. How to develop a plan that can deal with the inevitable times when losing streaks occur can make the difference between staying in the game and blowing out your trading account.

Anyone that has traded futures, options, stocks, forex and commodities in a short term time frame can tell you from experience that losses are guaranteed part of trading. There is no way around it. Even if you are trading a system, or a plan, that has a 60% win rate, you can still expect that 4 out of 10 of your trades are simply not going to work. These are probabilities that we must acknowledge. And what if these 4 losing trades occur in a row? What if 8 of these losing trades occur in a row? This can deliver a sizable blow to your portfolio even though the long term probabilities of your trading plan demonstrate a 60% win rate. Even if your entrances to your trades are perfectly executed according to your trading plan, the follow through due to market mechanics may not provide the desired result due to no fault of your own. However, nobody executes their trading plan 100% flawlessly because as humans we are prone to make mistakes, enter trades late, enter too early because of emotions, etc. So factoring these in to the equation, this brings our win rate down even still.

So how can we, as traders, help to stack the odds in our favor even more that our accounts will be protected when losing streaks occur? One of the best techniques in place for mitigating losses affecting your equity is called Equity Curve Trading. Equity curve trading is a system that simply plots your ever-changing account equity against its own moving average, and then trading decisions are based upon the interaction of your equity line with the moving average.

How can this help? Professional system traders have used this concept for a long time, and many auto-trading computers utilize this simple technique to recognize when the trading program has experienced too many losses. With equity curve trading, once a threshold of losses is recognized, all live trading (trading with real money) is ceased and all future trades are taken in a simulation mode. Results of the simulated trades are still recorded in the equity curve as if they were live trades, but no real money is being risked until the equity curve shows that you are back on a winning cycle of follow through.

Submitted by: Janet Schlarbaum

Author: Joanne Musa

Once you’ve completed the first three steps in the process of building your profitable tax lien portfolio, your real work begins. Now that you know where you’re going to invest and you have the tax sale information and have a list of the properties that are in the sale, you can progress to step four to building your profitable tax lien portfolio, which is doing due diligence on the properties in the sale.

This is the most important step in the process and whether you do this properly or not could mean the difference between being extremely profitable and losing money on your investment. You need to do due diligence on tax sale properties before you bid at the tax sale. The exact procedures that you follow will vary depending on which state you are investing in and whether you are investing in tax lien certificates or tax deeds. You will have to be a little more rigorous when doing due diligence for tax deeds than you than you do for tax liens.

When you buy a tax lien, you are not buying the property, you are only paying the taxes and putting a lien on the property. But when you buy a tax deed, whether it is a regular tax deed or a redeemable tax deed, you are actually purchasing the property and you are now the owner of record. That means that you are now responsible for paying the taxes and any assessments on the property and you are liable for anything that happens on the property. If there is an environmental problem with the property, you’re responsible for cleaning it up and that could cost you more than any profit that you might make on your investment.

Another reason that you’ll want to check out tax sale properties for deed sales a little more rigorously than tax lien properties is that not all tax deeds are sold “free and clear” of any other liens. You may have been told that when you buy a property at a tax deed sale you are not responsible for any other liens on the property, like an existing mortgage, for instance. Depending on the state, this may or may not be true. Different states have different laws regarding what liens survive a tax sale. You need to know if there are any types of liens that do survive the tax sale and you need to look for them before you bid on a property in the sale. Even for liens that do not survive the tax sale, you still need to check to see that proper notification was given to all lien holders. If proper notification was not given to a lien holder before the tax sale, the lien holder could contest the sale.

Whether you are investing in tax liens or tax deeds you will still have to find the value of the property to make sure that it’s worth it. You do not want to buy a tax lien certificate on a property that is not worth a few times what you your initial investment is. You have to plan on your expenses for recording your tax lien certificate, paying subsequent taxes for the duration of the redemption period (in states that allow you to pay them), and any foreclosure costs that you might incur if the lien is not redeemed. The property should be worth at least 3 times of what you determine your investment will be, taking all these expenses into account.