For Those Who Love Irony: How Rising Taxes Drove Income Higher

What the . . .???   I thought tax rates had no impact on income or behavior or investing!!

But here we see the impact of scaring investors and companies with higher tax rates: they take their money out of the market.  In this instance, companies rushed to get their dividends to investors before the end of December, in order to avoid the higher dividend rate which was being ushered in along with Baby New Year.  Imagine that!



John Carney By: Senior Editor,

One day after the Federal Open Market Committee announced that economic growth paused in December 2012, the Commerce Department released data showing that personal income rose by the most since 2004.

The 2.6 percent increase in incomes blew away the official expectations number, which was 0.8 percent.

The biggest clue to how incomes rose while the economy stalled is contained in the Commerce Department’s data about the sources of rising income. Of the $353 billion income rise, $268 billion came from dividends. That is, dividends accounted for around 75 percent of the total increase.

That is a breath-taking rise. As Steve Liesman pointed out this morning, monthly dividends have only increased by more than that only once in the past 50 years — in 2004, thanks to a record-breaking dividend from Microsoft.

Much of the hike in dividends seems likely to be due to companies paying shareholders before the expiration of Bush-era tax cuts on dividends. And so, ironically, the looming hike on dividend income actually resulted in a dramatic rise in that income. Taxes drove income up.

Even some of the non-dividend income increase might have been driven by higher taxes, as some firms paid bonuses out early to avoid having them taxed at a higher rate in the new year.

. . . .

You can read the remainder of this interesting article by clicking here.


Thursday, January 31st, 2013 Education, News No Comments

Thinking about trading Facebook? Might want to hold off a bit longer . . .

Facebook (ticker: FB) was perhaps the most highly anticipated (read: “over-hyped”) IPOs in years.  Probably the most talked about this century.  And, as everyone knows, it tanked horribly after a quick spike, which didn’t last through its first day of trading. 

But with the fervor behind it, and currently trading around 1/2 the price it debuted at, some traders and investors are starting to look at picking it up. 

I don’t generally muck about with fundamentals, so won’t jump into the argument over how they intend to increase their cash flow and whether that makes FB a good investment or trade, but one thing certainly gives me the shakes when I think about jumping on a stock trading site to buuy some shares: lockup periods ending. 

There are a ton of shares which are out of the game, right now, locked up for regulatory reasons.  Once they are released to the wild, we don’t know how many will immediately be for sale, but very recent history (see article below) suggests an answer: a lot. 

That could present an enormous head wind for any bullish position.   I’m not saying FB is a buy or a sell, but the prudent trader/investor should bear in mind that the next few months are likely to be difficult ones for the shares (and anyone holding them). 


Here’s When Other Facebook Insiders Can Sell Stock

Published: Tuesday, 21 Aug 2012 | 3:58 PM ET
Text Size
By: Reuters

Last week, Facebook’s early investors and some directors became eligible to sell stock they own in the social networking company. Others will have similar rights in the coming months.

Up to 1.91 billion more shares could flood the stock market — more than four times the 421 million shares that had been trading since Facebook’s [FB  19.22    0.061  (+0.32%)   ] initial public offering in May.

Facebook’s stock has fallen since last Thursday’s expiration of the first lock-up period. On Monday, it’s disclosed that Peter Thiel, one of Facebook’s earliest investors and a member of its board, was among the insiders selling stock after the lock-up period expired. He sold about 20 million shares through affiliates for $19.27 to $20.69 each.

(Read More: Investor Thiel Unloads Most of His Facebook Shares)

Here’s the schedule, as reported by Facebook in a regulatory filing:

  • Aug. 16: 271 million shares held by early investors and directors who had participated in the IPO, though CEO Mark Zuckerberg is excluded for unspecified reasons.
  • Unspecified date between Oct. 15 and Nov. 13: 243 million shares and stock options held by directors and former or current employees, excluding Zuckerberg.
  • Nov. 14: 1.22 billion shares and stock options, about a third of which is controlled by Zuckerberg.
  • Dec. 14: 149 million shares held by early investors and others who participated in IPO, except Zuckerberg.

(read entire article here)

Wednesday, August 22nd, 2012 Education, News, Stock Trading No Comments

Volatility Trading Strategy from Larry Connors

 Larry Connors is the KING of mean reversion trading strategies, and this article reinforces that royal standing.  :)   In a nutshell, volatility – as a phenomenon – can swing higher and lower in the short term, but it strongly gravitates toward its own comfort zone.  That zone, the average (or mean), can move higher or lower over longer periods of time, but in the short to medium term time frame, it is where the volatility will hover.   This trading strategy is a good way of taking advantage of this reality.
One note though, and I’m a bit surprised that Mr. Connors didn’t make this explicit: this is a one direction strategy.  In the setup he discusses using RSI(2) over 90 as the trigger, and often an experienced trader will understand that an inverse strategy would work at the other end of the RSI spectrum.  But not in this case.  Primarily, this is because the VXX (the ETF being traded here) is continually falling (check out a year chart to see what I mean), so trying the same thing from the RSI(2) < 10 side of things is NOT indicated. 
With that caveat in mind, please read and enjoy!


A Low Volatility Strategy for Trading High Volatility

By Larry Connors | | July 13, 2012 09:06 AM


We’re going to show you a volatility trading model for VXX which has correctly predicted the price of VXX 97.3% of the time since VXX started trading in 2009. The test results are up through the end of May 2012.Trading volatility, especially VXX, has become a big game among professional traders. You only have to look at the continuously rising average volume in VXX, combined with the many new volatility products that have been coming to the market over the past year, to know that volatility is beginning to join the ranks of other asset groups such as stocks, ETFs, options, forex, and futures.Much has been written about how to trade VXX; unfortunately the majority of the early volatility trading strategies were incorrect. Too many people were comparing VXX to VIX and had considered them the same instrument. They’re not.VIX is an index that settles on a value each day based on the underlying vehicles in the index. VXX is the expected future value of where traders believe volatility will be in the near-term future. One is today’s value (VIX). The other is the marketplaces prediction of where these prices will be in the future (VXX).

There are certain characteristics of volatility which are inherent (and sometimes in conflict with each other). The academic world has shown decades ago that volatility is mean reverting. When volatility gets too far away from its average price over a period of time, it tends to reverse back to its average . . . .  read the remainder of this excellent article here

Options lesson: How to roll options positions

Because options trading presents so many more possible paths of action traders can be confused by overwhelming opportunities (or risks).  Below is a good article discussing the how, when and why surrounding the idea of ‘rolling’ options from one month to another as a way of extending the life of a trade.

By Brian Overby | | April 04, 2010 09:53 AM

Rolling Can Help You Dodge Assignment

Rolling is a way of trying to put off assignment (or avoid it altogether). It’s a time-grabbing play, essentially, but it’s not one to enter into lightly. Rolling can get you the extra time you need to prove out your opinions, but it can also compound your losses.

You can roll short or a long position, but for the purposes of this discussion we’ll focus on the short side.

Our First Example: Rolling a Covered Call

Let’s imagine you’ve sold a covered call according to the following terms:

Stock XYZ at 87.50
Sold 1 30-day 90 Call at 1.30
XYZ moves against you to 92

In case you’re not familiar: “writing” a covered call involves selling a call for an underlying stock that you already hold. You earn a premium for selling the call, but you also take on an obligation: to sell the underlying stock at the strike price if you’re assigned. Because you already hold the shares, your obligation is “covered” – you can always just hand over these shares, which is much less risky than trying to buy shares in a market where prices are probably rising. (Rising stock prices are probably why the call owner exercised their right to buy anyway.)

When the call is first sold, your potential profit is limited to the strike price minus the current stock price plus the premium received for selling the call. As for your max potential loss, it’s trickier to quantify. You receive a premium for selling the option, but most downside risk comes from owning the stock, which may potentially lose its value. However, selling the option does create an “opportunity risk.” That is, if the stock price skyrockets, the calls might be assigned and you’ll miss out on those gains.

When we put on this trade, the goal was for the stock to reach 90 and be called away, but now our view has changed and we’d like to avoid being assigned. Since the stock is now in-the-money (ITM), at expiration we will most likely be assigned. Let’s assume you see some more upside in the stock going forward. If only you could buy yourself a little more time, maybe you could prove your assumptions correct and eek out a little more profit on the stock.

Rolling is one way to respond to this situation. Specifically, we’re looking at two choices to dodge that potential assignment:

  1. You can buy back and close the 90 call you sold, taking a loss on the call, but leaving you long stock with unlimited upside going forward.
  2. The other option is to roll the short call roll “up” in strike and “out” in time. To do this we will enter an order to buy to close the short call and the sell to open a new call. The new option will have a higher strike price and go further out in time. Moving up in strike will lower the premium received for a short call, but going out in a time will increase the premium. The net effect, we hope, will be a credit to the account for the entire trade. (Check out the example in bold below.)

Don’t forget to factor commissions into whichever choice of the two you pick. Depending on your online broker, commissions for scenario #1 can be as low as $5.60, for scenario #2 $11.20.

If you buy back the 90 call, that will cost you $2.10 – resulting in a net loss of $0.80 on the trade ($1.30 – $2.10). If you “roll up and out”, you can help offset the cost of buying back the call by choosing a strike price that’s higher (“up”) and further “out” in time.

If you decide to roll, you’d enter the following spread trade with two parts:

Buy to close the front-month 90 call -2.10
Sell to open a 95 call that’s 60 days from expiration +2.30
= 0.20 net credit for the roll

Good News and Bad News

Rolling helped you secure a $0.20 net credit to add to your initial premium received for selling the covered call (1.30). If all goes well, your 95 call will expire worthless in 60 days, and you’ll keep 1.50 in net credit.

That’s the good news, but keep the potential bad news in mind, too. Every time you roll, you may be taking a loss (2.10 – 1.30 = .80 in this example) on the front-month call. You’re also tacking on even more time to your trade, in which your stock turned course and headed lower. If the stock loses more value than the net credit received for the roll, in the big picture you’d be down for the whole trade.

Rolling can be useful, but you should definitely go in with your eyes wide open.

Brian Overby is Sr. Options Analyst at TradeKing, an online options and stock broker. Brian appears frequently on CNBC, FOX Business, Bloomberg, and other financial media and is the author of the award-winning TradeKing Options Playbook. Check out Brian’s Options Guy blog and other actionable market commentary at

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options. While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or probability of reaching a specific price point there is no guarantee that this forecast will be correct.

Any strategies discussed or securities mentioned, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice.

Click here to sign up for a free, online presentation by Larry Connors, CEO and founder of TradingMarkets, as he introduces The Machine, the first and only financial software that allows traders and investors to design and build quantified portfolios.

You can find original posting here.
Thursday, March 15th, 2012 Education, Evergreen, Options No Comments

What to expect from US GDP?

Friday, January 27th, 2012 Education, News, Stock Trading No Comments

What Up, Dawgs? GE Now Part of the Dow Dog Pound

Published: Wednesday, 25 Jan 2012 | 12:04 PM ET
By: Jeff Cox Senior Writer


Sebastien Bozon | AFP | Getty Images

The Dogs of the Dow – those high-yielding stocks that are supposed to represent the bottom of the blue-chip barrel – have some unlikely company.

General Electric once stood as the bellwether of American industry but now sits among the 10 Dow stocks that produce the highest yield and, theoretically at least, represent the most risk for investors.

GE’s [GE  19.121    0.281  (+1.49%)   ] yield is clocking in at a robust 3.6 percent, more than double the 1.7 percent that Dow stalwart Caterpillar [CAT  107.43    1.14  (+1.07%)   ] produces. (GE is minority owner of NBC Universal.)

Joining GE as newcomers to the 2012 Dog pound is Procter & Gamble, with a 3.2 percent yield.

The two companies replace Chevron [CVX  107.071    0.351  (+0.33%)   ] (3 percent) and McDonald’s [MCD  99.22    0.47  (+0.48%)   ] (2.8 percent), both of which boosted the Dogs to the status as one of the top trades of 2011.

As the Dow 30 gained about 5 percent and the Standard & Poor’s 500 finished flat for the year, the Dogs posted an average total return of 16.7 percent, according to calculations from Bank of America Merrill Lynch.


But the strategy has been a loser so far in 2012.

The Dogs, as tracked through their ETF proxy, the Deutsche Bank ELEMENTS Dogs [DOD  9.77    0.03  (+0.31%)   ] has gained just 1.2 percent even though the Dow had gained 3.7 percent and the S&P 500 4.5 percent heading into Wednesday trading.

That’s been the story of trading this year: What worked in 2011 has faltered in 2012. High-yield boomed last year but has faltered this year; high short interest worked as a contrary indicator then but not so much now, and non-domestic stocks are crushing their U.S.-based counterparts, again reversing a 2011 trend.

Still, the Dog collar hasn’t chased away those who believe the hunt for yield will resume.

“Yield is expected to remain scarce as the 76 million baby boomers head into their retirement years,” said Mary Ann Bartels, technical research analyst at BofA. “The equity market is supplying an abundance of yield and investors can get paid to wait for price appreciation.”

The rest of the current Dog pack: AT&T [ATT  25.388    0.006  (+0.02%)   ] , DuPont [DD  50.16    0.75  (+1.52%)   ] , Intel [INTC  26.9001    0.0051  (+0.02%)   ] , Johnson & Johnson [JNJ  65.16    0.16  (+0.25%)   ] , Kraft Foods [KFT  38.31    0.01  (+0.03%)   ] , Merck [MRK  38.71    -0.07  (-0.18%)   ] , Pfizer [PFE  21.661    0.001  (+0.01%)   ] and Verizon [VZ  37.5999    -0.1901  (-0.5%)   ] .


Want to read original post? Click here.

Wednesday, January 25th, 2012 Education, News, Stock Trading No Comments

Jim Cramer’s Top High-Yielding Stocks

I am not familiar with how each of the stocks below trade, so am not recommending any of them.  But I like the way Mr. Cramer looks at each of them. 
One thing that is often overlooked: while you can certainly look at dividend payments as a buffer against capital loss (as Cramer does here), you can also use them as a technical indicator.  Look for upcoming post on the mechanics of doing that very thing.

Published: Wednesday, 9 Nov 2011 | 7:34 PM ET
By: Drew Sandholm Producer

For investors looking for protection from a chaotic market environment, Cramer on Wednesday outlined his top high-yielding stocks.

Windstream[WIN  11.86    0.07  (+0.59%)   ]: This rural telco provider’s stock sports an 8.5 percent dividend yield. While Windstream’s wire-line phone business is in decline, the company has been focusing on areas of growth, such as broadband and business services. Of Cramer’s top high-yielding stocks, he said Windstream’s dividend is the least safe, even though it has enough free cash flow to cover the payout. For investors looking for a safer play, though, he suggests Verizon[VZ  37.39    0.50  (+1.36%)   ].

Solar Capital[SLRC  23.41    1.07  (+4.79%)   ]: This specialty lender’s stock pays a massive 10.7 percent dividend yield. Cramer would typically view a yield that high as a red flag, but this is a special case. As a business development company, Solar Capital lends money to small- and medium-sized companies that are too tiny or risky for most people to invest in. Solar Capital then returns 90 percent of its profits to shareholders by way of a huge dividend, Cramer explained. He likes the stock at current levels.

Energy Transfer Partners[ETP  43.3999    0.5299  (+1.24%)   ]: This pipeline master limited partnership yields 8.3 percent. Cramer thinks of this company as a “steady toll operator for moving oil and gas around.” Thanks to recent oil and gas discoveries, demand for new pipe has skyrocketed, benefitting ETP. Some investors are upset that the company did a massive stock offering that knocked its stock price down, but Cramer sees it as an opportunity to get shares at discount.

American Electric Power[AEP  38.83    0.40  (+1.04%)   ]: This utility company is committed to paying out higher dividends, Cramer said, and the stock already has a 4.9 percent dividend yield. American Electric Power is one of the U.S.’s top generators of electricity and has the country’s largest transmission system. Cramer prefers this utility to others, though, because he thinks its utility portfolio is among the strongest in the country and it provides power to the “Heartland” where manufacturing is “very strong.”

Sanofi[SNY  33.49    0.63  (+1.92%)   ]: This drug company pays a 5.4 percent dividend yield. Cramer likes Sanofi because it’s a defensive play that doesn’t need a growing economy for business to be good. In addition, it has the lowest exposure to Medicare of any big pharma company. So any potential cuts U.S. lawmakers make to the program are less of a concern. Meanwhile, the company is moving into faster growing areas, such as vaccines, diabetes, generics and more.

Read on for Cramer’s Top Dividend Stocks 2011




When this story was published, Cramer’s charitable trust owned Sanofi.

Thursday, November 10th, 2011 Education, Jim Cramer, Stock Trading No Comments

US Rating Likely to Be Downgraded Again: Merrill

 While not completely unexpected, this is not a fun prospect.  Seems likely that many traders will be looking to gold for some capital appreciation in the coming months.
Published: Monday, 24 Oct 2011 | 3:11 AM ET
By: Reuters

The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.

The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday.

A second downgrade — either from Moody’s[MCO  32.00    0.62  (+1.98%)   ]or Fitch — would follow Standard & Poor’s downgrade in August on concerns about the government’s budget deficit and rising debt burden.

A second loss of the country’s top credit rating would be an additional blow to the sluggish U.S. economy, Merrill said.

“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, Merrill’s North American economist, Ethan Harris, wrote in the report.

“Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes,” he added.

The bipartisan congressional committee formed to address the deficit — known as the “super committee” — needs to break an impasse between Republicans and Democrats in order to reach a deal to reduce the U.S. deficit by at least $1.2 trillion by November 23.

If a majority of the 12-member committee fails to agree on a plan, $1.2 trillion in automatic spending cuts will be triggered, beginning in 2013.

Those automatic cuts, mostly in discretionary spending, would weigh further on a fragile U.S. economy, Merrill said.

In the same report, the bank reduced its 2012 and 2013 growth forecasts for the United States to 1.8 percent and 1.4 percent, respectively.

If there were a downgrade, it was not clear which ratings agency would move first.

Moody’s Investors Service, which has a negative outlook on the United States’s Aaa rating, said it is looking at several other factors, including the results of presidential elections and the expiration of the Bush-era tax cuts late in 2012, to decide on the rating.

“It’s not that we’re waiting just for this committee to decide on the rating,” Steven Hess, Moody’s lead analyst for the United States, told Reuters in an interview last week.

Failure by the committee to come up with an agreement, he said, “would be negative information but it is not decisive in our view about the rating.” To be sure, Hess did not rule out the possibility of an early move on U.S. ratings if the country’s economy slips into recession.

So far, however, the economic performance “is certainly not super positive but not a disaster either,” he said.

Fitch Ratings, on the other hand, still has a stable outlook on its AAA rating on the United States, meaning it is more likely to revise that outlook to negative before actually downgrading the rating.

In its latest report on the United States, Fitch says a “negative rating action,” which could be only an outlook revision, could result from a weaker-than-expected economic recovery or by failure by the bipartisan committee to reach agreement on at least $1.2 billion in deficit-reduction measures.

See full article here

Monday, October 24th, 2011 Education, News, Stock Trading No Comments

A Rocket In My Pocket

Some of Boris’ suggestions make me a bit uncomfortable: his thoughts on risk/reward ratios, some of his technical triggers, etc.  They just don’t sit well with me.  But the following article he emailed followers is right on the money.  See what you think.

“I think I just fell in love,” I announced to my business colleague as we walked around a Ducati parked casually on sidewalk of downtown Melbourne.  The bike was  monster, it’s speedometer showing that  it could go beyond  230 kilometers per hour. In Melbourne motorbikes are everywhere, strewn along the outer edges of its sidewalks often left completely unchained. For  a bike enthusiast  like me a day spent walking aimlessly around this beautiful city was a true treat as I gawked at the gleaming steel and fat rubber tires of some the most beautiful machines in this world.

I have never owned a bike and have ridden on one only once in my life but I pine for the motorcycle experience with the intensity of an unrequited lover.  I adore the power, the speed,  the overall beauty of the machine. Is there anything cooler than flying down some deserted road, wind at your back, every muscle in your body fully focused on the task at hand as the bike relentlessly swallows concrete?  
Well maybe not.
As I was leaving Melbourne reality quickly jarred me out of my Walter Mittiesque fantasies of glamour and adventure on the road. Driving  on the main highway towards the airport, you are confronted by an endless parade of billboards that proclaim, “Motorcyclists are 38 times more likely to suffer serious injury.”  Not 38% but 38 times! That statistic stopped me cold in my tracks and suddenly riding a motorbike was no longer so appealing.
I had always known that bike riding was dangerous, but until that moment I had never realized just how fatal it could be. Having the odds so starkly spelled out suddenly made it much clearer to me that this was activity best pursued through the reverie rather than reality.
Seeing those signs pass me by every few meters or so, I thought wouldn’t it be great if we could have those warnings as traders? Imagine if you were about to do something stupid like double up for the fifth time in a row on a continuously losing position and warning popped announcing “This strategy has a 90% chance of blowing up your whole account.” Unfortunately trading comes without warning labels and we must learn all our lessons from the school of hard knocks. Fortunately an accident in trading will only wreck your money not your body – yet another good reason for why you should trade small until you master the rules of the game. Like the deadly combination of speed and concrete trading can be completely unforgiving, which is why we should learn to quickly abandon all the romantic fantasies turning $1000 into 1 Million and focus instead on reducing risk as much as possible.
Driving a simple four door sedan with you seat belt firmly strapped in place may not be  nearly as exciting as flying down the road in a Ducati Diavel, but it is the right thing to do if you want to survive. Something we should all keep in mind when we sit in front of our FX screens ready to take on the market.
Monday, October 17th, 2011 Education, Evergreen, Forex Trading No Comments

USD/SGD Divergence Cues Swing Trading Opportunity

Swing trading remains one of the most reliable approaches to trading today’s markets – even with the current volatility as untamed as it is.  There are a number of specific approaches to the general idea of swing trading – this article uses the idea of ‘divergence’.   A divergence occurs when actual price activity and price based indicators begin telling different stories; for instance, higher highs in the price chart contrasted with lower highs on the indicator.  These divergences often point to a change in the underlying activity which isn’t immediately apparent to the human eye.


Walker England , Trading Instructor,

October 6, 2011


USD/SGD Divergence Cues Swing Trading OpportunityUSD/SGD Divergence Cues Swing Trading Opportunity

USD/SGD Set to Swing from 1200 Pip Retracement

The USD/SGD has been one of the strongest market trends. The pair has steadily made lower lows dating back to the March 2010 high at 1.557. Recently the pair has reversed. Since July 2011 the pair retraces 1208 pips from its low of 1.1988 up to the October 4th high of 1.3196. This move against the trend offers traders a chance to rejoin the broader daily trend and potentially swing the pair back with a selling bias.


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USD/SGD Divergence Cues Swing Trading OpportunityUSD/SGD Divergence Cues Swing Trading Opportunity

Fundamentally, the USD remains weak. Unemployment is still residing at 9.1%, with most market participants predicting the rate to not to change for Friday news event. Expectations can be found updated on the DailyFX economic calendar. As this news week unfolds we will look for chances to enter in the market with our daily trend.

Taking Price in to an 8HR chart we see divergence forming on the USD/SGD. Divergence can be seen by noting the USD/SGD created a higher on October 3rd. The MACD (Moving Average Convergence Divergence) Indicator has created a lower low during the same time frame. Traditional divergence, as represented by a separation of price and an indicator, is a tool utilized by swing traders looking to find a top / bottom after a period of price volatility.

My preference is to sell the USD/SGD in the direction with our broader daily trend with entry’s placed under 1.3000. Stops should be placed over resistance at 1.3250. Limits should be placed at 1.2500 for a clear 1:2 risk reward ratio. A second target may be placed at the 200 MVA on our 8Hour chart near 1.2290.

Alternative scenarios include price breaking through resistance found from the December 2010 high.

 Walker England contributes to the Instructor Trading Tips articles .To receive more timely notifications on his reports, email to be added to the distribution list.

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Thursday, October 13th, 2011 Education, Forex Trading 1 Comment