Hints for options trading: It's really simple, an Option is like a Pizza coupon...that's it!! Either the coupon will allow you to buy pizza or you can make the coupon and sell it (but if you sell it of course you then must have the pizza (the stock) readily available in case the coupon buyer decides to use it...SIMPLE ISNT IT?? Remember to go to optionsexpress and learn for free all you need to know...there are many MANY strategies but you will need to focus primarily on perhaps 2 or 4 at most...you don't need to do more than that to be successful, some institutions stick to just two strategies one of which is the safer but excellent WRITING COVERED CALLS strategy i.e. selling/going short against a stock (or a LEAP in place of the stock which is always required in case the option you sell (WRITE) is exercised against you. Don't worry you will learn this in one or two days.
Hmm... why you say? Because most options expire worthless!!!!! that's why!! Isn't that a better strategy than predicting which ones will rise? And if you write an option you immediately receive a premium into your account someone will pay you for !! WoW!!! and if that option they bought is not exercised against you keep the money!!!!!! B-Jeezus I hear you cry!!! yep very nice... In general you write options (sell) so that IF (big IF) you happen to get exercised, then you make sure when you give away the Pizza for a profit too!! In other words it is cool to be exercised so long as you know you will also get called away (best to make sure it gets called away from you at a profit so you make money on the option sale and you make on the profit of the stock!!!!!).
Option Rule: However you will never ever never...ever-never, never-ever-never exercise an option yourself...you're a trader not an institution per se. Also know that you can use a leap option to also act like a stock and save you the money involved in buying expensive stock.!! LEARN ABOUT ROLLING UP AND ROLLING DOWN AND THE CONCEPT OF STRANGLES AND STRADDLES and calendar spreads. All these do is allow you to profit from various scenarios whilst making sure your losses are limited, otherwise you could buy coupons without protection and believe me that is so very risky because option prices fall like stones. If you buy a CALL or PUT option alone don't hold for more than 3 days!!! And watch like a hawk. Simple!! REMEMBER YOU ONLY NEED ONE OR TWO STRATEGIES THAT YOU WILL PLAY OVER AND OVER AND OVER AND IF YOU START WITH £2000 AND MAKE JUST 15-20% ON YOUR MONEY PER MONTH AND COMPOUND THIS YOU COULD MAKE A MILLION IN 5 YEARS. SO DONT BELIEVE THOSE PEOPLE WHO CLAIM TO DO MORE THOSE ARE THE PEOPLE WHO WILL WIPE THEIR ACCOUNTS CLEAN.
Magazines: Traders Magazine & Commodities & Stocks (I think) magazine are musts... forget the rest for now.
Lastly...some of this you will know but you won't fully absorb it until you actually make losses, at which point the impact will hit home...no amount of paper trading will necessarily help you. Because you have to feel the loss and that will force you to learn. I'm still yet to make consistent monthly profits. You will know when it gets better because you will approach trading in a Zen like state of mind where you won't celebrate wins or losses so much... but when you observe your trading results out of trading hours you will feel pride that you're begging to master the markets...if your trading brings about heart thumping in your chest you haven't got your money management right and although thrilling in the short term you will eventually wipe your account, don't even think about being clever enough to avoid this one...this one will clean you out baby... CLEAN!!!
Please read again and don't be sucked in by the thousands of idiots who believe they can help you for a small monthly fee...DO IT YOURSELF my friend. After the Anthony Robbins course I learned that even the brokers at these firms did not know as much as us. Your skill level is all about your perception because whatever you are told there is no holy grail only thousands of different ways to eek out profits over time...
You must know in advance your chosen strategy, i.e. exactly what signal or combination (s) of EXACT signals will cause you to enter a trade, or exit a trade, otherwise you don't have a strategy, you have a financial-blow out plan and I give you 3 weeks till it blows...
You must work out how much to risk on a trade (I say maximum 5-10% of all your money on any single trade...including margin...even many think that's too high and use the 1% rule. This area is called money management. Bad money management, e.g. trying to double up the stake on the next trade to win your losses back is often called gambling. Gambling will wipe your account clean in minutes why... because you are being too emotional, trust me...don't trade, think... the market will always be there tomorrow and next week...no rush.
To begin with Learn about Bollinger, Stochastic and MACD indicators first... these indicators (and there are many more) form the apparatus upon which you base your strategies for entry and exit, however in most cases you don't need more than three...simplicity is the key.
Don't think you need to trade everything in-site, get to know a market like a new partner, stick with it and understand the markets personality over time...
Avoid brokers with fake markets or markets where they 'make a market' I mean would you really bet on a horse race if you knew the organizer was doping the horses at random?...really?
Always choose Direct Market Access tools, you will save money and have more control. Upgrade to a business account on your DSL line to reduce contention issues if you've experienced problems recently.
You will lose probably 50% of the time (95% in the beginning) profits will come by simply slightly reducing the losses and slightly improving the volume or value of the winners.
Your ability is really about your own perception of your capabilities... there is no holy grail so don't be intimidated by pushy well rehearsed brokers who unlike you require the security of a firm to trade, ask to speak with someone else or threaten account closure... remember especially if they are spreadbetting with you they are not necessarily your friend if the firm makes a market and you trade in that fake market, they are fleecing you!!! And you're a mug for betting on doped horses without clarifying first.
You are better than you think...because where there is a spread there is a company taking a tax from your work before you can even take some profit for yourself. They win even if you lose!!
The best institutions make perhaps 35% on their total account values because they must exercise good money management, that's still a whopping 30million on a 100million size account that's about 0.6% a week on their total capital employed... so you know people who talk about 50% consistently per month are jokers...you must run from these pretenders especially the ones with photos of themselves and a poor quality one page oversell followed by payment methods...
Trading intraday isn't necessarily more profitable than swing or momentum trading sometimes its worse. The very best trading system will trade mainly on technicals but always have an eye on the fundamentals (news, earnings calendar, buy outs and economic progress or retardation indicators... yep sorry guys no short cuts but the good news is fundamentals only take 10 mins followed by keeping an eye out through the day.
When buying simple Call or Put options alone, you really do need to get rid of it within a couple of days before the price drops...options trading is very much about how long you hold that option position and offloading it quick at the hint of a drop. This does not necessarily apply if you are using constructed option strategies like spreads or strangles... etc Options trading if you get it right will astonish you for the returns it can provide but your losses are also magnified... hence various strategies exist to limit any potential loss (however these reduce the returns...hint don't get greedy and buy too many calls and puts individually...you will lose!!).
Always set a mental stop loss e.g. 5% or 10% drop for options. Most options expire worthless so any strategy involving you selling (writing) will have advantages if you structure it right e.g. SHORT strangles and straddles and some diagonal calendar spread strategies...nice!!
For all other trades it is a sin of the highest order not to use stop losses or trailing stop orders (but never rely on them completely because they can sometimes be missed by the system.
When swing/momentum trading always place your money in the direction of the movement, because guessing market tops and bottoms is a mugs game... what goes up does not necessarily come down unless the indicator has repeatedly shown the cycle at least 3 times...always go with the price... PRICE remains the single best indicator of them all.
Never hold too many open positions 5 max!! Or you will forget why or when you need to exit them...especially if options are involved. When options are involved write down why you bought what return you're looking for and when you will sell or you will lose!! Wipe your account and have to answer questions about the ware bouts of the family savings...whilst depressed... not nice trust me... I've been there...
Just my tuppence worth.
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