Chris Viscaya asked:


Stock Options are wonderful! This clever derivative of the equities market has to be one of the most ingenious inventions of modern times. For the trader who can learn how to win at trading options, there are many luxuries in life that can be experienced.

Success in options trading requires a consistent approach for long-term success. This statement is not meant to be some grandiose, idealistic comment made by some ‘trading theorist’. Rather, it is a statement born out of the hard knock and success experiences of the author and many other long-term, successful trader contemporaries.

A “consistent approach” to options trading can also be called a “trading system”, or an “options trading system” in this case. The term “trading system” is not necessarily confined to a series of computerized “black box” trading signals. A trading system could be something as simple as “buy an option on a stock in an uptrend that breaks the high of the previous bar after at least two days of pull back down movement that make lower lows.” A trading system is simply an organized approach that takes advantage of a repeated pattern or event that brings net profits.

Since an Option is a “Derivative” of the stock you must derive your options trading system from a stock trading system. This means your trading system must be based around actual stock price movement. That said, your trading system doesn’t need to work for all stocks it just has to work for certain types of stocks, certain volatility of stocks and certain price levels of stocks – So focus your trading system on certain stocks that have price behavior that is predictable to the net results you wish to abstract from a stock.

You can develop a trading system, a trading approach, and a trading methodology by identifying a price movement pattern (or lack of price movement pattern) or some event that occurs on some sort of regular basis. This means you can trade price behavior patterns on price charts such as: traditional chart patterns, trends, swings, pivot points, boxes – or you can trade events that motivate stock price such as earnings runs, post earnings runs, stock splits, or seasonal factors. Bottom line to make the maximum profit in options trading you want your stock to move in your favor fast and you want it to move far. Just a relatively small movement in the price of a stock can double your money in options!

There are so many different strategies and combinations that you can trade with options. You can buy calls and puts for directional trades. You can employ call spreads and put spreads to trade directional movements with a buffered risk, and profit. You can sell or purchase spreads to receive the credit of the premium decay by options expiration. You can trade straddles and strangles if you expect a big move but are not sure in which direction. You can also get into ratio back spreads, condors, and butterflies. And if you’re really feeling crazy you can sell ‘naked’ options (just better use a stop loss or you’ll end up like one of my old trading buddies who ran an account to $20 million then gave it all back selling naked options.) You can go to cboe.com for more information on options trading.

Directional options trading systems are the best. Keep it simple, buy calls for and upside trade or buy puts for a downside trade. But this means you need a directional stock trading system in order to trade directional options.

Here are a couple of different approaches for directional systems:

Develop an options trading systems that trades the swings in stock price movement. There are many good swing trading systems available today. We suggest you obtain one. Bottom line with swing trading is that you want to swing trade with the trend. Options brokers these days have advanced order technology that will allow you to enter swing trades based on the price movement of the stock so you don’t have to watch this stock all day. That huge advancement to swing trading options.

Swing trade the day bars. Most swing trading systems are based on daily bars on the stock price chart.

Swing trade the Intra Day Bars! Their other fantastic systems based on intraday charts that pin point swing trading entries.

Develop an options trading system that trades three to six month trends. This is where the big money is. Trading the large trends is where many are able to place larger sums of money to develop their net worth.

Develop an options trading system that trades pivot points. Pivot point trading is arguably the best way to trade options, because price action usually is explosive, and happens quickly in our direction when a trade works.

This is good because you can use shorter-term options and leverage yourself a little better. And it’s also nice you can make great gains in five days to four weeks on average so time decay issues become less of a worry.

There are many different directional trading methods you could use to trade options. You need to pick one, work it, and never use more than 10% options position size per trade on small accounts 1% to 5 % max position size on larger accounts. This methodical way of money management trading options is the fastest way to potentially rapid account growth, helping you avoid needless setbacks.



Rosa Erdley

singapore trader asked:


Trade and Trade the Plan

 

 Successful stock market trading begins with a winning trading plan. It’s as simple as that. If you develop a well-conceived trading plan to guide your actions in the stock market you will already have the advantage over most of your market competition. Put simply, it gives you the edge you need to win over the long haul when trading the stock market or forex market.

 

A stock market trading plan will not guarantee your success in the markets, but a good plan will enable you to work methodically toward your stock market trading goals while reviewing on a regular basis what is working and what is not. It will act as a roadmap for your trading journey. It will enable you to respond positively and constructively no matter what happens with your individual trades. And, most importantly, it will help you control the only thing a trader can control: his or her own actions.

Finally, stock market trading is a business. It can be a fascinating and sometimes thrilling business, but in the end it is a business. A trading plan helps you treat it as a business.

Here are some important elements of a trading plan.

 

 1. Why am I trading? What are my goals? 

 

The answers to these questions might seem obvious, but they usually are not. Take some time to ask them of yourself, and seriously consider the answers. You may be surprised by what you learn. And whatever the answers, you will have a clearer picture going forward of what this enterprise means to you, and that will help you survive any rough patches.

 

 2. What markets am I going to trade and why? 

 

It is often best to specialize, especially for beginning stock market traders. Many pros make a great living trading the same stock day every single day for years. Choose a market that is appropriate for your experience level and trading style. Consider other factors such as available margin, volatility and liquidity.

 

 3. What is the concept or philosophy behind your trading methodology?  

 

Your trading system must have a concept behind it. Whether you are a value investor like Warren Buffet or a trend trader like George Soros, you should understand why you are doing what you are doing, how your beliefs about the markets define what you will do as a trader.

 

 4. What will be your specific method? 

 

In other words, specifically how will you execute your trading ideas? Will you buy breakouts or pullbacks? Buy oversold or sell overbought? Or will you use specific technical setups such as moving-average crossovers or another indicator-based strategy? Under exactly what conditions will you enter? When will you know to exit?

 

 5. How much money will you risk on any single trade? On trading in general?

 

This is critical. Of course, start small. But just as importantly, have a plan in place for how much you will risk, emotions don’t cloud your judgment when the time comes. The key is to find an allocation that doesn’t cause any stress but still makes the trade worthwhile financially. One of the biggest problems with newer traders is that they are trading way too big in relation to their account size. Like when you are forex trading. Trading forex at 100-1 leverage is like introducing your mistress to your wife. Yes, you can do it, but that doesn’t make it a good idea.  Normally they don’t get along too well.

 

6. What will my trading rules be?

 

This is also critical. Your trading rules include entry and exit rules, rules governing maximum daily, weekly or monthly losses, maximum risk on any given trade, the maximum number of trades per week, etc., etc. These rules enforce discipline and keep you out of trouble. What stock price will enter at, what stock price will I will exit. Be discplined.

 

7. How will I record and evaluate my trading performance?

 

Allow me to repeat myself: This is critical. In fact, this might be the most important element of trading for new traders in the stock market. A new stock market trader who evaluates his trades, winners and losers, in an effort to learn what works and what does not, will make quantum leaps forward in terms of ability and profitability. If you have a working trading plan and evaluate every single one of your trades after you have closed it you have already beaten 95% of the competition.

 

8. What are my rules for managing profits?

 

What’s the problem with profits? Well, believe it or not there is one, and it’s a serious one. It’s called euphoria, and it clouds the judgment perhaps more than any other emotion related to trading. Start piling up the profits for the first time and it won’t be long before you are convinced you are king of the world. About 30 seconds later you’ll be broke, following a series of unwise and exceedingly risky trades. So have a plan for protecting closed profits when you have reached your goals for the week or the month. Don’t give them all back.

 

9. How will I reward myself for following my trading plan?

 

Don’t leave this out. Following your trading plan will bring rewards in the form of profits, but you should also consciously reward yourself for doing so because it is such an important part of successful trading. So if you finish the week or the month (or even the day) without having broken any of your trading rules, find a way to reward yourself. You deserve it. You are in rare company.

 

If you follow your plan you are improving your chances of becoming sucessful stock market or forex trader.

 

Happy Trading

 

About the Author

CFD FX Report is a real time tool for clients with an interest in the trading of stocks, indices and commodities globally.CFDs (Contracts For Differences) are one of the worlds’ fastest growing trading instruments that allows clients to profit from a rising and falling market. The CFD FX Report is a company comprising of expert traders that analyse the market daily and are able to make recommendations for the following day trades based on this analysis. The CFD FX Report is released everyday at 6.30 p.m. (Singapore time) for review by the clients for the next trading day.

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