Myths of Trading
There are many trading myths that affect both novice and experienced traders. Typically, these myths force traders into a narrow belief that they have to be perfect or nearly perfect in order to succeed. This myth, along with a few others, holds traders back from achieving their true mission-making profits.
Limitations of Stop Loss Order
Stop loss orders are simply a tool. There is nothing wrong with them when used properly and with the proper expectations. When a trader works within the confines of the ability of a stop, then the frustration of stop orders can be diminished. The simple fact is that when you know what to expect you can’t be disappointed.
Drawbacks Of Synthetic Option
No matter how great the benefits are, when it comes to trading synthetic options there are still some drawbacks. The first drawback is the fact that it is capital intensive. The option must be purchased up front and the margin or cash for the position must be put in place. This means that you essentially have two trading positions at the same time.
Synthetic Option Versus Standard Option
Synthetic options come in one of two flavors, synthetic calls or synthetic puts. They each are designed to simulate a standard call or put option without the drawbacks. A synthetic call is simple to initiate. A long position is first established in a spot forex market, futures market, or stock market; then an at-the-money put is purchased to protect the long position against any downside risk. A synthetic put requires that a short position be initiated first and an at-the-money call is purchased to protect the short position from any sudden moves to the long side. They are one of the most underused risk management tools available.
Five Core Components of a Trade Setup
Now you have become more flexible in your trading. You no longer define yourself in such rigid terms as day, swing, or position trader. You have become more of a market specialist. You have found the few markets that you want to trade and you now find yourself open minded to the daisy chain effect that bears on the markets you watch. Are you ready to get started yet? Not quite.
Steps for Money Management in Trading
Money management is simply how you treat the capital that you use when you are trading. It is meant to be a guideline for what you will do regardless of whether your money sits idle, you are in a winning trade, or you are in a losing trade.
Set Up Your Test Account
While demo trading and paper trading have a place, the best thing you can do for yourself is to set up a test account. Don’t bet the whole farm, simply a portion of it to get a feel if trading is for you. The reality is that trading futures and forex is not for everyone. The majority of them would be better off having someone managing their investment portfolio.
10 Mistakes All Traders Make
Trading is not easy. In fact, it can be one of the most difficult endeavors anyone can take on. Whether you have been trading for 6 months or 30 years, bad habits have a tendency to creep up. While there are many ways to lose money in the markets, there are 10 common mistakes that every trader, new or experienced, makes over and over again. When you can identify the mistakes, you give yourself a leg up in making sure they don’t affect you.
Collars, Straddles and Strangles – Risk Management Strategies
A collar trade occurs when you combine a hard stop tactic or a synthetic call or put tactic with the selling of an option. This is a way for you to get the market to pay for your option that you are using as an insurance tool. For smaller accounts, this is a way to offset the cost yet still relish in the protection.
Examples of Why Hedging Can Be Important
The rules and regulations governing futures, developed by the CFTC, occurred over time. Several scandals along the way have hurt speculators tremendously. These events happened behind the scenes and were discovered only after much of the damage had already been done.
Rules for Money Management
It is said that the game of golf is not played on the green but between your two ears. The same can be said of trading. Your mind-set and the preparation of your mind are all important. You must be focused on the who, what, when, where, why, and how of a situation in order to formulate your course of action. While it is not easy, it is simple.
Strike Price, Premium, and Synthetic Options
When you purchase an option, you must decide whether you are going to purchase an in-the-money, at-the-money, or out-of-the-money option. Depending on which option you purchase, you will pay either an expensive or a low-cost price for your premium. The price that is paid for the option premium plays a significant role in how successful an option can be in the long run.