How much money do I need to start?

One of the beautiful things about options trading is it’s one of the few businesses that you can take for a free test drive to see if you can be successful at it. By trading in a simulator you can start your business with no money. Obviously you won’t be earning anything either, but you will be gaining valuable knowledge. You can find a simulator at CBOE.com. After you’ve traded in the simulator for a few months and become consistently profitable you can start with as little as $2,000.

Finding a broker

The first step in getting started in an options business is finding a broker. There are many (excuse the pun) options available, a few of the good ones include, OptionsXpress, TradeStation and Interactive Brokers. These are all members of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which are two organizations that protect you against fraud from financial brokers.

Putting the Odds in your favor

While this isn’t a comprehensive list there are a few things that you can do to stack the odds in your favor when dealing in stock options. First of all rather than buying puts and calls you can use credit spreads. This method of selling a higher priced option and purchasing a lower priced option alone will stack the odds enormously in your favor simply because this method can allow you to make money whether the markets go up, down or sideways. As a matter of fact using this method can allow you to win as much as 80-90% of the time, which is why professional traders use this type of trade to generate consistent income. The next thing you want to do is a bit of technical analysis and look at the S&P stock index. If the index is moving above it’s 200 day moving average you generally want to be purchasing stocks or using bull put credit spreads. If the index is moving below it’s 200 day moving average you should short sell stocks or use bear call spreads. How much can I earn? This can fluctuate depending on market conditions but by using credit spreads you can make anywhere from 5-20% a month. So with $10,000 you can generate anywhere from $500-$2000 in extra income a month.

Reducing Your Risk

1.Start off by trading in a simulator at CBOE.com

2.Always use a stop loss or have your positions hedged.

3.Never trade with money that you need to pay for you day to day expenses with such as rent and bills. Nervous money always loses.

If you’d like to find out more about options trading and credit spreads click on the link in the resource box below and sign up for a free 10 part course.

First, analyze the most recent price action. What are prices doing? Is there a definite pattern the you can detect? Where have prices been? Have they already run the stops close by? If you are daytrading, has there been sufficient volume during  the hours you like to trade?

Second, do you see any confirmation of your intentions in the recent price action. E.g. You are intending to go long and the last bar on the chart made a key reversal to the downside.  This would not be conducive to going long.

Third, apply the current information to whatever analysis you do. Faith has no place in the market, neither has wishing, praying or hoping. realistic analysis of price action and correct trade execution and management are the only things that will save you from the sting of an unsuccessful trade. If you’re going to pray, do it before you ever enter an order into the market.  Then make sure your prayer is the right one.  Don’t pray for prices to go up, because someone else may be praying for prices to go down. Pray instead for wisdom, guidance and insight.  In trading you, any alone are responsible for knowing what you are doing before you get into the markets. You must do more than believe in your abilities, you must effectively use them to produce the results you want. Successful trading is built on experience, which is in large part knowledge of what works and what does not work. Mistakes teach lessons only to students wanting to learn. If you are afraid of making mistakes, how are you going to learn? A key to success is to not repeat the mistakes, and correct the thoughts or trading methods that caused them.

There are any number of reasons why a trader hesitates before a trade.  The main one is lack of planning.  Without a plan, there is no degree of confidence a trade will be successful, it’s all wishful thinking. Unless they are outright gamblers, traders usually have a strong need to protect their assets and avoid risk. This is especially true for beginning traders. It can take a long time to build up sufficient capital for serious trading. By that I mean sufficient capital to be able to trade for a living. It is quite understandable to fear losing all or part of your initial capital. Beginners tend to seek absolute certainty before taking a risk, and gaining true confidence in you ability to trade successfully can take time. Unscrupulous marketers of mechanical trading systems and methods take advantage of the beginners fears and lack of confidence by advertising “sure-fire” “magic” ways to trade, instead of revealing the truth about the difficulties in becoming a consistently successful trader.

When it comes to short term trading, there isn’t very much time for long deliberations. Market conditions are in continuous flux. Decisions need to be made relatively quickly, and if one waits too long to execute a trade, he or she may miss a significant opportunity. The reasons for hesitation are everywhere, and traders must be aware of them, and create a plan to prevent them.  Let’s look at a few of the things that cause traders to hesitate:

The complex charting software available these days tends to increase hesitation.  Traders think that the more confirmation they can get from indicators, the more certain they can be that a trade will be successful.  However, all indicators lag the market. The notion that an indicator can somehow predict what will happen once a trade is entered is nothing more than wishful thinking. An indicator may give some degree of confidence about entering a trade, but the indicator cannot trade the trade, only the trader can do that. Once a trade is entered, it becomes entirely a process of management. It’s tempting to look at as many indicators and signals as possible. Doing so, however, can be very time consuming. That’s why seasoned traders advise looking at only a few if any key indicators.

Hesitation is often related to a lack of confidence in the trader’s trading strategy or trading ability. There are numerous reasons for such lack of confidence. Some of the reasons are shallow and mostly on the surface, like being distracted by watching financial TV while trading.  Other reasons are more deep-seated, and actually reflect psychological problems dating all the way back to early childhood.  A trader may not believe that his or her trading plan is adequately developed.  Nevertheless, they are determined to trade, so they muster up their courage and finally jump into a trade almost guaranteeing that the outcome will be a matter of pure chance.  Some traders may question their trading plan because they know that they did not spend enough time preparing it. Sometimes hesitation is intuitive, warning the trader to avoid the trade. All too often, traders are not tuned into their own intuitive feelings.  In the case of intuition, hesitation can act as a motivator. If the trader feels the hesitation is because of lack of adequate preparation, then that trader must learn to spend more time preparing for trades. By studying the markets a trader can come to see new higher probability setups, thereby reducing doubt and indecision, and in turn stop the hesitation because of more adequate preparation.

Hesitation sometimes reflects a deep desire to be right and a fear of being wrong. It has been our experience that many of the people who are attracted to trading fit into this category.  Great care must be taken by physicians, engineers, scientific types, and mathematicians, who seem to be the most prone to this type of hesitation. They are often perfectionists afraid to face their inadequacies. By putting off a decision, they don’t have to face their limitations, and can pretend they are better traders than they really are. If I had the time and space, I could give you dozens of examples of this kind of hesitation.  The perfectionist’s reality states that everything must be in order and follow rules.  They think strictly inside the box.  They want everything to be perfect, so they continually second guess and doubt themselves and what they are doing. They believe that they cannot cope with being wrong. This occurs in trading decisions as well as other life decisions. Extreme perfectionists often think that once they make a bad trade, it will be the start of a downward spiral and a complete blowout of their trading account.

Hesitation very often relates to low self-esteem or other deep-rooted psychological issues. We see these more times than we would like to.  Traders with low self-esteem usually lack confidence, not only in trading, but other areas of life. Beneath it all, they doubt their ability to trade, and hesitate making a trade until they the guilt of not doing so overcomes their fear.  At that point in time, they enter a trade out of pure compulsion driven by guilt.  This exposes them to a trade with no real plan to support it.  They become victims of pure chance.  We also find that traders who hesitate may have a conflict regarding their success. They can actually fear success.  They have been told by parents or others that they were no good, that they would never amount to anything, that they were “bad.” These people strive for success at one level of their consciousness, but at a deeper level, they secretly believe they cannot attain it, or do not deserve it.

Identifying, directly facing, and eventually eliminating a problem of hesitation is the only way to truly deal with it. Chronic hesitation will eventually destroy the confidence a trader needs for success. If the problem is not dealt with and the traders continues to hesitate, miss important market moves, and see his or her equity begin to dwindle, that trader runs the risk of becoming a phantom trader, a pretender, becoming convinced that the imaginary trades being made are real. If you are prone to hesitation, it’s vital that you deal with this problem early in your trading endeavors. Identify the reasons for it, confront the problem, and make changes as soon as possible. These are changes you have to make within yourself.  If you will truly engage in self-examination with the object of eliminating hesitation, you can trade become consistent and successful in trading profitably.

The charts showed the British Pound to have extremely bullish forecasts at that time with speculators piling into it with greed for profits. The CFTC Net Traders Positions show that speculators are trading at record longs with an 80% bullish indicator. In this scenario, it is clear that a correction in the market is impending. The only thing left to do is to time the market properly. In the forex trading market, timing is everything. There is no way to predict the exact time when a currency is going to move a certain way. This is where momentum indicators come in. With a good free chart service such as those provided in futuresource.com, you can analyze the charts using the Relative Strength Index and stochastic indicators.

The charts will show that the RSI is at bullish extreme and has double topped. While this shows a tapering of the momentum, it does not necessarily signal going short. It is the stochastic that shows a short position to be a profitable trade. Seeing the crossing of the two lines in a bearish convergence triggered an execution of the trading signal. With the odds in favor of the trade, prospects of profits remain to be in upward movement.

Trading with momentum can work for any forex trader who balances trades with low risks and high rewards. Again, there is absolutely no way to predict how the forex market will move so never duped into putting money into ebooks that promise success in the forex market. You can actually set up your own forex trading system that you can trust and understand to be logical.

The advice we’re giving here is contrary to almost everyone else on this subject – keep in mind however that 90% of traders lose! So, let’s stay away from the losers and make some profits.

Get Set for Bigger Profits

So, what’s this insider secret anyway? – It’s about looking at money management in a different light.

Money Management and your Odds of Success

Most traders are virtually guaranteed to lose – because they have money management strategies that ensure they are constantly going to get stopped out by normal market volatility.

For example, many traders risk say 2% of their equity on a trade. On small accounts, this amounts to just a few hundred dollars. They enter the trade, and market volatility ensures their stop is hit. The market then goes back in the direction they had anticipated – and piles up thousands of dollars! Our trader though, thinks he was just unlucky – and tries again, but he wasn’t unlucky, and volatility will take him out every time.

Money Management Guaranteed to Lose

A string of small losses soon adds up, and the trader runs out of money – and his online currency strategy is at an end.

The trader may have been right, on where markets were going – but got stopped out of the trade – and ended up losing instead of winning.

Does this sound familiar? – It happens all the time.

How to Protect Equity and make Bigger Profits

Here are seven tips to incorporate into your currency trading strategy, to protect equity and build huge profits.

1. Don’t listen to advisors or brokers. Advisors don’t care if you win or lose – and brokers certainly don’t mind, as they work on the assumption you will lose anyway. The more commission a broker makes the better – and tight stops ensure this.

2. You need to risk more per trade – so you need to be very selective in trades. Forget day trading, and concentrate on the big, longer-term trends.

3. Keep in mind this truism – “with risk goes reward”. Without risk, there cannot be big rewards. Currency trading offers big rewards – but you have to be prepared to take the risk.

4. Taking a risk with no thought, and taking a calculated risk, is entirely different. If you are taking a bigger risk, you are not necessarily going to lose – it depends on the logic behind the trade – and the profit potential. That’s why you should trade sparingly – and concentrate on the big trends.

5. Use up to 10%, or maybe even more, on the trades you are confident in – these are the big moves – and you don’t want to be stopped out!

6. Don’t move stops up too quickly to protect equity – big currency trends last months or years – so give the trade room to move. You don’t want to get into a big trade, and get stopped out on the first correction – if you think the trade is going to be big, then have the courage of your conviction.

7. Use options as a vehicle – they’re great if used correctly – to give you staying power. Use at the money, or in the money options – with plenty of time value, for greater staying power. Options are a great tool, but NEVER buy out of the money options – or options that are close to expiry.

An online currency strategy consists of a number of components – and the one that lets down the bulk of traders, is money management. They try so hard to avoid risk, but end up creating it – and lose. Don’t make this mistake in your currency trading strategy – you need to take risks, pure and simple – and as the famous, US general George Patton said:

“Take calculated risks – that is quite different from being rash”

The fact is, most traders don’t believe this – they end up creating risk by trying to avoid it – and that’s why their currency trading strategies fail every time – don’t make the same mistake!

No Limit up / limit down

When it comes to the Futures market, there is a limitation to the number of transactions and the type of transactions that can be made by a trader. If a currency shows a rise or fall that’s beyond a pre-determined daily limit, traders are not allowed to opt for new positions. All that they can do is to liquidate their current position if they choose.

When it comes to Forex currency trading, such trading constraints do not exist. A trader is free to implement any trading strategy. This helps him to protect his financial investment from the effects of unforeseen price fluctuations by issuing stop loss orders.

24 Hour Forex Trading

The Forex market stays open 24 hours. It starts up in Asia at around 24:00 CET on Sunday evening and closes on Friday around 23:00 CET in the US. It is true that there are electronic communication networks or ECNs that supply after hours trading for the futures market and stock market. However, in Forex currency trading the liquidity is very high and extremely competitive prices are offered. This makes it more exciting and a better money-making enterprise.

Bid/Ask Spread rates

Spread rates in Forex currency trading have seen a phenomenal tightening up in these last few years. On EURUSD (which happens to be one of the most liquid and widely traded pair in currencies), most online Forex brokers are willing to give a spread of about 1.8 – 3 pips. This is equivalent to almost 0.014% and 0.023% on the underlying value of the dollar. This is not possible in stock trading, where you see only stocks that are liquid providing tight spreads. It is predicted that in the future, market spreads will vary greatly swinging to anything between 5 to 9 pips.

Sell Before You Buy

When it comes to equity broking, you have to face highly restrictive margin requirements for short selling. What that means is that a customer will not have the liquidity required in order to sell stock prior to buying it. However, in the spot market, it is slightly different. When you are selling one currency, you have to buy another one necessarily. In Forex currency trading, a trader will hold the same capacity irrespective of whether he is buying position or initiating a selling. That’s another reason why Forex trading has more appeal for traders and brokers.

Options trading actually act as a best means to earn money. It is more like giving out cash in exchange for potential profit. You buy assets or things of value, with hopes of producing income in the end. It is available as either a Call or a Put, depending upon whether they give the right to buy, or the right to sell. The Call options give you the right as a holder to buy the underlying commodity, and Put options provide you the right to sell the underlying commodity. However, be it a call or put option, it can be bought or sold on registered exchanges. You deal with buyers and sellers of options/stocks, hoping to bring in more profits.

The best part about Options Trading is that you can have a better control on both the probability of risk and the consequence of risk. In stock trading, you cannot actually control the prospect of loss because you win only if the stock goes up. But option trading reduces the probability of danger as there are options strategies that profit when the stock goes up, down and sideways all at once. Besides this, it also reduces the consequence of risk through leverage.

Today, certainly the success in options trading is determined by price movements and investor’s attention to either volatile or commodity stocks. Proper control using bear market options trading strategies can certainly put extra cash in your pockets. Moreover, it can further give you the edge when the next bull market occurs.