Trading in the financial markets, whether it be the Stock Market; the Commodities Market; the Futures Market; the Forex Market; or even the Options Market; is taking big risks on your hard-earned money.

You have to treat trading as a serious business whether you are trading full-time or part-time if you are ever going to succeed and hold on to your profits in the long run.

Yes, you heard me right.  You have to plan and manage it like a brick and mortar business. 

There is no other way to succeed in trading or speculations if you are not going to give the due respect that Mr. Market deserves.  If you don’t respect the Market, the market will not give you the reciprocal respect, in terms of taking money out of the markets and hold on to them.

Once you have this proper mindset, we can move on to other important components that make up your trading business.

Trading Plan

The first thing you need to do before you start a business is to have a Business Plan.  In this case, it is called a Trading Plan.

Now, this is the place to set your Goals that you want to achieve.  Be as specific as possible while being not to easily or impossible to achieve.  Set yourself a goal that is challenging to you without it being too big a goal.

Now, with your goal set, you have to break down this goal into smaller components of actions that will lead to achieving your goal eventually.  

This is your action plan.  Be detail and realistic.  If you are working full-time and you can’t always look at the market every minute, don’t put an action that requires you to monitor your trading positions every moment.  You get the idea.

Ok, you have set your plans, what next?

Trading System

In order to survive and prosper in the long run trading in the markets, you need to be consistent in your actions in the buying or selling of your market products, stocks as an example. 

You will also need a measure of what actions are right and which are mistakes.  Believe me, without such a standardized and formalized measure, you will always think all your actions are right, even when you are losing money!  That’s the default optimistic human nature in control.

What you need can actually be found in a System.  It is normally called a Trading System.  A Trading System consists of Setup, Entry, Exit and Money Management strategies. 

A Setup is a definitive set of patterns, ratios or conditions that you are looking out for when trading. 

An Entry is the actual point where you are to “enter” into the markets, be it a “Buy” or a “Short Sell”.

An Exit is as the label implies, the actually point or conditions when you should square-off/close your open trading positions.  It could either be a profit-taking exit or a loss cutting exit.

Money Management or more specifically called the Position Sizing strategies defines and answers the question of “how much” to buy or sell in entries or exits.  Contrary to common beliefs, this is actually the most important component of a Trading System.  It can determine whether you can make it your trading career.

The importance of a Trading System cannot be emphasized more.  You need a Trading System to perform consistently according to the changing markets as well as a guidance to tell you when your actions are right and when you are in great risk and danger.

There are two ways that you can have a Trading System.  You can either design it yourself if you have the vast amount of knowledge in the trading field required in designing your very own trading system which takes enormous effort and a long and tedious total commitment of your time, or you can order one such Professional Trading System that has been proven to have a win-rate of 71.9%, as tested by an internationally renowned third-party vendor as well as my own experience using it. 

Let’s take a look at what is required in designing such a Trading System mentioned above.

System Development

Firstly, you will need to determine how much time you are willing to spend researching the market as well as staring in front of your market price quotes.  This will determine what type of trading styles you are comfortable in. 

Decide whether you are going to do Day Trading, which requires your involvement in the market every minute; Swing Trading, where your open trades last from a day to a few days; Position Trading, where your open trades last anything from a few days to a couple of weeks; Long-Term Investing/Speculating which has the most minimal time requirement where your trades can last from months to years.  This is also the most difficult if you are going to watch the markets frequently and you are going to require huge amount of work and market data in order to test out your concepts.

Personally, I prefer Position Trading as it fits my time and activity requirements.  It keeps me busy enough yet at a relaxed pace while having ample data for constant refinements and testing of my concepts. 

I spoke of refinements of the Trading System.  Yes, that is required especially for new initial Trading Systems.  You need to go through a series of cycles of refinement and optimization of your newly developed Trading System whilst it is being tested in the markets in real life conditions, with your precious money at stake.

I am getting ahead of myself here.  Before we even think about refinements, there are many more things involved in designing and developing a Trading System.  Let us go back to the discussion on System development.

Once you have decided which Trading Style you are comfortable with, you will need to determine how you are going to carry such a style.  There are basically 3 categories of Trading Methods.  They are Technical Analysis, Fundamental Analysis and Intuitive or Mental Analysis.  These methods can be used in purity or can also be used in combinations.

Technical Analysis deals with Technical Charts and Graphs.  There are numerous technical indicators out there for you to design your System.  In fact, there are so many different formulas and variety that you may be overloaded initially.  Nevertheless, if you spend enough time reading technical books and about these indicators, you will be able to discern them into various categories like Oscillators, Moving Averages, Trends, Patterns, and Divergences.  Pick a number of these indicators to design your Trading System.

Fundamental Analysis deals with the financial ratios of a company as well as the fundamental conditions of a company or market.  You make use of such information in order to design a consistent and reliable Trading System.  You put reality of the market situation aspect into you Trading System.

Intuitive or Mental Analysis is the discretionary perspective of looking at the markets.  You make your own judgment from your subconscious observations or your past experience and do not involve mechanical formulas or fixed visual patterns in your analysis.  Though not all such intuitive insights can be formalized into your Trading System, there is no doubt it can be useful in designing your System.

Once you have designed your Trading Strategies, choose a financial market that you are more interested in.  It can be the Stock Market, the Index Futures Market, the Commodities Market, the Forex Market or the Options Market.

For now, just pick one.  You will have to go through the following steps before you can really confidently trade in your chosen market using your Trading System.  Be sure to make refinements along the way.  They are,

1)      Paper Trading.  Simulate your Trading System like you are trading it with real money.  Test it out using trading software or manually keeping track of it using historical data.  Refine your various System components until you are satisfied with the result, profit in this case.

2)      Trade in small lots/amount.  Once you have passed the Paper Trading step, you are more confident of your Trading System and you can start to actually trade very small amount of stocks or contracts in the market of your choice.  Don’t worry about losing for now.  Instead concentrate on executing your System properly and with discipline.  Further refine your Trading System here again as you will start to see the flaws in your System.  Make sure you test your System again after refinements.  Once you are very confident that your Trading System will make you money consistently, proceed to the next Step.

3)      Initial Actual Trading System trading in normal quantity indicated by your Money Management Strategies.  Make sure you follow with strict discipline in the execution of your trades according to your Trading System.  Be aware of the psychological challenges involved that are against your rules defined in your Trading System.  This is another opportunity to refine your Trading System yet again.  Until you are confident of your Trading System again, you should not rush to start your actual trading career.

4)      Actual normal trading.

Take control of your trading Psychology and adhere to strict discipline in trading your developed and refined Trading System.

So, as you can see, very much is involved in the designing and development of a Trading System.  I have personally spent 9 months just to design and develop the Natural Behavioural Cycle Trading System.  I have also made numerous refinements on it over many years of actual experience trading it.

I would suggest taking the easy way out and trying out this Proven 71.9% win-rate Complete Trading System, where everything has been researched, designed, developed and tested for you here,

http://www.howtotradeforaliving.com/order.php

Review

A great introduction for those new to options, but with some innovative ideas with those already familiar with options. — R.V. Green, Briefing.com

THE SHORT BOOK ON OPTIONS is just that: a concise easy to understand primer that first teaches the basics of stock options and then offers a hands-on approach to using options in a conservative manner. Beginning with a description of what an option is and how an option works, THE SHORT BOOK ON OPTIONS takes the reader on a journey from learning the language of options to being prepared to trade. The book provides detailed answers to these important questions: What are the steps involved in trading options? Why would you want to sell a stock option?What do you have to gain?What do you have to lose? How do you choose which option to sell? THE SHORT BOOK ON OPTIONS is especially useful for long-term buy and hold investors, owners of a self-directed retirement plan, investment clu (more…)

My experience is that most people who trade options do not do very well. A major reason is that most option traders don’t know how options are priced. Without having a basic understanding as to how they are priced, it’s difficult to understand how, and why, they will change in value. This makes formulating good trading strategies practically impossible.

Before we can become good at understanding which strategies to implement, it’s important to know the basics. Just like stocks or futures, options are independent vehicles and trade differently than their underlying security. So, what makes the option value rise and fall? Options will basically track the underlying stock or future, but there are many variables in their pricing traders should know about. A way to help measure these variables is known as “The Greeks”.

“The Greeks” are really a series of calculations that measure risk/reward changes in the option price, with respect to changes in interest rates, time value, implied volatility and changes in the price of the underlying stock or future.

The four basic measurements are as follows:

1- The Delta is a measurement of the change that will take place in the option premium with respect to price changes in the underlying stock or futures contract. The values range from 0-100 where 100 would reflect 100% correlation to the underlying instrument. A delta of 50 would mean the option would move 50% to the underlying instrument. So if a stock or contract moved two points the option would move one point at a 50 delta. The delta is constantly changing with price changes in the underlying security.

2- The Gamma measures the rate of change of the delta. This is how fast the delta changes with movement in the underlying instrument.

3- The Theta measures the rate of decline in the value of the option caused by the time decay. Options have specific expiration dates, and the closer we move toward that date, the more the option will decay in value. This assumes no movement in the underlying instrument or changes in volatility.

4- The Vega measures the rate of change in the option with respect to increases and decreases in volatility. As volatility increases the option price will tend to increase even though there is no change in the price of the underlying stock or future.

Interest rates are always changing. Time does slip away. The prices of the stocks and futures do go up and down, and volatility is always changing. This is why it is critical to look at these “Greeks” and understand how they can help you formulate better trading strategies to buy “cheap options” and sell “expensive options”.

Click here to see a great summary sheet on 46 different commodities and their respective volatility ranges. Also on the link, click an individual commodity to see detailed analysis.

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Charles Maley

www.ViewpointsOfaCommodityTrader.com

Owning stock is the most basic form of investing and even if you don’t stocks directly, you probably own some through a mutual fund or retirement plan. Owning a share of stock essentially makes you one of many owners in a company’s business. When the stock rises, you make money. When it falls, you lose money (unless you’ve sold the shares short). It’s that easy and the simplicity of stock ownership has made it the investment option of choice for millions of investors. ETFs take stock ownership a step further. Considered a twist on investing in mutual funds, ETFs give investors exposure to a group of stocks in a specific sector or index. That’s a feature many investors love about mutual funds, but ETFs are much more liquid, trading like shares of stock. ETFs are great for investors that want to make long or short bets on a particular sector, but don’t want to pick just one or two stocks. The bottom line is investors should have both stocks and ETFs in their portfolios. Another advantage of ETFs is there are hundreds of ETFs designed to give investors short exposure without directly shorting a single stock, so ETFs can act as a great hedging tool in your portfolio.

There are certainly advantages (and pitfalls) of using investment choices that thrive on leverage. Futures, forex and options all fit the bill when it comes to using leverage. As leverage pertains to options, investors can control a good chunk of a company’s stock for the life of an options contract without the expense of buying the shares directly. For example, you might be able to buy a call option on Coke for $1 a share and that would equal $100 (100 shares per contract x $1 = $100) when the stock is trading for $50. Best of all, access to leverage with the most basic options strategies limits risk. When buying a put or call contract, the biggest loss you can sustain is the cost of the contract, but stock ownership (or a short sale) increases our risk profile dramatically. Don’t forget about leverage with futures and forex. These two trading arenas are home to some of the biggest potential winners and losers you’ll see in trading and that’s due to leverage. Most forex brokers grant traders 50:1 or 100:1 leverage on their capital deposits. That means if you deposit $10,000 in a forex trading account, you’ll have as much as $500,000 (if not more) to trade with. Remembering that each pip on a standard forex lot is worth $10, you quickly see how big money can be made or lost in a heartbeat in forex trading. Futures instruments trade in a similar fashion to forex and it is important to note that investors can lose more than their initial deposit while trading both futures and forex. Since it is a good idea to have some commodities exposure in your portfolio, we like the use of Emini futures, which come with lower risk, as a way of integrating futures into your investment arsenal.

If you’re a long-term investor, a mix of all of the aforementioned assets might benefit your portfolio. To get futures and forex exposure, consider managed futures or currency ETFs. For active traders, start with stocks and mix in some basic options strategies on the side before working your way up to futures and forex.

Gamma: Gamma is derived from Delta is the odds of a change in Delta. It also informs in advance if the Delta could be changing. Gammas are positive for both the call and put. When options are deep in the money of deep out of the money the Gammas will be near zero as the probability of a change in Delta are very low. Likewise at strike price the Gamma would likely to e the highest.

Theta: Time decay is reflected in the option position as Theta. Options bought have negative Theta, which means that each day you do not sell that option, the time value is declining because of the time decay. In this case, time decay is making it worse for the buyer of the option. When you sell options, Theta is positive, meaning that time decay is good for the option seller.

Vega: How volatility affects the option pricing is reflected in the in Vega. In other words, its sensitivity to volatility. Options tend to have price increases when the underlying asset’s volatility increases. In this case, volatility is good for the buyer of an option and bad for the seller of an option. Vega is positive for long option and negative for short option.

Rho: Rho is how interest rates affect the pricing of the the option. When interest rates are high and it is good for the position, Rho will be positive. If interest rates are high but bad for the option position, Rho will be negative.

Review

“The best book on options I have ever come across.”- Alpesh Patel, best-selling author of “Trading Online “and “Mind of a Trader” “Incredibly well presented – actually makes you want to learn about options if you are a novice, and for the expert teaches you huge amounts you never knew. The diagrams, charts and illustrations are exactly what is needed for a potentially complex subject and turns it exactly into what it says on the cover – Options Made Easy. Very thorough. Very accessible.” “Guy’s approach in using well illustrated diagrams is the most effective way” “to understand the concepts and intricacies of options trading. This book” “will guide you through the popular strategies adopted by traders at all” “levels. “Options Made Easy “is definitely a valuable addition to any trader’s” “library. It’s one of the best investments I have ever made.” J Pau, Australia
–This text refers to the

Paperback
edition.

“Guy Cohen cuts throug (more…)

This may sound like you are getting rather a lot, but believe me, it is all vital for giving you the world class education that you need to trade stock options. As a step by step guide, the Option Profits Success System will get you to the desired place where you know, in detail, more about trading stock options then the majority of other traders out there. This home study course will put you well on course to a successful and long term career in stock option trading – Guaranteed!

Thinking of trading options, but not sure where to start? Trading Options For Dummies starts you from the beginning with clear, step-by-step advice on how to use top option strategies to reduce your risk while boosting your income and enlarging your retirement portfolio with index, equity, and ETF options. This plain-English guide explains the common types of options and helps you choose the right ones for your investing needs. You find out how to weigh option costs and benefits, combine options to reduce risk, and build a strategy that allows you to gain no matter what the market may bring. You’ll learn the basics of market and sector analysis and what to look for when trying out a new option strategy. You’ll also find what you need to know about options contract specifications and mechanics. Discover how to: Understand option contracts and orders Determine and manage your risk Guard your assets using options Trade options on securities (more…)