Education
Become A Successful Trader
How do I become a successful trader? This year has been a time that I stepped back from the market and have taken time to educate myself more about how the market flows. I have watched it technically and then how news wrecks havoc on the charts and then how the market falls back into its’ normal flow.
I have learned that fear and greed really do play a large role in trading the stock market and that if you allow either of those to sit at your trading desk with you, your results will suffer. For me, fear has kept me out of many trades that I should have entered. I saw the setups, I knew where the entry was, but I was to scared to pull the trigger. If I entered the trade at all it was usually too late and then I just prayed to get back to even to i could get out. Sound familiar? I think every trader goes through this stage and to become a successful trader requires that you control fear and greed.
If you want to become a successful trader, you must continually educate yourself. I am not talking about spending thousands to get some guys “perfect system“. I mean learning how to evaluate a stock and a chart and see how they work together and sometimes how they do not.
You will also see that you trader better once you have developed a trading plan that works for you and one that you are confident with. Once confidence is established, fear is pushed aside. Continually refine your plan and know that it is ok to change it if market situations change. Focus on your plan and learn that you will have losses. Choose your method and be consistent in applying it and you will become a successful trader.
Four Criteria For Picking the Best Stocks For Covered Call Writing
By Brad Castro
Covered call writing is a popular option strategy that many individual traders and investors use to generate income. It’s popular for two reasons: it’s an easy strategy to understand and trade, and it can be set up relatively conservatively.
For those unfamiliar with the covered call writing strategy, it works like this: for every 100 shares of an optionable stock that you own (each option contract represents 100 shares of the underlying stock, although not every stock trades options) you can sell someone else the right (but not the obligation) to buy those shares from you at a certain price (strike price) by a certain date (expiration date). The amount you receive for writing the call is called premium, and it’s immediately added to your brokerage cash balance as soon as the trade is processed.
If the stock closes above the strike price at expiration, you will be obligated to sell your shares at the agreed upon price. If not, the call option expires worthless, you retain ownership of your stock, and you are free to repeat the process.
Although covered call writing is a fairly straightforward option income strategy, that doesn’t mean it’s easy to consistently make great returns. The strategy has two significant risks:
- When the underlying stock makes a large move down, the premium income you receive acts as a limited buffer only – it will protect you to a certain extent but not if the stock really crashes
- When the underlying stock makes a big move up, you’ll miss out on any capital gains above your strike price (the price at which you agreed to sell your shares)
That’s why proper trade selection is so crucial to successful covered call writing. Arbitrarily choosing stocks on which to write covered calls, or worse, choosing stocks primarily because they have high levels of premium (the higher the premium available, the greater the expected volatility of the stock), are recipes for covered call failure.
Here then are four criteria for picking the best stocks on which to write covered calls:
- Choose stocks with good fundamentals. If you write covered calls solely for the income, you should still select stocks that you think would actually make attractive long term investments. Depending on how you set up the trade, you can still profit if a stock trades lower, but a strong, reliable, and profitable company tends to make fewer, less shallow, and shorter in duration share price dives. Remember, you must own a stock first before you can write covered calls on it. So choosing mediocre and unprofitable companies only adds extra risk–and stress–to the trade.
- Choose stocks with good technicals. There is no requirement that you become a technical analysis superstar in order to be successful at covered call writing, but you should at least familiarize yourself with the basics of technical analysis. I’m not a big technical oriented trader myself, but if you’re going to be making short term option trades (even if they’re conservative covered call trades) you really do need to have some kind of basic understanding of technical analysis or access to tools and resources that can help you quickly assess the short to intermediate term technical health–and therefore the covered call suitability–of a stock.
- Choose stocks with solid growth prospects. Stock options associated with growth stocks typically have more premium available than mature or extremely predictable companies. That’s because they’re historically more volatile, as the level of growth (or the point when growth begins to slow) can be difficult to forecast accurately. In order to generate significant income with covered calls, you will need to focus on growth stocks. Not all growth stocks are created equal, however, and you’ll do yourself a huge favor by taking a little extra time to use various research tools and resources to help you separate the the wheat from the chaff.
- Choose stocks with attractive AND realistic premiums. If you’re writing covered calls for income, you’ll want to choose stocks (technically and fundamentally healthy and with solid, long term growth prospects) with an attractive enough amount of premium in order for it to be worth your while. But you’ll also want to be realistic. When you come across options with an explosive amount of premium available, beware. High levels of premium equals high levels of expected volatility and uncertainty. No matter how high your potential returns on the trade, these type of stocks are not suitable for consistently successful covered call strategies.
Writing covered calls can be a great strategy to generate significant streams of income. But just because it’s an easy strategy to understand and to trade, doesn’t mean it’s an easy strategy to successfully execute on a consistent basis. The good news is that there are numerous resources available to improve your covered call performance and returns.
For additional covered call income information and resources, please visit http://www.great-option-trading-strategies.com/covered-call-options.html
About The Author:
Brad Castro is a practitioner and promoter of Leveraged Investing, or option trading techniques and strategies designed to simulate successful value investing. Leveraged Investing has two objectives: to acquire stock in quality companies as cheaply as possible and then to squeeze more returns from those stocks once they’ve been acquired. Please visit http://www.great-option-trading-strategies.com for more information.
Article Source: http://EzineArticles.com/?expert=Brad_Castro
http://EzineArticles.com/?Covered-Call-Writing—4-Criteria-For-Picking-the-Best-Stocks-For-Covered-Call-Writing&id=2051259
Best Time to Day Trade
Day-trading offers many advantages over short-term trading or long-term investing. Typically a day-trader is out of the market at the end of the day, so there is no overnight risk. The day-trader watches the market in real time, enabling him to adjust his position live as the market develops. The frequent trades develops his skill much faster and will help to maintain it at its peak. Trades typically have lower risk with smaller losses and there is a quicker return when they are profitable.
The disadvantages of day-trading are also many. Over trading is a real problem with most day-traders. Quicker analysis and decisions, along with faster responses, are demanded. Emotion frequently interferes with good judgment and its roller coaster ride can be extreme. A margin account can be drained faster than with any other type of trading. Most day-traders give up regular careers in order to trade during regular business hours and so trading often becomes their only source of income, placing a great financial pressure on them. Still, most would agree that they wouldn’t trade day-trading for any other career.
When I first started day-trading I found it to be very stressful. I chose as my day-trading market the S&P e-mini, a market I knew well and felt comfortable with. The day would start out well, but as mid-day approached I found myself struggling and making trades repeatedly as I tried to keep up with the frequent changes in direction. Afternoon would ease the stress some, but I found myself so exhausted that I could not focus well. I would make some profits, but by the end of the day I would find that I had spent so much in transaction costs that the profits were very meager. After a few weeks I found myself too worn out to get up and trade, particularly if I had just traded the day before. So I started to skip days that I would trade. Eventually, I was reduced to trading at best just every other day. It was clear that the income was far too little for my needs and I knew that any hope of a long term career in day-trading was in serious trouble. At first I thought I had to just force myself to trade more, but when I did so the situation still didn’t improve. In fact, it seemed to get even worse.
When I stepped back and analyzed what was going wrong I realize several issues were standing in my way. First, I was over trading. By the end of the day I would accumulate anywhere between $150.00 to $225.00 just in transaction costs, a huge portion of what I was making in profits those days. Second, I was getting too stressed out and this was impacting my ability to focus as well as eating away at my enthusiasm for trading. I simply didn’t enjoy it anymore. Third, most of the over trading and stress was occurring during the mid-part of the day.
When I reviewed what was actually happening in the market during the day I noticed that typically a trend would develop in the morning and afternoon, which were easier to trade and make a profit off of. But during the mid-part of the day the volume dropped off significantly and the market had a tendency to form a consolidation that was much harder to trade and required more frequent trades. It was during this time that the losses dramatically increased.
After realizing these facts I then decided that I would just eliminate all trading during the mid-part of the day. I would instead only trade the first two hours of the morning and the last two hours in the afternoon.
As soon as I implemented this plan I saw an immediate change in the end results. Trading was less stressful, less frequent and of course, less costly since the number of my transactions had dropped off significantly. I was able to take my time and enjoy a pleasant lunch and even though I was spending less time actually trading, I was still much more profitable. Trading was enjoyable again.
When I first started trading I would have hardly imagined that this simply change would have such a drastic effect. My ideal job turned out to be even more ideal than I originally thought it to be. I really liked the fact that I now had a legitimate reason for taking a two hour lunch, it actually made me more profitable.
My experience highlights the importance of taking into consideration the time you spend actually trading and adjusting your schedule to match what is best for the markets. If this simple change had such an immense bearing on my results, imagine what a similar change could do for you and your trading.
In reflection, there are a number of factors that I learned from this experience. First, it is best to trade when the market has a tendency to trend. Consolidations can be hard work, stressful and very frustrating. Trends are much easier to trade, are easier to read and are more forgiving if you make a mistake. While this depends on the consolidation and the trend, likely you have found these conclusion true for yourself.
The first time that I traded the Forex I had a similar experience just as I did when trading the S&P e-mini. By examining the times that the Forex repeatedly trended I was able to again improve my results by adjusting when I traded.
Additionally, markets have periods of time when they will tend to trend more often. The S&P e-mini will trend more often during the morning and afternoon sessions, the Forex will trend more often when a major international exchange opens and most markets in general will trend more often when their respective floors are open for business.
When the traders are mostly trading then the market will mostly trend.
By taking the usual trending times of a market into consideration and adjusting the time that you trade to match it, you too are likely to improve your results. All it requires is for you to review several days of a market in order to discover which times are best for trading. While a market can trend at any time, trading when it is more likely to do so will make it much easier to trade.
Michael J Parsons is a professional futures trader and published author of several trading books and courses. He is a pioneer of several new and unique methods of trading that are revolutionizing how markets are analyzed and traded. His astounding market insight and ability enabled him to publicly predict in advance the exact week that the 2008 decline of the stock markets would begin and to even forecast just how low they would actually drop.
His channel method has received worldwide acclaim for its practicality in real world trading and the accuracy of his reversal method is legendary. His methods are extremely advanced and cutting edge. This is the future of technical analysis.
For over a decade he has been teaching other traders how to master the markets and take control of their trading. He also has provided analysis, consultation and trading signals to hedge funds, corporate traders and individuals. For more information about his work visit http://greatesttradingtools.com/
Article Source: http://EzineArticles.com/?expert=Michael_J_Parsons
http://EzineArticles.com/?The-Best-Time-to-Day-Trade&id=2345944
Four Secrets of Highly Successful Day Trading
By D Bennett
I day trade futures for a living. For very little time commitment I am able to make consistent returns with minimum risk exposure. A day trader puts money into the market for just a few hours each week, and avoids the risk of holding positions overnight or during weekends when stop loss orders provide no protection against market swings. Here are the most important secrets to day trading success.
- Do not overtrade. Some people erroneously believe that day traders have to take a lot of trades. That is not true! You should take high quality trades, and keep out of the market if your entry conditions are not met. I take at most ONE trade each day. For example, in February I made 39% return on my capital and took just 14 trades. The leverage on futures trading is such that just one or two trades can give you an excellent monthly return, so why look for more? You need to be honest with yourself – are you looking for profits, or are you more interested in “action”? If you are addicted to the action, you are not a serious day trader.
- Have a plan. Day trading requires quick decisions. Sometimes you have to react to market situations within seconds. There is no time to mull over decisions, consider what has happened in the past, and agonize over your next step. You must have a plan which tells you precisely when you will enter a trade, what size position you will take, where your stop will be placed, how you will manage the trade, and when and where you will exit. I use a software control panel to specify each element of my plan, but if you do not have automation you must clearly write down all elements of your strategy and LEARN them so that you react instinctively to any market situation.
- Implement the plan flawlessly. Good plans are simple. They get you into high probability trades so that over time you have a statistical edge in the market which leads to profit. Good day traders implement the same simple plan day after day. Perfect execution is vital. You would be surprised how many traders fall down in this regard. They miss a signal. They press a wrong button and find themselves long when they should be short. They make an ad hoc decision to move a stop loss, even though it is not part of their plan. They grab a quick profit even though the profit target in the plan has not been met. Suppose you are risking 2.5% of your capital for a 7.5% gain and you make a mistake giving you a loser instead of a win. That is a 10% swing in your monthly return! Even if you just miss the trade, it is a 7.5% swing. One or two errors in a month has a huge impact on performance. That is why novice traders trading exactly the same strategy often achieve widely different results. I use software to achieve perfect execution of my plan, but if you do not have automation you must PRACTICE implementing your plan until it is second nature, and DISCIPLINE yourself to resist all temptations to stray from your strategy.
- Have patience. Things sometimes seem to happen slowly even for a day trader. You may not get a trade for a few days. You may have a string of three or four losing trades and be in a “drawdown” for a few weeks. If you are addicted to trading action, these periods will be excruciating. Too many people become day traders not because, as I believe, it is less risky, but because they get more opportunities to trade. If you find yourself watching each tick of the market as your trade progresses, you are probably not exercising the discipline and patience required to succeed. If you make a 10% return on your capital each month and allow your capital to compound, you will triple your capital in a year. This is so far in excess of what most businesses have to offer that you really should keep your eye on the big picture and avoid trying to rush the process. I use software to trade for me and am not even aware when the trading takes place. If you do not have automation, you must cultivate the self discipline to walk away from the trading screen as soon as you have done whatever your plan requires you to do. Trading should be a small part of your life providing you the wherewithal to live as you wish – do not let it become your life!
You can follow live day trades based on these principles here.
David Bennett trades US commodity futures from his home on the Gold Coast in Australia. He provides coaching and mentoring services for people wanting to start trading for themselves. Visit http://www.12oclocktrades.com to read more futures trading articles.
Article Source: http://EzineArticles.com/?expert=D_Bennett
http://EzineArticles.com/?Four-Secrets-of-Highly-Successful-Day-Trading&id=4064324
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