Welcome back, this week in part four of my ten part series on how to successfully trade stock options I will discuss how to enter the trade at the right. Obviously this is one of the most important aspects of trading, no matter if you are trading stocks, options or any other financial instrument.

This, however, is easier said than done! When entering a trade if you get in too early you may lose some time value of your option. If you get in too late you may miss out on a move in the stock you are trading the options on. The best way to time your entry point is to use good technical analysis. Technical analysis is the technique of reading and analyzing stock charts. Institutional investors are investing millions and millions of dollars in the stock market every day. However they are still human and because it takes a long time for them move that much money predictable patterns emerge in the stock charts. From those patterns future price moves in the stock can be predicted.

Technical analysis is a mix between an art and a science and can be quite complicated. Although the patterns are predictable, of course the stock does not always follow the pattern it should so it is important to use other indicators in conjunction with technical analysis, such as fundamental analysis (discussed in the last article), company news and political and economic events. Because of the complexity of technical analysis I will not go into the how it is performed, there are several good books that I would recommend you read that do that:

“Technical Analysis and the Financial Markets” by John Murphy.

“Getting Started in Technical analysis” by Jack Schwager.

“Technical Analysis: The Complete Resource for Financial Market Technicians” by Charles Kirkpatrick II.

Some of the main technical indicators in charts to watch for are the support and resistance levels, breakouts on volume, moving average crossovers and oversold/overbought conditions. Using and understanding technical analysis is a key component to entering the trade. Next week I will discuss the next step which is, quite aptly, how to decide when to exit the trade.

US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).



By: Roger Cox

About the Author:

This week is week number seven in this ten week series on stock options trading. Key number seven is to always trade with the trend. Let’s discuss that.

As my first mentor, Dr. Stephen Cooper, says ?The trend is your friend?. Generally, when the overall market trend is upwards then trade calls, when the overall market trend is downwards trade puts. Why buck the trend? Keep it simple?

The general market direction is determined by what the institutional investors are doing. Institutional investors are large corporations such as investment banks, mutual funds and insurance companies. These corporations have billions of dollars to invest in stocks and when they invest or devest it moves the market. Small private investors such as us have very little effect on the direction of the market or a particular stock. If these corporations are investing their millions into the overall market or particular stocks then you should follow them. They may not necessarily know what they are doing but they do make the market so if the Dow Jones Industrial Average is down 200 points as a rule don?t buy calls, conversely if it is up 200 points, again as a rule, don?t buy puts.

Of course these are general rules and there are always exceptions. A particular sector or stock may be performing exceptionally well and just because the overall market is going down you may still have good fundamental and technical reasons to be buying calls in that particular sector or stock. Always double check the news sources I mentioned in Key #2, check the fundamentals explained in Key #3 and check the technical reasons for entering a trade covered in Key #4, if all of these factors combined determine a good trade then by all means take into account the overall direction of the market but do not let it stop you making the trade.

When trading it is imperative that you don?t just take any one factor into account when deciding to place a trade, always ensure there are at least two good reasons for entering the trade and make sure there are no reasons not to trade. Remember overtrading is a common mistake if there is not a good reason to trade then just wait until another day, the market is constantly providing good opportunities to make money, have patience and wait for the right one. And remember, the trend is your friend!

Until next week, happy trading.

US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).



By: Roger Cox

About the Author:

Exchanging commodities is a centuries old means of investing, trading, and managing money. It is believed by some historians that variances of the modern commodity exchange have been in existence for nearly 800 years. Exchanges that deal with company stocks are a much more recent development. It has been just over 200 years since the first American stock exchange opened on Chestnut Street in Philadelphia, and 190 years since that exchange moved to lower Manhattan and the New York Stock Exchange rang its first opening bell on Wall Street.

In the years since, the fortunes of American business and American investors have been made and lost countless times on the floors of that exchange, and usually with the help of stock brokers who, as members of the stock exchange, act as agents for buyers or sellers by facilitating transactions in accordance with the law. However, recent years have seen a change in the traditional broker-client relationship, and the advent of the Internet has spawned a new group of investors who eschew the help of brokers and try to make their fortunes trading stocks online.

When you purchase stock you are purchasing a share of ownership in a corporation. In the past, stock brokers acted as the intermediary agent that connected the client to the market. Typically, stock brokers would also be Certified Financial Planners, a qualification that allowed them to provide the client not only with market access, but with financial advice and management of their account.

In exchange for the service of the account and access to the markets the brokerage earned a commission in the form of a flat fee or a percentage of the trade, and those commissions could be quite sizable, especially if you were engaged in frequent trading. The desire to eliminate commissions while still accessing financial markets is the primary reason that so many investors can now be found trading stocks online.

The Internet has allowed investors the option of controlling their own financial direction and decisions. By trading stocks online an investor can avoid a significant portion of the fees and commissions that a traditional brokerage would charge - trades can cost as little as $5 dollars - but those savings come at a price. When trading stocks online through a discount online brokerage, the brokerage is only responsible for executing your trades in the market.

When it comes to advice, research, and account management, you are truly on your own. Therefore, trading stocks online is not something that should be entered into lightly. Successful investors usually have experience, expertise, research tools, and a basic market savvy that allows them to successfully, and profitably, navigate the complicated financial world. Investors who lack those skills are not likely to be good candidates for trading stocks online.

A hot tip on a new stock is usually not a good reason to get into trading stocks online. Experienced investors know that today’s hot tips are often tomorrow’s trash, and it takes more than some quick hits to be a successful online investor. However, if you are an individual with a strong financial background and an understanding of markets then you may be equipped to successfully manage your financial future on your own.

However, if you are not sure of the difference between a market order and a market maker, or ex-dividends and earnings per share, then saving money on commissions and fees probably will not offset the trading losses you are likely to incur. Trading stocks online is not for everyone, but if you want to try your hand then the Internet is the easiest way to access reputable discount online brokers who can provide you with the access you need to control your own financial destiny.



By: Sammy Kay

About the Author:

Nowadays, it is certainly hard to go to a book shop and not come across numerous books on stock market trading for the newbie or even to go on the net and not come across a couple brochures about some restricted advice to make it BIG in this activity. All of them contend and swear to you some speedy and leisurely ways to instruct you how to make riches in stock market trading. However, it is just impossible! If you want to acquire the techniques and the way of the stock market, knowledge is the only professor. Because the more experienced you get, the more you learn. There is a few basic tips about how to invest in the stock market.

The first thing that must be done is to locate the trend. This is the most urgent lesson of the stock market trading. If you want to sink your money in the stock market, the first thing you need to do is to take in and apprehend the trend of the market. Peers are forever outperformed in all of the bear and bull markets because all the markets have some losing and winning stocks.

Before you invest in the market, you need to get a feel for the timing to buy or sell stock.

Timimg means the whole ball of wax in stock market trading. Timing repeatedly decides the gap between profit and loss and determines whether your account climbs up or down. If your timing is proficient and is appropriate according to the market, you can even turn a trivial sum to massive profits.

Also, it is a good idea to consider trading stock options. Giving the owner the rights without the obligation to purchase or sell the security for fixed price before or on a certain date, the trading stock options are trading contracts which requires experience to deal with. In trading stock options although the pricing is very complicated, however it mainly depends on the price of the actual underlying stock and the duration left on the trading stock option. Hence, it is very important for you to check out the trading stock options before you decide to invest in stock trading companies.

In order to be successful in trading, a person must identify the stock they are researching. Before investing, you even need to understand and examine the stocks properly. Analyzing stocks includes analyzing company’s fundamental and price figures. Apart from dividing the stocks into almost eleven different sectors depending on the companies business types, investors and analysts classify two of these sectors as defensive and the rest as cyclical. Defensive includes consumer staples and utilities as they usually remain quiet during market downturn providing portfolio stability and falling stock market protection, as expenditure of food and energy never diminishes. Cyclical stocks are the stock belonging to the group of sectors identified with a wide range and variety of increase and fall with each sector varying differently as per market influences.



By: Charles Cox

About the Author:

2009 Hot Stock Picks >> Stock Market Tips .. Strategies for Making Money Day Trading Stocks Online

By.- http://www.StressFreeTraders.com

A beginner usually feels very attracted to the stock market while for example discovering a stock that’s being reported in CNBC or the news program and watching it rise steady fast and make new highs from $10 to $70 in just 2 months.

While learning about this successful news story he’s saying to himself “Oh boy if I was one of those lucky guys who bought that stock back when it was priced at $10 I easily would have tripled my money by now… That means my 10 grand would transformed in to a whooping 70 K! hassle free … I would have been able to grab one of those big HUMMERs on the spot and probably pick up a nice Rolex by the way!”

The stock market news constantly reports of hot stocks that are breaking out and making tremendous gains on the same day or doubling in price in just a few hours. Back in the bull market of the late 90’s you could easily see a good number of hot stocks sprouting out every week.

Those years surely made it look like every body could easily take LONG SHOTS and make a shiny pile of gold every day in the stock market. But today’s market is a different story. A totally different animal.

Some say that the stock market has gotten more realistic. Fantasy land is over and GAMBLING YOUR WAY TO RICHES is not an option anymore. You might get lucky a few times, but your constant loses can wipe you out sooner or later.

The fact that the bull market period has ended for now doesn’t mean that you can’t make a great deal of money in today’s market. A lot folks from many walks of life keep making excellent profits on a daily basis, pocketing hundreds & thousands of dollars by trading stocks online.

Success in stock trading starts by applying a wiser and REALISTIC methodology for choosing hot stocks as well as for getting in and out of them with profits in mind.

You need to look at the stock market more realistically. You got to learn that you can benefit when stocks go up and also when they FALL down.

You got to WORK SMARTER and get more selective about the hot stock trading opportunities that you choose. You need to embrace the nature of day trading and be fully prepared to take advantage of stocks that are poised for a BIG RISE on the same day.

The bottom line is you have to PREPARE YOUR SELF to be successful, just like you would do it in other areas of your life in order to achieve success.

Learn to choose among the hottest stocks and dramatically improve your trading results today at http://www.StressFreeTraders.com



By: Stock Trader

About the Author:

Who decided that options are too risky for the everyday investor? More importantly can somebody please explain why options are too risky? After years of research I have finally come to understand that there are 3 types of people that can be held responsible for the Myth that options are too risky. Who?

1. Financial Planners

2. Stock Brokers

3. Taxi Drivers

Is it possible for the uneducated investor to lose lots of money if they trade options? Yes of course they can, first of all the uneducated investor can lose tons of money using any trading instrument and secondly options are highly leveraged so if used incorrectly then they will increase your losses. So if this is the case then why an I saying that trading stock options isn’t risky?

The first thing that you must realize about stock options is that they were actually invested to reduce or manage risk. The whole idea of buying a put option to hedge you stocks is basically another form of insurance. When looking at your portfolio risk management options buying puts to ‘insure’ your stocks is one of the most conservative investment strategies that you can implement.

On the other hand selling call options on stocks that you already own (covered calls) is another incredibly conservative stock market strategy. This strategy actually increases your downside protection, so when used correctly the myth that options are too risky is simply not true. Of course if you start writing naked calls or naked puts then your risk levels are going to seriously increase but when used correctly options are an amazing risk reduction tool.

Let’s have a look at why financial planners, Stock Brokers, and Taxi drivers are giving Options such a bad name.

Financial Planners: If you go to your financial planner and say that you would like to include options in your trading strategies then they will almost definitely tell you that it is a very bad and risky idea. Why? Simply because 99% of financial planners wouldn’t have a clue how to use them. I recently spoke to a financial advisor who admitted that her entire financial planning degree only had one chapter on options and it was completely theoretical information. In their entire course there was not one bit of practical information about how to use options. So considering that most financial planners don’t actually know what stock options are let alone how to use them is it any wonder that their typical response is negative. Remember human’s beings fear change and looking stupid.

Stock Brokers: Surely Stock brokers don’t think that options are too risky? Aren’t they meant to be professional stock market investors? Unfortunately most stock brokers are exactly that ‘STOCK’ brokers not ‘OPTION’ brokers. To become a legal options broker there are additional courses that you need to complete so most stock brokers aren’t actually allowed to give you ‘option’ advice. Put yourself in their shoes for a minute - if a client came to you and said “What do you think of buying Options” then you are faced with two choices

1.Tell them that is a great idea but unfortunately you will need to take all of your money out of our accounts and go to another broker who is legally allowed to trade options, Good Luck with your investing.

2.Or you could tell them that options are too risky and you really should just stick to managed funds and stocks.

So what answer would you choose?

Taxi Drivers: Obviously this is a little bit of a joke but the point I am trying to make is that everybody seems to think that trading stock options is too risky. It is extremely important to remember to make up your own mind about investment strategies, whatever you do don’t take advice from a taxi driver about wealth creation.

“the most expensive advice you will ever get is free from poor people” Kurek Ashley

So are Options too risky? If used incorrectly yes but perhaps the question you should ask yourself first is ‘what are stock options’? Before you dismiss something as being too risky or scary make sure you try to understand what it actually is and how it works. There are plenty of free resources on the internet so do some research and make up your own mind about stock options. The last thing you want to do is ignore something just because that is what everybody else thinks. After all are these people achieving the results you are after or are they still driving taxis?



By: Banjo Smyth

About the Author:

Welcome again to the 10 keys of how to trade stock options successfully. Previously we have discussed the technicalities of options trading. This week I will start looking at the more esoteric aspects of trading beginning with how to formulate a trading plan.

It is imperative you trade with a plan. No trader has ever successfully prospered without a trading plan or with a plan that they didnt stick to. A sound trading plan includes, but is not limited to, the following items:

1. Money management rules, i.e. acceptable profits and losses per trade, how much capital you will commit to any one trade and to the market at any one time.

It is important you identify what your stop loss margin is (as discussed last week) and even more important you stick to it. Writing this sort of information into your trading plan will help cement it in your mind. More on money management will be covered in week eight.

2. Stock and option identification rules, i.e. how you will decide which stocks to trade options on and which options you will trade.

You should figure out if you like technical analysis, fundamental anlysis or a combination of both. How big will your watch list be? What price range of stocks will you trade? Do you like trading in the money or out of the money options? What Greeks will you consider?

3. Entry and exit rules, i.e. What will make you enter and exit a trade, what length of time will you stay in the trade and how often will you trade.

Entry and exit rules will depend largely on technical analysis, write down the patterns and indicators you will look for. Deciding how often to trade will be a big factor in your success. Most people over trade, if you have a fixed profit target then once you have met it you should stop trading. Attempting to go for that little bit extra can lead to a big loss, all the more difficult to take if you had already met your profit target!

4. Your own strategy rules, i.e. which trading strategies you will use primarily and which strategies suit your risk profile.

Know thyself as the ancient Greek saying goes is critical when formulating a stock options trading plan. You will tend to trade options and you do anything else in life, for example, if you are cautious by nature you will trade cautiously, if you are impatient in everyday life you will trade impatiently. Therefore consider your unique traits and formulate your plan around them.

Once you have practiced trading options you will discover your own style of trading, and from that you will develop a plan that suits you. Once you have your plan, and you know it works, stick to it through thick and thin. That doesnt mean that a plan cant be changed but you must ensure that you give your plan a chance to work and that you dont change it the first time you take a loss.

Once you formulate and implement a good trading plan you will be well on your to trading stock options successfully. Next week we will discuss trading with the overall market and index options.

US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).



By: Roger Cox

About the Author:

This is the second installment in a 10 article series on how to trade stock options successfully. In this installment I will discuss where to obtain good information which is one of the most important aspects of trading successfully.

Most people have heard the expression “garbage in, garbage out”. Well that phrase applies to options trading as well. You will only successfully trade options if you have good market and stock information. One of the most powerful reasons whay stock options trading is so easy these days is because there is a wealth of great information that is easy to find and free of charge. The internet is an extremely powerful tool and most people these days have a fast internet connection that is easily accessible. The trouble is interpreting and discerning the useful information.

I have compiled a list of sites that I visit daily along with an explanation of just some of the information you can find on them.

www.finance.yahoo.com

Yahoo! Finance is a great source for all financial news. Each morning, before the market opens, I check the In Play

By: Roger Cox

About the Author:

Have you ever lost all your money in Stock Options trading?

If you are like most of us, then you might have lost an entire trading account just trading stock options before. No matter how hard you try, you seem to always lose all your money eventually even if you made some initial profits. Why is that so?

The truth is, stock options trading is risky business! Why is it risky business? Stock options trading is risky because you could lose all your money on any stock options trade if the stock eventually close with the options out of the money during expiration! Yes, even stocks that seem to be rising very quickly and steadily could take sudden and unexpected drops near expiration, taking your in the money call options way out of the money before you can react to it! This means that no matter how certain you are in stock options trading, there is always the possibility of a total loss. Stock options are fantastic leverage instruments but if you simply throw all your money into every trade and hope to strike lottery, then stock options trading would one day wipe out your entire account in one fell sweep.

So, how do we avoid such a predicament?

Simply by applying the golden rule of stock options trading! That is:

Use Only Money You Could Afford To Lose!

Yes, if you could afford to lose only 10% of your account at any one time, you should use no more than 10% of your account on any single stock options trade! This rule is especially important if you are trading out of the money options which have an incredibly high chance of expiring worthless.

For example, if you have a $10000 account and you do not wish to lose more than $1000 at a time, $1000 should be the amount you use on any single stock options trade. Simple as that! The obvious drawback of this rule is that you will not make as much money as you would have if you had simply punted all your money on a single trade, however, just like you would never bet all your money on a single gamble, you should also never put all your money into a single options trade no matter how confident you are! In fact, this applies to any form of trading as well. It takes a little discipline to stick to this rule especially if you are “on a roll” and tempted to go for a “show hand”. Let me assure you that there never is a problem with making lesser money but there always is a problem losing more money!

In fact, when you are using only money that you could afford to lose in stock options trading, you sleep better knowing that you cannot lose more money than you have decided to lose! Your holding power becomes greatly enhanced and you could ride out temporary downturns better than those stock options traders who punted all their money in one trade. This consequently translates to a higher chance of a win as most stocks eventually come back profitably after temporary pullbacks!

So, stick to the “Use Only Money You Could Afford To Lose” golden rule of options trading and you will be safe in your journey to financial success with stock options trading!



By: Jason Ng

About the Author:

Online trading stock and option is happening in a big way. First with the introduction of the internet trading in stocks online became a rage with the people. After having understood that, now the next in course is option trading. Trading in option is different from stocks and it is a test both for new investors as well as experts. Option trading provide a big opportunity for making money but having said that you have to be very cautious while doing it as it can go as easily as it comes.

The risk involved in options trading is very high. You require large sums to deal in options and the also have to be quick in making your choices. It is more for the experienced people to trade in these as compared to the new investors. The risk involved in option trading is very high but on the other hand the return that one gets if the right choice is made is also as large. The large sum that can be made in option trading tends to tempt a lot of new investors but this is one area where one needs to be very cautious so it is best left to the seasoned players. The chance of losing is so high that even the experienced lot end up losing big money at times.

A lot has been said about the negative aspect of option trading now let us look at the positives of the same. The risk involved need not be as high, as the traders can cut down the risk by keeping a check on a section of stocks. The option has a time period after which they will expire. If the expiry date is at the end of the trading week then the trader will have to close the deal within the said period. The deadline is crucial in this case.

Option trading is quite risky as said before and you should have a substantial amount kept aside for this purpose if you want to deal in option trading. It is a game where you win all or lose all. If the choice made by you is right then you can either choose to buy it or else redeem the same for a confirmed price. But unfortunately if luck does not favor you and you end up with the wrong selection then all the money is lost.

Online trading stock and option is good provided you have that kind of a financial back up in case you end up losing a large sum of money. The people who end up making money in this are those who have taken calculated risks and have studied the stocks well. A thorough study of put and call options would have to be made before investing in option trading.

Option traders unlike stock traders can make money regardless of the movement of the stock prices. The research, study and news gathered remaining the same a stock trader can become an option trader and increase his returns by increasing the risk element simultaneously. But a little adventurous stock trader can possibly turn into a good option trader.



By: Wincent Loh

About the Author: