Candlestick Trading Blog
Successful stock trading, commodities trading, options trading, and futures trading all require two things. They require an effective trading strategy for making profits and a system for trading risk management. Trading risk management is similar to managing investment risk. It has to do with diversification, moderation, and protection of investment capital. Both trading strategy and trading risk management depend upon fundamental and technical analysis. However, while making money typically depends upon timely execution of trades, managing risk often has to do with deciding where to trade, when to trade and when not to trade.
Trading risk management starts with choosing an effective tool for technical analysis. Traders require fast and accurate technical analysis software. They also require a visual, easy to read, intuitive system. A good tool understanding price movements in trading commodities, trading stock, trading options, and trading futures is the tool used for nearly three hundred years, Candlestick chart analysis. Picking the right equity to trade and trading it effectively leads to profits and not loss. Managing risk starts with understanding that no matter how effective your trading strategy, no matter how effective your trading tools, and no matter how diligent your execution of trades there are always losing trades! No system is fool proof. Traders can get pulled into negative trading psychology driven by greed or fear. The market can turn on a dime based upon news that surfaces a micro second after you enter a trade. Trading risk management is not investing all of your capital on one trade. It is always having a cash reserve. It is routinely and diligently back testing trading results. Successful long term investing typically involves diversifying a stock portfolio. Traders can diversify in a sense too. Traders can operate within a number of time horizons. Not all trading need be scalping of profits on a single big equity move. There are effective middle range option trading strategies that will allow the trader to protect against big losses and provide the opportunity for substantial gains. A strategy, that some use in today’s very volatile markets, is a long straddle. A long straddle involves buying calls and buying puts on the same equity with the same contract expiration date. Because the trader buys these options he or she has the option but not the obligation to buy (call) or sell (put) the equity in question if there is sufficient price movement in the anticipated direction. The long straddle covers both upward and downward equity price movement and costs the price of two premiums. In the event of trading losses the trader must preserve capital in order to recoup losses on another day. If you just lost on a trade and do not know why it is time to get out before you cannot meet your margin requirements. When a trader loses money due to poor trade execution he or she can correct the problem with more diligent trading. When he or she loses on a trade and does not know why it is time to get out and evaluate before committing more capital to trading.Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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