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Simple Methods For Stock Option Trading Success |
By:
Billy Williams |
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SIMPLE METHODS FOR STOCK OPTION TRADING SUCCESS
by Billy Williams
I have studied the markets and participated as a stock and option trader for more than 17 years now and, recently, have begun to think hard on what really consitutes for successful trading. Each year, I see thousands upon thousands of would be millionaire traders come into the stock market aspiring to make there fortune trading options yet often end up broke and bitter a short time afterward. Success in stock and option markets doesn't come in a seminar or latest trading system but instead by the disciplined use of effective trading techniques that have proved there worth over the test of time while using effective risk control at all times.
For example, for spotting trend reversals, I'll look at a stock that has been moving in a given direction, let's say upwards, and graph that stock's price action with a 2 period Relative Strength Index Indicator also called an RSI. I'll draw an upward trendline on the stock and watch for distribution on higher volume in the general market. If distribution days begin to add up to more than 4 or 5 then I'll watch the RSI on this stock for divergence and once spotted will watch for a break of that upward trendline. As soon as I have my trigger I use my method of entering the position for a short. Downward moves are twice as fast to the downside as they are to the upside so when the market sells off I am in a position to catch a rapid decline in price with a put position while limiting my risk.
One of the stock option trading methods I use is a pullback method that targets stocks for call option plays that are near there all-time highs in price, in a flat base pattern for at least two months, have a Relative Strength of 90 or more, and above there 200 day SMA(simple moving average). Once the stock begins to move up and out of it's flat base I watch for a pullback and compare it to it's 10 and 20 day SMA. Once price pulls back evenly to its 10 day SMA without violating its 20 day SMA(which acts as a stop for a position once entered) I wait for price to trade over the high of the previous day's price high to enter. This allows me to trade high-flying stocks at the beginning of a big rally with stock options while controlling my risk with an adjustable stop in place (the 20 day SMA).
Using seasonal trends in the general market helps me to determine my trading strategy at various times of the year. During the summer many traders at the exchanges go on vacation so trading is flat and volume is thin so I use credit option spreads for income. When they return from vacation trading begins to pick up going into the end of the year and I keep a close eye on the strongest stocks to ride them up on rallies with stock option trading or investing in the stock itself. I have caught incredible runs in stocks like HANS and others by taking advantage of this seasonal tendency. If you use stock option trading in taking advantage a stocks like this you could very easily capture 500% or higher returns using stock option strategies.
Explosions in price that cause huge gaps between trading days can also present incredibly profitable trading opportunties. A price gap explosion is when a stock closes down in price one day but the following day gaps in price in the opposite direction often completely out of the price range for the previous day. This occurs because of a unexpected announcement that shifts the dynamic in the price action of the stock. This can signify the beginning of a new trend which I seek to exploit and get in early on a new price trend with stock option plays or investment positions. I have made huge gains in Goldman Sachs, Apple Computer, Chicago Mercantile Exchange, and others using a combination of stock investing and option trading with this technique.
I have been in this game a long time and as I take my steps into the new century of trading observing all of the tremendous advances presented to aspiring traders I wonder if this does more harm than good. Fancy indicators, trading systems, complicated economic theories, ad nausea do not make for successful trading. Instead, real trading is finding a few trading techniques that stand the test of time and when combined with good trading sense as well as discipline you discover success in the markets as well as consistent results in stock and option trading.
For profitable stock option trading methods and trading momentum stocks visit www.stockoptionsystem.com today for real information you can use today. Click here for other unique 'stock option trading' articles.
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Article Source: http://www.statssheet.com/articles/article55275.html |
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