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Options Trading: Protecting Yourself

Options Trading: Protecting Yourself

To a shrewd trader even the turbulent times, such as these, offer profit opportunities. There are fears of Chinese economy slowing down, ‘European Debt Crisis’ has yet to be reverted and American figures don’t look too promising as well. In such times, any news is big and big news is, much bigger. As a trader you should be well aware of such links and correlations between news, facts and rumors and be able to ride them to your advantage.

However, nothing in derivatives trading is guaranteed. These are trending times, but these trends seem to last for small periods and relapse shortly after a position is taken. Trading in such conditions without setting up protective measures about your position will be catastrophic. Some measures just to do that are suggested below:

  • You should draw up trading plans and follow them seriously. It should be your constitution. It involves documenting the strategy for trading different assets, establishing regimes of control such as how much want to profit from your gains or how much can you afford to lose in lost trades.
  • You should make strategies and modify them according to the circumstances. Often traders setup strategies that respond to a particular set of events and try to capitalize on them. You should keep up with the trading news, and before doing that you should have clearly set your responsive strategies. Utilizing one-cancels-other (OCO) orders you can achieve this very easily. For example you can set a strategy for entering a market with a short position with breaks of support.
  • You should never trade without a stop-loss. Define what you can afford to lose at max in a given trade. As the proverb goes “don’t put all the eggs in one basket”, you also should not press too much hope on a lost trade and accept a higher capital loss.
  • If you cannot understand why the market is moving in a particular direction, do not hesitate to step away from the trade. Your trading opportunities are infinite. However, the capital you trade with is not finite. And when you step back try to analyze why the market acted the way it did.

When markets are volatile risk-reward ratios can work excessively, you can get more pips for your gains. It means that you do not panic when the market panic’s and you trade your plan, as you should in ‘panic markets’. Visit Intellitraders binary options for more information.

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