Best tips for risk management


Market Neutral Strategy: staking The Odds In Your Favor

Is there a trend in stock and option trading?Risk Control: How much can you afford to lose
in a trade if it goes wrong? That must be
determined before any position is opened.
Let's start of by defining a trend. A trendSetting your rules upfront will curb
is simply the general direction of theemotional and irrational decision making. For
market. The market can only move in 3most traders, emotional decisions can almost
directions - up, down or sideways. It is ascertainly be the worst decision that they
simple  as  that.make. Knowing what to do before trouble come
knocking  will  help  keep  you on your toes.
For directional traders, knowing the trend is
important because that is how money is made.Any trader should already know the below
If there is no trend, then how would thequestions  before  entering  into  a  trade.
buyer of the uptrend profit when the market
moves sideways. They need to buy low and sellHow  and  when  to  enter  the  market?
high. Likewise, short sellers can only
benefit when they sell high and buy backHow many contracts or shares to trade at any
lower. Trend followers will always wait fortime?
the market to shift or turn before jumping
in. Directional trading, like any tradingHow  much  money  to  risk  on  each  trade?
strategy, requires discipline and patience.
Directional traders can only benefit when theHow to exit the trade if it becomes
market moves in their direction - up or down.unprofitable?
Directional trading demands strongHow to exit the trade if it becomes
self-discipline to follow precise entry andprofitable?
exit rules. Successful traders utilize strong
risk management systems that use currentWhile trading trends can be extremely
market price, portfolio allocation system inprofitable, the odds are unfortunately staked
an account and takes advantage of marketunfavorably against the directional traders,
volatility. Directional traders use aneven more so for directional option traders
initial risk strategy that determines theirdue to time decay. A relatively unknown but
capital exposure at the time of entry. Thissuperior trading strategy does not forecast
means that they must know how much to buy ornor predict market movements exist - a Market
sell based on their account size. On theNeutral Trading Strategy. Prediction is
other hand, adverse price movements may leadimpossible in the stock market. The Market
to an early exit for their entire trade for aNeutral Strategy is certainly not a holy
small loss. To be a successful directionalgrail. It is not some passing fad or hyped-up
trader, the risk reward ratio should be 1:3secret trading strategy. It is the strategy
for any trade to be worthwhile. That isthat takes full advantage of the depreciation
because despite the technical toolsof options premium as it approaches
available, directional traders are wrong mostexpiration. Markets may move up, down, or
of the time. If they are profitable 4 of 10even sideways for this strategy to be
trades, then they can be considered asprofitable. If you must trade everyday, the
excellent traders. Directional traders havemarket neutral trading strategy will not work
the market odds staked against them everyfor you. A sound trading strategy should only
time that they enter into a trade. So whenlimit you to 3 to 6 trades per month which
they are right, they have to let their profitshould provide decent returns of up to 10%
run, and when they are wrong, they mustper month. With all the discipline and rules
quickly  cut  their  losses  fast.of a directional trading strategy applied,
the market neutral strategy can be used to
Before entering into any trade, any traderdevastating  effect.
must  already  consider  the  below.
What  do  you  need  to  get  started?
Price: One of the first rules of directional
trading is that price is the main concern. IfAn active mind, willingness to learn, strong
a market is at 50 and goes to 47, 49, and 46discipline  and  passion  to  succeed.
- the market is in a down trend. Sometimes
technical indicators can show otherwise.No knowledge of what is happening in Shanghai
There are many different indicators that canor the ability to read financial statements
supposedly show where the market should move.is required. The key is the price on the
While that is always a nice tool, successfulchart.
traders should only be concerned with what
the market is doing, not what the marketDiscipline and common sense to do the right
might do. The price tells you what the marketthing.
is  doing  -  not  the  indicators!
About ten minutes a day to check on all open
Money Management: The most critical factor ofpositions.
any trading system. Successful traders will
already have a money management system isA reliable PC/Notebook and internet
place. Money management ensures that theconnection.
traders will always be in business despite a
bad spell. Good traders will lose money. BadTrading is a zero-sum game. For every winner,
traders lose more often. Whatever you tradingthere is a loser. If you are tired of losing
level, a good money management system willin the market, then it is time to arm
prevent  a  wipeout  of  your  portfolio.yourself with Market Neutral Trading
Knowledge.



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