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