If your options trading system does not consider some fundamental rules of technical analysis, you’d be missing a great deal of profitable options trades. A basic understanding of technical analysis will allow you to remove a portion of the guess work out of trading. That’s because you will not be fighting the trend whenever you place your trades. The simple point is that if the market is making higher tops and bottoms on a chart, you ‘d like to take advantage of that. As traders, we need every piece of help we can get, and riding a persistent trend is one of the main legs up we could ask for.
But if your options trading system ignores technical analysis, and you’re fighting the trend, it makes it harder to be consistently profitable, regardless of the fact that you are a purchaser or a vendor of options. Following a trend and understanding support and resistance can also enable you to enter positions in additional contracts as the price rises or falls. This lets you compound your profits with less risk than if you ignore technical analysis completely. Always remember-the trend is your friend, so that’s what you want to trade.
But if your options trading system ignores the trend of the market, it going to make it harder to make money consistently without actively managing your positions on a regular basis. You can also enter additional positions in the management of the trend as the cost of the underlying goes up or down, with a greater chance of them turning out to be profitable. You have lower risk than if you ignore where the deal is going by compounding your profits with the trend like this. In trading, the trend is always your friend, so for most traders, that’s how it is you want to bias your positions.
Trading options with technical analysis
So what options do you have if you were like to trade options, but you are not confident in either your technical analysis or trading ability? A great way to cut down the learning curve and become a profitable options trader is to ‘borrow’ a successful trader’s system and use it for yourself. That means you could start trading profitably almost right away. It makes sense to let somebody else spend the hundreds of hours and thousands of dollars it takes to learn options an options trading system that makes money, for many traders. Then all they got to do is follow the trades as they’re announced and get on board.
QUESTION: Should I start trading stocks or options?I'm a "newby" to trading and have attended various seminars, read books, etc. I'd like to start off trading options rather than securities because I've heard they're not as risky. With options, I only lose what I put in and can get a much higher % of return than securities. I don't have to worry so much about all the technical analysis or pe ratios. Rather than wasting my time learning all about trading securities, how to read fundamentals, etc, only to end up trading options in the long run, I'd like to save time and go straight for the options. My problem is that most brokerage firms say they have to "approve" someone to trade options. If basic option trading is less risky than trading securities, I don't understand why one would need approved or previous stock experience to do it. I also don't know if I'd be approved to trade options, because of my school debt (which I'd like my market proceeds to pay off since it won't be taxed). I don't plan to go crazy. I'm going to do lots of paper trading first and make consistent profits with that before actually going for it. Even then, I only plan to invest 10 – 20% of my disposable income and not investing in just one. So my question is, do I have to waste my time learning about and trading regular stocks before I can begin to trade options? If so, I'll have to do some double learning and my goals will take years to accomplish.
Go for it if you may be able to get the firm to approve you. Sound like you definitely have your head screwed on correctly. The approval is not the rule of the brokerage firm but rather the Government. It's the written rule of the Option exchanges and their clearing corporation who had to stick the rule in their constitution – by laws so that they could be approved by the SEC (this was long before the CFTC) NO you don't have to spend time learning to trade equities before you trade options – most people never learn to trade at all.and they try. Visit a branch office of a major reputable brokerage firm, or even one of the discounters (Schwab – Etrade etc Many discounters may have offices in your neighborhood ) speak to the manager – most of them are option principals who can approve you The way you wrote your questions, you may be able to talk the manager in giving you approval,at least for the basics. Don't bring up about learning what to do – you can always count the time you spent "reading" about the markets, stocks and options as time with equities and/or options . Most of the people that apply on-line do not tell the truth in their applications. I am not telling you to lie, nor would I ever suggest it, but unless you have been banned by a brokerage firm, have a felony conviction or are minor, no one can tell what's real or fake on your application., I appreciate your honesty, if you walked into my firm based on the wording of your question, either myself or my managers would approve you for trading in a New York minute I wish you the best of luck, I think you should go for it. Here's some option sites for you Schaeffer – http://www.schaeffer.com/ Options – http://www.options-trading-advice.info/ Option Education – http://www.optionseducation.org/ Zacks – http://www.zacks.com/
You seem to have this all the wrong way round. Options are derivatives and they are a geared product. Gearing or leverage spells danger to the uniniated. True you cannot lose more than you put in (well not unless you write options) but you can lose all of your money a damn site quicker than with equities: Buy 100 ABC at 500 Buy 1 ABC option at 50 If the stock goes down 10% and remains there til expiry the option gets wiped out (and that's ignoring the erosion of time value). Investment basically consists of one thing: getting the direction of share price movement right. It doesn't matter if you use direct equity investment, CFD, Spread Bet or Options. If you don't get that basic premise correct then you are the LOSER. To trade in options or any derivative your broker will require a separate "derivative Risk warning" showing you have experience and understand options. Or they SHOULD do!
Don't start! You will lose your money.
The gaps in knowledge makes your question very scary. Forget trading options. Without years of experience in stocks first, you would lose quickly and not even understand why you are losing. Paper trading does not properly replicate liquidity, costs, or the pressure of using real money. Forget short term "trading" altogether. Focus on learning how to invest long term. Suggested reading for novice investors: One Up On Wall Street – Peter Lynch A Random Walk Down Wall Street – Burton Malkiel The Intelligent Investor – Benjamin Graham EDIT: Looks like there are folks capable of running back office tasks at an investment firm without having the slightest clue about actually investing money.