What strategies you select when trading the markets is entirely
up to you. In my view, you should choose strategies that fit your
needs, your risk tolerance, and your personality. Are you someone
willing to take high risk in exchange for the chance to reap a high
reward, or are you someone who would prefer to emphasize safety of
your capital in exchange for a limited (though still potentially good)
return? Do you have a lot of capital or not so much to trade? What
time frame is most appealing to you? What level of knowledge do you
possess? What have you done and what are you doing to increase your
trading knowledge?
In my book, "Trade Your Way to Wealth" , I discuss 15 strategies
in detail. With respect to each strategy, I outline the relative risk,
the potential reward, the relative initial capital requirements, the
expected time frame, what protection may exist, the level of
monitoring required, and the market direction to which each can be
applied. In Appendix D, each of these factors is set out in tablular
form so readers have a quick reference to see how a particular
strategy may fit their own trading personality.
As an example, in "Trade Your Way to Wealth" , I note that buying
stock has risk that is limited only by the purchase price (it can go
to zero), has unlimited potential, requires a high amount of capital,
has no protection built in, requires a high amount of monitoring and
is designed for a bullish market. Contrast that to selling naked puts
where the risk is limited to the purchase price of the stock if
assigned less the credit the trader receives when the trade is entered
(so the risk can be less than buying stock without getting the credit
to open the position). The time frame for selling naked puts is
usually fairly short and the trade is entered with money coming in
rather than going out. Which is better is for you to decide.
Stocks and markets can only move up, down, or sideways so an
investor or trader need use no more than 3 strategies. The key is to
know which ones suit you best. Do you like a strategy where you can
make money just as long as the stock price moves, no matter whether
the direction is up or down? How about a trade where your upside may
be limited but your capital is largely or even completely protected?
Would you like to have a greater percentage of profit potential at a
lesser cost than stock ownership? How about a limited risk way to
make money when the markets are dropping? Are you familiar with these
strategies, or do you just buy stock with the intent of selling it
when the price goes up? Could it be worth your while to take a little
time to learn and understand these strategies?
In my opinion, these strategies are worthy of study if you are
serious about making money in the markets. First, however, it is
important for each of us to evaluate what we are seeking in the
markets. Are we looking for income? In Trend Trader and $10 Trader,
for example, I hold some positions that are specifically designed to
produce regular income, sometimes free of federal tax. Other positions
in those services are entered in an effort to profit from a price
movement. Are we more interested in growth or capital appreciation
than income? Obviously, our strategies would differ depending upon the
answers to those questions. At the outset, I would suggest that we
need to ask ourselves those questions. The answers will guide us
toward strategies that will best accomplish those ends.
Once we recognize where we want to go, we can then decide what
strategy or strategies will meet our personal needs best in getting
there. Are we looking for the safer, lower risk path or are we
willing to take greater risks to expose ourselves to higher potential
rewards. Can we look at the markets every day, or only on the
weekends? Might we need to adjust a position as a strategy plays out
as in the case of some spreads? If that is the case, we need to be
sure that we have both the knowledge and the time to look at the
position as often as it requires and to make adjustments when needed.
As always, in my book and in these articles, I hearken back to
the importance of creating your own trading plan, using strategies
that suit you personally, and assuming risks that let you sleep at
night. It is your money. The emphasis needs to be on you and your
knowledge and management. Trading is serious business and involves
risk. I sincerely believe each of us needs to treat it that way.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Here is a play from the Success Trading Group:
Consolidated Edison Inc. (ED)
Our Success Trading Group members closed 2 more winning trades this week. We
closed our position in TransCanada Pipelines (Ticker: TRP) which we had
opened in the prior week on April 8 and we opened and closed a winning trade
on the same day with Consolidated Edison (Ticker: ED). Our Success Trading
Group members have made $3 per share trading in and out of ED since March 7,
2008.
Have a great weekend and we'll trade next week.
Success Trading Group Team
