How to trade options - DITM

How to Trade DITM Options and Buy Stock at Half the Price

Trading DITM options (Deep-in-the-Money) is one of the best swing trading strategies around. By exploiting the high Delta of an option contract, you can effectively trade stocks for only half the risk that you would incur with normal swing trading. If you can buy the rights to the same amount of stock for half the price, but still make the same profit, you effectively double your return on investment.

This a great strategy for those who are still a bit scared of buying options, but love the challenge of swing trading stocks, and want to gain some leverage on a trade as well as reducing overall risk and cost of investment. The reason that it can be such a rewarding strategy is that it not only doubles the leverage on a stock trade, but the effect of time decay on the value of the option is minimised. Swing trades usually have a duration of three to ten days, and if you trade a DITM option for this short period, time decay will not significantly affect the price of the option.

How do you trade DITM Options?

First: Pick your Stock. You can either use one of your favourite stocks, or you can run a scan for "ready-to-roll" stocks that are perfect for DITM options. I find that Stockfetcher is the best free resource for finding these stocks, and I have some scans set up for this purpose.

Second: Technical Analysis. You will need to perform the following steps in order to identify a good swing trade that is suitable for a DITM Option trade:

• Trend analysis. Establish the trend of both the Market and your stock. Don't try and buy calls in a falling market!
• Swing Analysis. Find stocks that have dipped to the bottom of the trend band. These are stocks that are trading between the 10ma and 30ema.
• Swing Confirmation. Confirm the swing with Candlestick Patterns. Check the RSI and VIX to make sure that a swing reversal is not imminent.

Third: Choose your Option and buy it!

• Pull up an options table which shows the DELTA of the option. Your broker software should have this feature. Either that or use an Options Calculator, for which you will need to know the volatility of the options. Pick an option that has a DELTA that is at or close to 100.
• Option Value. Don't buy overvalued options! You will watch your trade value bleed away. You will need to use software for this - I strongly recommend Volcone Analyser Pro for this (the only bit of this method that is not free!).

Fourth: Set your Stop Loss and Profit Target IMMEDIATELY!

Remember, this is not gambling! Your swing analysis, and confirmed by a look at support and resistance levels, will help you do this.

• Stop Loss - If you normally set a stop loss of 4% for your stock, then set a stop loss of about 8-10% for your option.
• Profit Target - set a profit target based on the swing of the underlying stock. Either simply add the dollar value of your anticipated profit to the option price, or use the Option Calculator to work it out. Or use a trailing stop - whatever is your favourite method. Sell the option as soon as you hit your profit target - don't wait until expiration, otherwise you will lose 100% of your investment! Plan to exit the trade within 10 days or so - if it hasn't moved by then, the swing analysis dynamics would have changed, and your trade is at risk.

Trading DITM Options is a really great way of swing trading stock for roughly half the risk, or double the return on investment. If you would like to see the detail of exactly how I carry out these steps, you can find them at this page: How to trade DITM Options You will have free access to all the scans, technical analysis, candlestick patterns, software and trading procedures that you might need.

Article Source: http://EzineArticles.com/?expert=Rob_Forbes

Option trading training - stock picking

Stock Option Trading - Fundamental Flaw in Fundamental Analysis and Stock Picking

Clinging on to Fundamental Analysis and stock picking software, only keeps you stuck in trading equities. Trading this way, compounds concentration risk in one asset class and fails to adequately diversify risks across Equities, Bonds, Currencies and Commodities. There's much more to stock option trading, than stock itself.

I cite Benjamin F. King's study, quoted repeatedly since 1966, because it remains valid and has yet to be disproved to the point of dismissing its logic.

Market and Industry Factors, Journal of Business, January 1966: " Of a stock's move ...

• 31% can be attributed to the general stock market,
• 13% to industry influence,
• 36% to influence of other groupings, and the remaining
• 20% is peculiar to the one stock."

There must be a more compelling reason for you to trade stock other than just for the movement, if only 20% is unique to the underlying equity in question. Consider this, in context of the Fundamental Analysis or stock picking software that you bought on a per $1 basis. For each $1 dollar you spend, you "outsourced" the analysis at a cost of 80 cents, only to receive back 20 cents worth of work. Shouldn't the 80:20 rule of "outsourcing" be the other way round? The problem is that you are still stuck with 80% of the work, to analyze price movement! Plus, the more you use FA techniques/stock picking software, the more trading capital is stuck in equities alone.

Now, you can say "special" research papers help you pick stocks. Let's have a look at some of the more common fundamental metrics in these research subscriptions:

1. Dividend Yield: the problem is in the variability of yields as firms are in different stages of their business development. A Mature company that dominates in a well established sub-segment/sector is going to being able to afford a different dividend yield; versus, a Young company in a growth-oriented field; versus, a Small firm in a growing area that may not be able to afford a dividend payout. Bear in mind there is nothing special about firms that pay a dividend.

A company that gives away a portion of it's retained earnings - which is what a dividend is - effectively gives away part of its valuation, which means it is not worth as much as a company that does need to give investors candy to commit capital to it. So, a dividend paying stock has to be far superior to a non-dividend paying stock for reasons other than the dividend. If it is not, there's no point looking for dividend paying products to trade, there are plenty of non-dividend paying Indexes to trade.

2. Price/Book Ratio: the problem is this metric varies across industries and from company to company, as the asset base and capital structures of companies change over time. It lacks cross sector applicability and accounting complexity arises from a firm's capital structure as it changes due to acquisitions/divestments/CAPEX for new product lines; or, product line cut-backs, as recently seen in the restructuring of major US car companies.

3. Price/Cash Flow Ratio (the cousin of the P/E): accounting laws on depreciation vary across Asia, Europe and US. As accounting rules are driven by tax codes, which change considerably across regions despite adoption of global accounting standards, there is a lack of uniformity in homogenizing a fundamental ratio that will fit as a common benchmark across geographies.

These metrics fail to help you compare say a Dell parented in the US to an Acer parented in Taiwan; but, is listed as an ADR in the US, even though both are competitors in the same sector as computer manufacturers.

Furthermore, the current dislocated cost of capital in credit markets, impairs the ability of corporations to optimize the operating cost of their balance sheets. In essence, corporations are left with the working capital cash flows remaining on their balance sheets, as testament to their financial strength. Do not waste your money on Fundamental Analysis software or research paper subscriptions.

As there is a fundamental flaw in fundamental analysis and stock picking, how do you select trades? Trade the options of a broad-based Equity Index to replace single stock exposure. To replace Fundamental Analysis, use the Relative Strength measure based on Point & Figure methods.

What is Relative Strength? It is nothing more than taking one price as the Numerator, divided by another price as the Denominator, then multiplied by 100. RS = (Price 1 / Price 2) x 100. Typically, RS calculations use daily closing prices. Though simple in its mathematical construction, RS is ingeniously powerful when it is applied not only within a sector; but, across sectors and between asset classes.

Let's start of within a sector. For example, if you choose 2 semiconductor stocks trading at different prices, how do you know if one stock is outperforming the other in the same sector, when the 2 stocks have price changes at different rates; plus, the sector's price itself is also changing?

SOX = Semiconductor Sector Index, trades up from 452.24 to 467.81.

Numerator1: Price1 = BRCM 33.15 RS1 = 7.33 Price2 = 33.80 RS2 = 7.23
Numerator2: Price1 = TSM 9.91 RS1 = 2.19 Price2 = 13.43 RS2 = 2.87
Common Denominator: SOX Price 1 = 452.24 Price 2 = 467.81
BRCM's RS1 = (33.15/452.24) x 100 = 7.33. BRCM's RS2 = (33.80/467.81) x 100 = 7.23.

TSM's RS1 = (9.91/452.24) x 100 = 2.19. TSM's RS2 = (13.43/467.81) x 100 = 2.87.

BRCM's price rises from 33.15 to 33.80 and TSM's price also rises from 9.91 to 13.43. Simply because BRCM is a larger stock, does that mean it benefits from the SOX trading up? No, the RS reading (RS1 compared to RS2) shows BRCM's RS reading dropped (7.33 down to 7.23) against TSM's RS reading, which increased (2.19 to 2.87). RS confirms TSM as the outperformer rising in price strength versus BRCM's weakened price. RS is constructed on pure price rules. Using an Index as the denominator, acts as a much more durable benchmark and is structurally more reliable, compared to any "magical" TA indicator; or, combination of income statements, balance sheets and cash flow statements touted in stock picking programmes.

You can replace BRCM or TSM with Indexes or ETFs. Using Indexes with Relative Strength enables a common denominator to compare Equities against Bonds, Commodities and Currencies, to crossover into asset classes other than stocks to trade. It's not that Relative Strength is infallible. But compared to the fundamental metrics cited above, Relative Strength fails the least. Break the mould on what you learnt about stock option trading.

Is there an example of an optionable and consistently profitable portfolio that trades using Relative Strength across multiple asset classes? Yes. Follow the link below, entitled "Consistent Results" to see a retail online option trading portfolio that excludes the use of single stocks and Fundamental Analysis, using broad based equity Indices, Commodity ETFs and Currency ETFs. There is no need to trade FX directly. Just trade the options of Currency ETFs.

Thanks for reading my article,
Clinton Lee.
Founder, Home Options Trading: a uniquely retail-focused option-centric trading firm.

Please see Consistent Results (http://www.homeoptionstrading.com/consistent_results), displaying the Model Portfolio's Performance YTD, updated each month-end. The portfolio models a typical self-directed retail option trader's account up to USD $50,000. Here's the stats in summary:
Return: Profit/Start of Year Cash Balance = up +75.62%.
Win/Loss Probability = 90.48%. 9 Wins per 1 Loss. Average Win/Average Loss = $3.09 Won per $1 Loss. Performance Ratio = (Win/Loss Probability) x (Average Win/Average Loss) = 90.48% x $3.09 = 2.80. Positive Expectancy = $1,051 per trade.
Preview an original 55 hour video-based course for online options trading from home, at http://www.homeoptionstrading.com/original_curriculum.html
Purchase the curriculum and receive a $800 options basic course as a Bonus!

Clinton's career spans 16 years of treasury, finance and banking across Hewlett Packard, JP Morgan Chase, Citibank; and, last held the role of a Corporate Director for Regional Business Development with ABN Amro (acquired by RBS) in Asia. Despite the years in the finance/banking industry, it did not help him directly grasp online options trading from home.

Article Source: http://EzineArticles.com/?expert=Clinton_Lee

Why do investors go online!

Smart Investors Go Online - How to Profit in the Crisis

The current financial crisis is set to be on a par with some of the biggest crashes of the 20th century, and all outlooks for the future look pretty gloomy. But there are still great opportunities out there for financial-minded people to make good money using the wide range of online trading websites that are taking the stockbroking industry by storm.

Historically, recessions have always been a period when the least efficient parts of the economic system are pruned. Only the strongest and most adaptable survive. Well, this applies to investors as much as businesses.

Traditionally individual investors have been asked to pay through the nose for stockbrokers. It's not uncommon to pay an annual fee as well as a significant cut of your profits on your investment straight to fund managers and stockbrokers. That can turn a healthy return into a mediocre one - particularly when you consider management fees. The problem becomes even more acute when you factor in the credit crunch and the falling rates of profit. Investors today are struggling to earn the kinds of profits they were just a few years ago by traditional means.

But times, they are a changing. As the digital age matures, we've got access to instant real time information, high speed internet and sophisticated trading software. Which means you can trim the fat off the deal and cut out the middleman. Online share dealing services allow you to manage your own portfolio at minimal cost.

An added benefit is that when you switch to online trading you can take a long term view of your investments. It's a far smarter approach than only looking at the short term quick wins.

Alongside the rise in the use of online stock brokers, the volatile markets are also leading to a huge rise in financial spread betting. This involves betting on a rise or fall in share prices and doesn't involve stock purchase at all. It is risky, but if you know what you're doing it can yield excellent returns. A variant of financial betting is CFD trading, or Contracts for Difference. These involve an agreement between two parties to pay out on the difference between an opening and closing share price. Both are an increasingly appealing option to actual share ownership for many investors. What's more, both are simple to do online, with the popularity of online spread betting and CFDs skyrocketing in recent years.

The moral of the story? Just as the biggest companies and conglomerates are having to shape up, reduce costs and prove their versatility during the economic downturn, so must the individual investor. If you want to increase your chances of survival and making a profit while others fall by the wayside, switching to online investing is probably the strongest weapon in your armoury.

Find out more about share dealing and financial spread betting online.

Article Source: http://EzineArticles.com/?expert=Tom_Hawkins

Option trading training - Binary options!

Option Trading Tutorial - Intro to Binary Options Trading

Any option trading tutorial would be incomplete if it didn't mention a simplistic form of options trading called binary options trading. Not too many investors know about this form of investment but it is a very hot market right now for people not willing to be stuck with long holding period investments such as stocks, bonds, mutual funds, traditional option contracts and futures. You may look on the web for another option trading tutorial if you want to know about the more common form of contracts trading. This option trading tutorial will focus only on binary option trading.

Binary contracts are, like the name implies, bi-polar. Either you choose the "up" side of the switch, or the "down" side. You might think of it similar to any two-sided choice - yes or no, true or false, heads or tails, on or off. In this case the binary switch refers to up or down movements in a stock, currency, or index.

How it works is that you, or I, or any investor with a binary options trading account picks one of the available securities to trade (not all securities are traded... only the highest volume securities are traded this way) and selects how much to invest. Once the amount to invest is selected the investor must choose which direction the security will go, up (choosing "call") or down (choosing "put"). The trading software computes the payouts (also fixed based on the contract) and if satisfied with the contact, the investor submits the order.

The really fascinating part about this sort of transaction is that it does not matter how much the stock moves... the only thing that matters is the direction. The payout at the end of the contract is the same whether the security jumps a nickel or twenty dollars. If the binary option trading contract is for a 75% payout on an up movement of a security on a $100 investment and the stock is up even just one cent at the expiration of the option, the investor receives $175 ($100 invested plus $75 profit). Options expire typically hourly so a successful trader can execute many contracts every day.

So in summing up this binary option trading tutorial:

• Contracts have fixed expiration (hourly) - and can't be sold prior (although it is simple enough to simply make another contract with the same expiration)
• Trades require the investor to choose only how much to invest, which security, and which direction

This concludes our introductory binary option trading tutorial. Another option trading tutorial demonstrates how to start binary options trading with only $100, with links to other tutorials and a demonstration video.

Take a look at the demonstration video or learn more about the differences between binary options trading and standard options today. Barry Livingstone

Article Source: http://EzineArticles.com/?expert=Barry_Livingstone

How to Trade Options - discipline!

How to Trade Options - 12 Tenets of Daily Trade Discipline

Whoever told you trading is "easy", is likely inexperienced and lazy; or has become experienced but remains lazy, looking to dupe an even more inexperienced and lazier person. You need more than "Believe and Achieve" mantras.

Sustaining profitable trading results requires cultivating daily trade discipline. Like any other demanding profession, online options trading from home is no different. Choose one tenet to practice each month. There are 12, so you have a year to build your skill progressively.

1. Become a price puritan. The ONLY reason for price to exist and change is because of Supply and Demand. Where there are more buyers with reasons to buy than sellers with reasons to sell, price must rise. If there are more sellers with reasons to sell than buyers have reasons to buy, price must fall. If buyers and sellers have equal reasons or none to engage each other, price remains unchanged. Pure price trading techniques are true to this inescapable economic law.

2. Dilute concentration risk. S&P 500 accounts for slightly over 3/4 of the market capitalization in the entire universe of mutual funds. The top 100 stocks in the S&P500 (with minimal changes in inclusion/exclusion) accounts for ~43% of what mutual funds use in constructing their funds, i.e. the overwhelming majority of mutual funds gravitate to the same stocks in their holdings. As the top 100 stocks are large-cap oriented, two thirds of these funds are into large caps with only one third of these funds choosing to include only small and/or mid caps exclusively. Large caps tend to have weaker relative strength compared to small and mid caps. You were sold "Sector Diversification" - printed on the marketing prospectus. But you are actually intensifying exposure to weaker relative strength, given the cap-weighted concentration, even if the large caps you have holdings in, are distributed across sectors.

3. Being "trendy" but missing the Trend - the style junkie. Fund managers typically stay within their style. An equity fund is not going to become a fixed income fund. Their company's charter is pre-defined in the type of fund house they operate as. A large growth fund remains a large growth fund, even when large growth funds under perform, while small and mid-cap funds are outperforming in relative terms. It's not the fund manager's fault, you funded the fund with your money to manage. This also partly explains why the high turnover of fund managers can affect the fund's performance, as the fund manager wants to change styles but is constrained. Diversify outside what the news tells you is "Trendy". Replace reliance on funds with the use of optionable Indexes/ETFs.

4. Limit the Fundamentals - the Paper Poker Game. The psyche of investors behind Supply and Demand is expressed in price, beyond fundamentals alone. Investors sold off fundamentally sound stocks, after the unfortunate 9-11 incident and it was repeated with the financial pandemic of 2008, going into 2009. Benjamin F. King: Market and Industry Factors; Journal of Business, January 1966: " Of a stock's move ... 20% is peculiar to the one stock." A Fundamental Analyst fusses with paper (Balance Sheet, Income Statement & Cash Flow Statement), only to explain 20% of price behavior. As valid as all the FA work is, would you gamble against the house armed with only 20% of the odds with paperwork done by Analysts?

5. Divorce the underlying. You may think you are intimate (be it "love" or "lust") with the traded product. So, you go looking for patterns, setups, indicators that simply do not exist. Love is indeed blind. It's more sensible to understand the cyclical/seasonal behavior of the asset class the underlying is in; and, how the underlying behaves near support/resistance levels with changes in supply/demand. You really do not know the underlying. Marrying one underlying imposes opportunity costs of not trading other more valid candidates. The stock isn't going to "love" you back.

6. Define losses first, before profits. Manage risk ABOVE and BEFORE profits AND as finite. However well planned a trade is, it may never reach its profit target. Some choose to use a 1% absolute loss rule of the original trading capital, to define the absolute risk per trade. E.g. if your trading capital is USD $50'000, 1% is equal to USD $500 maximum loss per trade to incur; versus, accepting a 50% loss on the P/L of that specific position.

7. Doubling down accelerates losses. Doubling down only accelerates the average cost towards the losses - known as - "catching a falling knife". The break even will keep moving away, as you chase the price. Trade for profit. Do not trade for break even with odds against you. Only add to a winner, if the entry criteria and Reward to Risk Ratio repeats the setup of the original winning trade. Limit adjustments - ever tried to "adjust" the sharpness of a knife?

8. Keep the learning real and thematically consistent. Counter the fixation with "magic" tricks of "technical analysis wizards" by learning from trades you have lived through. Price signals tend to be the strongest. Add depth to your insights into the dimensions of price. Set aside 1%-2% of your portfolio for continual self-education. With whatever you learn, if you struggle to relate it to some field or function in the trading platform, unlearn it if you cannot relate what is taught to what you can price in the platform. You will have to drop the "L" plates from "L"-earn, to earn.

9. Ditch the software crutches. Software is not a substitute for critical thinking. Break down the logic in the software (how, what and why). Black box software cultivates an addiction for repeatedly mindless subscriptions. Break the habit, trust your logic to reason - you have profitable trades that you thought through yourself. As you "outsource" the administrative tasks associated with trading (e.g. record keeping of trades), do not outsource your brain.

10. Plan trades with business discipline. Most plans cover Entries, Exits, Stops and Profit Targets. Still, no one enters a business with a few bullet points. Your trading plan must address the very defining reason of "Why trade?" What is your motivation (each day, month and quarter)? E.g. build up the children's education fund, pay for household expenses or self-directed retirement? How robust do you want your home business to be? It's reflected in the construction of your portfolio and trade plan.

11. Unrealistic expectations. Build wealth slowly and consistently. Forget dream chasing home runs. Trading is a life endeavor. The markets will outlive all of us.

12. Scrooge - cheap is not smart. Volatility dominates price-performance. Do not make option decisions simply on cost alone. Options are not fairly priced on bid-ask alone. Options perform based on what you pay for them. E.g. buying High(er) Deltas may not be the cheapest but may give the required directional bias. Rethink for a set amount of Theta decay, what that buys you. Like in real life, bargain shopping can lead to more junk than you've got room to store. Don't end up with an inventory of junk Calls and Puts in your portfolio. Get savvy, seek value.

As you exercise stricter daily trade discipline, you should see these characteristics of a more stable portfolio performance:

• Profits should step up gradually, depending on the size of your account. If it's in the tens of thousands, the profits should step up consistently like a ladder from the low hundreds, to the higher hundreds; then, move up from the higher hundreds into the thousands. If your account is above $100K, profits should step up from the high hundreds into the thousands.
• Profits that jump from the low hundreds into the thousands signal an over-reliance on gap plays, which fail to help you step up consistently profitable results.

Thanks for reading my article,
Clinton Lee. Founder, Home Options Trading: a uniquely retail-focused option-centric trading firm.

Please see Consistent Results (http://www.homeoptionstrading.com/consistent_results/), displaying the Model Portfolio's Performance YTD, updated each month-end. The portfolio models a typical self-directed retail option trader's account up to USD $50,000. Here's the stats in summary:
Return: Profit/Start of Year Cash Balance = up +75.62%.
Win/Loss Probability = 90.48%. 9 Wins per 1 Loss. Average Win/Average Loss = $3.09 Won per $1 Loss. Performance Ratio = (Win/Loss Probability) x (Average Win/Average Loss) = 90.48% x $3.09 = 2.80. Positive Expectancy = $1,051 per trade.
Preview an original 55 hour video-based course for online options trading from home, at http://www.homeoptionstrading.com/original_curriculum.html
Purchase the curriculum and receive a $800 options basic course as a Bonus!

Clinton's career spans 16 years of treasury, finance and banking across Hewlett Packard, JP Morgan Chase, Citibank; and, last held the role of a Corporate Director for Regional Business Development with ABN Amro (acquired by RBS) in Asia. Despite the years in the finance/banking industry, it did not help him directly grasp online options trading from home.

Article Source: http://EzineArticles.com/?expert=Clinton_Lee

Online stock option trading articles

Stock Option Trading - Candlesticks & OHLC Bars Lose Their Patterns on a Distribution Curve

Time-based charts (namely Candlesticks, OHLC Bars and Heikin-Ashi) fail to truly depict price. This article will help you realize that time-based pattern recognition is an unreliable method for stock option trading.

Some retail training firms like to popularize the myth that, "Everyone looks at these patterns in the charts". They are partly right. Though, their use of the term "Everyone" applies to retail off-the-floor traders who collectively only make up ~ 15% at most, in some cases even less, of the total traded volume on exchanges, depending on which exchange it is.

Which raises the question: What are the eyes of those on the floor moving 80+% of traded volume looking at? Some of you have visited the exchanges organized through your broker. If you've picked up the paper scattered on the floor, all you'll find is quick math notation: addition, subtraction, division and multiplication. Nothing more. No drawings of a Tri-Star Doji, Dumpling Tops or Frypan Bottoms. It makes sense, because all that is in front of floor traders are screens with price data and price alone. With truck loads of calls and puts to hedge, floor traders could care less how many times during the day, price touched the tail of a dragon fly doji. They've already pre-planned to get more of; or, offload their inventory of calls/puts at a specific strike, for a given price.

As a retail option trader, trading less than 10 contracts per trade, you are not exempt from tuning your eyes to focus only on price. How do you simulate the observation of price alone from off-the-floor, if you remove the use of Candlesticks, OHLC Bars and Heikin-Ashi charts? Use Point & Figure charts instead.

Why is it valid to only use Point & Figure charting for trading options? It is the only method that plots just one type of data - price alone without time - price is the only data element needed on a distribution curve. The same distribution curve used in the Bjerksund-Stensland, Black-Scholes or Binomial pricing models in your options trading platform.

What about other charting methods like Candlesticks and OHLC Bars? Let's take the Doji, a well known candlestick, as an example. The Doji is characterized by it's Open and Close at the same price, the High is a different price from the Low. Remember with a Distribution Curve, it records Price on the Horizontal axis and Frequency on the Vertical axis. To map the doji onto the relevant axis of the distribution curve, it needs to be flipped on to its side, for the doji's price points to line up against the vertical axis.

So, a price that Closes at the same price it Opened, is recorded as 2 price points with twice the frequency of the High and Low. With a distribution curve, you cannot leave the lines joining the dots of the doji on the graph. All that is mapped is 4 dots representing the doji's price points. Take away the lines joining the dots. Question: Where's the doji? Not relevant anymore. Same logic applies to any candlestick (spinning top, hammer, etc.). Candlesticks lose their characteristics, once they are mapped onto a distribution curve. The implication is the same for the OHLC method used to count fractals in Elliot Waves and wave counts once price is mapped in its dispersion mode, the waves lose their characteristics.

To visualize this problem with time-based charts, follow the link at the end of this article, entitled Candlesticks/OHLC Charts Lose their Patterns on a Distribution Curve.

Is it necessary to reconcile a charting method with the distribution curve? Yes, 68% is equal to one Standard Deviation (σ). -/+1σ sets the parameters for the probabilities, which you construct an option spread around to test if the strikes will be touched or not touched, from the date a spread is filled till its expiry date.

Bear in mind, changing the time frames in time-based charts be it Candlesticks, Heikin-Ashi, OHLC from minute/hour/day/week to reconcile conflicting patterns in one time-frame against another, does nothing to help you work out the Theta as decay in a debit spread; or, the positive Theta as premium sold in a Credit spread. The only unit of time required to feed into a Theoretical pricing model is the expiration date, in turn affecting the probabilities per day for the number of days that passes. As the units of time in time-based charts have no value in Theoretically pricing an option, it makes no sense to use them.

So, what are time-based charts (Candlesticks, OHLC Bars and Heikin-Ashi) useful for? They are useful, for trading the underlying itself. When you trade the underlying itself, aside from dealing with +/- Delta (directional risk), all the other Greeks (Gamma, Theta and Vega) are equal to zero. Time-based charts are relevant for trading deep ITM options as a surrogate to the product for purely directional trading of the underlying itself.

Do bear in mind with options, the deeper the ITM you go, the wider the Bid-Ask spread becomes compared to the narrower Bid-Ask spread differences in the ATM or OTM strikes. Have you got enough capital in the account to keep trading at the ITM strikes only? This is why many retail traders with account sizes below USD $25K look for increasing lower priced products, for e.g. $20 and below, as they search for ITM strikes that are affordable for them to trade using Candlestick/OHLC/Heikin-Ashi charts.

By virtue of being lower priced, these products often suffer illiquid open interest at their strikes, making you chase price for an uncompetitive fill, only to result in poor price-profit performance. The other extreme is to over spend on ITM strikes of a higher priced product, for example $100 and above, as you found a trade candidate using some "special" pattern scanning software, only to breach the money management rule of 2%-5% per trade, in filling the order.

Is there an example of a portfolio with consistent wins and limited losses that applies Point & Figure methods without the use of Candlesticks/OHLC/Heikin Ashi? Yes. Follow the link below, entitled "Consistent Results" for a model retail option trader's portfolio that only uses Point & Figure techniques. Other than stock option trading, the portfolio includes option trades from non-equity asset classes.

Light is needed to see; but, trading enlightenment will not come from a candlestick. And counting fractals within waves only serves to oscillate your pupils.

- - - - - - - - - - - - - - - - - - - - - -

Thanks for reading my article,
Clinton Lee. Founder, Home Options Trading: a uniquely retail-focused option-centric trading firm.

See what is meant by Candlesticks/OHLC Charts Lose their Patterns on a Distribution Curve at http://www.homeoptionstrading.com/point_figure/candlesticks.html

Please see Consistent Results (http://www.homeoptionstrading.com/consistent_results/), displaying the Model Portfolio's Performance YTD, updated each month-end. The portfolio models a typical self-directed retail option trader's account up to USD $50,000. Here's the stats in summary:

Return: Profit/Start of Year Cash Balance = 75.62%.
Win/Loss Probability = 90.48%. 9 Wins per 1 Loss. Average Win/Average Loss = $3.09 Won per $1 Loss. Performance Ratio = (Win/Loss Probability) x (Average Win/Average Loss) = 90.48% x $3.09 = 2.80. Positive Expectancy = $1,051 per trade.

Clinton's career spans 16 years of treasury, finance and banking across Hewlett Packard, JP Morgan Chase, Citibank; and, last held the role of a Corporate Director for Regional Business Development with ABN Amro (acquired by RBS) in Asia. Despite the years in the finance/banking industry, it did not help him directly grasp online options trading from home.

Article Source: http://EzineArticles.com/?expert=Clinton_Lee

stock option trading software review

The Best Stock Software Review

Stock software can put an inexperienced trader on the same level as one who has been doing it for a lifetime, hence its popularity. But with the popularity of these legitimate programs, a number of faulty publishers have released faulty programs and with seemingly every program out there today all promising to make you rich, it's hard to separate the good from the bad. Here is a review of arguably the best stock software option currently on the market.

Day Trading Robot wins the title currently for the best stock software option for a number of reasons. Perhaps best of all is it boasts easily the highest winning rate of any program which I've tried as it deals primarily in low risk but high profit potential penny stocks.

Take my personal experience. On my very first trade which Day Trading Robot delivered to me I more than doubled my investment. I received the tip on Sunday night for a 15 cent priced stock per share. I bought about one thousand shares from my online trade account, then logged out. I checked back in near 2 days later and found that it had shot up to 31 cents practically overnight. About another day later that stock leveled off at 48 before beginning to drop at which point I went short on it. Ultimately I made about $500 on a $200 investment, I only wish I had dropped more at the start but since then I've grown more confident and it's only gotten better.

One of the best aspects about this stock software is that you don't need to know a thing about the stock market to take advantage of it and make a buck. As all of the real time market analysis and combing is done for you, all you've got to do is enact the recommended trades simply using an online trading account. And every pick is based entirely on market data so you don't have to worry about guesswork, human errors, or emotions factoring into your campaign and costing you money.

If you're not convinced or are still understandably skeptical about the ability of the best stock software to deliver you the key to your financial independence and dominate and unravel the secrets of the stock/day trading market, you can learn more or even give it a complete risk free try by clicking the link in this paragraph.

You don't even have to risk a cent of your own money to see these stocks pay out. You can simply follow along with this stock software's picks and watch them quickly gain value overnight just like clockwork. Just try not to smile when your friends or relatives start asking you where you picked up the extra money.

Article Source: http://EzineArticles.com/?expert=Jonathan_Langley