[S1012]Stock Market Options Trading

You may be a brilliant analyst; a perfect statistician; an economist with proven credits; a master planner appreciated in your circle. But when you enter the stock market, do so with a level head. Stock market has the tendency and capacity to beat the best brains of investing. You need to know certain core competencies and implement them at the right time if you wish to trade profitably. Unfortunately, most of the investors do no appreciate it, or simply choose to brush aside these fundamentals. Those who understand the rules, make the mistake of letting their emotions get the better of the reason and suffer disastrous results.

Every time you invest, follow these time-tested rules to reap profits. These are golden rules because of the results they deliver. When you follow them, you also have the mental satisfaction that you are working within the protective framework of investment.

1. The question is not how often you win; how you manage your risk is very important.
Let this be part of your thought process. When your thought process is firm and is devoid of any confusion, your action process becomes result-oriented and gets profits for you. You may lose in five trades in a series. But you may wipeout the entire losses in the sixth trade and make a handsome profit, if you apply the principled approach. What is important is the magnitude of winning. Soon you will find that more of your investments become winners, as long as you consistently and strictly control risk, and book profits.

2. Do not invest more than 2% of your account equity on any one trade. This applies to the trades that you do of your own. An exception to this rule: Long-term positions in which cases you do not use any kind or margin or leverage. As for short-term investing, whether day trading or position trades do not risk more than 2%, of the equity on any one trade. You need to be in a position to control your risks consistently.

3. Know how to make the protective stops. There is always a tomorrow in the stock trades. Do not try to aim at the must-win situation before the closing of the business hours of the day by trading with a confused mind. Since you have defined your risk at 2% of the equity, get out of the trade, as soon as you reach that level. You have suffered a loss, but take it in your stride. You have always chance to get in, by waiting for the favorable opportunity. If you do not honor the stop loss limits set by you, chances are that you will end up in losses. You will never make money on a regular basis at the exchange with such an approach.

4. The timing of entry and exit of trades is very important. This is in natural corollary to the rules cited above. As controlling the risk through small, predetermined amounts is important in successful trading, it naturally means that the timing of exit is important in your trades. Take on the possibility of loss well in time, before the loss phenomena completely overpowers you. When the market forces are favorable to the investors, the initial stream of profits may enthrall you. But always remember that the 2% rule is critical and fundamental to the trade. Do not ignore it even when you see everything bright in the mood of the market.

Not alone research and analysis, the important human factor discipline, makes money. Enter trade and exit trades are the two important hurdles in the exchange, which you need to clear with perfect timings. There are many exit strategies to maximize profits, but this is the domain of the experts and do not be in a hurry to adopt those strategies.

5. Ignore the confusing ?press statements? and other streams of share literature that promise you the moon. Once you have fixed the time able for the day, let your TV and Radio channels, beaming the stock news remain shut. That may take you to profits and certainly contribute to peace of mind. Trend has nothing do with the news; news has everything to do with the trend. News is the consequential outcome of trends. Statistics are not always forward-looking; many times, they are backward-looking. Study them like a true analyst, without completely relying upon them.

Once you have chartered your investment program, by truly understanding the share market discipline, the chances of your success are bright. When in doubt on any issue, do consult a reputed broker. His expertise and experience will add to the strength of your decision-making.