How to Put the Odds of Success Massively in Your Favor with OTM Options
It’s true. Most so-called “professional” options traders would never even consider trading options this way.
“Trading options using this strategy is the Kiss of Death!” they say.
“It’s a sure way to lose your money!” they exclaim.Read More
The Process of Becoming an Entrepreneurial Trader
You might ask, ‘‘If I am stuck in the Technical Trader’s Trap, how will I get out of it? And how do I turn myself into an Entrepreneurial Trader?’’ Or in other words, ‘‘How do I transform myself from a Frustrated Technical Junkie into a Successful Entrepreneurial Trader?’’
First of all, make sure you have entered the trading business for the right reasons.
It is true that successful trading can reward you with more money for less work and an independent lifestyle, but you need to understand that trading is not a get-rich-quick scheme. It takes hard work and dedication to get there.Read More
Day Trading and Algorithmic Trading in Futures
Whether you like them or hate them, day traders and algorithmic system traders, commonly referred to as “algos,” are here to stay. Both groups of traders bring additional liquidity to the marketplace, which is a positive. However, some would argue that the baggage they bring with them isn’t worth the additional liquidity. It is no secret that highly day traded markets such as the e-mini S&P experience additional volatility throughout the last hour of the trading session as day traders square their positions. In addition, it is difficult to deny that algo traders haven’t created a marketplace that sees severely abnormal prices at a relatively higher frequency. Nevertheless, the new challenges posed by aggressive day traders and high-frequency traders via computer algorithms aren’t all that different from the obstacles faced by traders during the heyday of open outcry trading; the antagonists are simply wearing a different mask.Read More
Trading with Wider Stops and Less Risk for Pennies on the Dollar
If you are a futures or Forex trader, this chapter will show you a strategy to reduce your risk to the current strategy you are trading. Stock traders sometimes buy puts to hedge their risks, but what about Forex traders or futures traders? The strategy in this article will discuss using Nadex as a hedge against risk for futures and Forex trades.Read More
Robert A. Green, CPA
Top 10 Tax Deductions For Active Traders
Active traders qualifying for trader tax status (TTS) maximize these deductions in the following ways:
1. Home-office (HO) deductions
Use the square footage or rooms method to allocate every expense of your home including mortgage interest, real estate taxes, rent, utilities, repairs and maintenance, insurance and depreciation. The IRS limits use of HO expenses by requiring business income to offset the deduction, except for the mortgage interest and real estate tax portion. Link the HO Form 8829 to TTS trading gains or transfer some to Schedule C to unlock the HO deduction. If you have trading losses, carry over unallowed HO deductions to subsequent tax year(s). Converting personal home expenses to business use is great.
Habits of a Successful Trader
Whether you are new to trading or a seasoned veteran, every trader has bad habits that they would like to change. Some habits are buried deep within and need to be brought to the surface so they can be identified and changed. A good way to identify and change habits that are affecting your trading is to look at the habits of successful traders. While reading this chapter, do a self-analysis of your habits by comparing them against the habits of successful traders. As you identify habits that you would like to change, write them down and describe what action you will take to change these habits. Then take the actions that you describe.Read More
How to Enhance Your Returns and Minimize Your Risk with Options
Hedging Your Long Term Portfolio with Put Options
Would you drive a car without insurance? Would you even think of owning a home without insurance? Most people buy insurance to protect their investments from loss. One never wants to collect on a policy, but buying insurance is prudent, regardless. Options, like insurance policies, can be used to limit risk.
Professionals believe that the only way one can safely be in the market for the long haul is by being hedged. Put options can be used as an insurance policy to protect stock or mutual fund holdings. As a good rule-of-thumb, when you buy stock or mutual funds, you should buy puts. Buying puts to hedge a stock position is referred to by the professionals as “married puts.” You will learn at TheoTrade how to hedge a mutual fund by using index options. A mutual fund is a basket of stocks, as is an index. You should buy enough puts to cover your long stock position. (Remember, one put contract gives the holder the right to sell 100 shares of the underlying stock, at the strike price, before the expiration date.) By purchasing puts, you minimize the potential loss on a stock or mutual fund, should it decline in price.Read More
Dr. Barry Burns
The Tried, True and Tested Over Time Technique for Minimizing Risk While Maximizing Reward
There are 2 ratios that dominate professional traders’ thinking:
- The win/loss ratio of their trades.
- The risk/reward ratio of their trades.
Notice that I intentionally worded each bullet point above with the words “of their trades.” It may seem practical and objective to back test a trading system to determine these ratios, but what’s more realistic is to trade a method yourself over a significant, statistically significant number of trades, record your actual real-world results, and use these numbers as your own win/loss and risk/reward ratios.
I know traders who play one game or the other.Read More
Kenneth Reid, Ph.D.
The Psychology of the Zero-Sum Game
Electronic trading platforms are designed to theoretically level the playing field, but they actually give new advantages to the larger participants, and to those capable of building trading bots that can identify and exploit certain very short-term advantages in price action.
If you come to these specialized, professional markets from equities, as most aspiring traders do, you will inadvertently bring attitudes, rules, techniques and behavior that are maladaptive within this ecosystem and make you vulnerable to exploitation.
In zero-sum markets, the more you try to be the good and responsible trader you have been trained to be, the more punishment you will likely receive.Read More