Complimentary Options Trading Brochures

Take Control of Your Trading; Be Among the First!

This new trading tool will give traders the power to analyze and uncover trading opportunities (take control) that has never existed before. It is a product that has been in the making for four years, and it will blow your mind. To be in a select group that will receive information about this product before everyone else, simply click on the link below and provide your name and email address.

http://www.smarttrading.com/SCArticleFS.html

Before I get into today's article, let me first say that later this year, I am coming out with a new product that will give traders power to analyze and uncover trading opportunities (take control) that has never existed before. It is a product that has been in the making for four years, and it will blow your mind. To be in a select group that will receive information about this product before everyone else, simply click on the link below and provide your name and email address.

http://www.smarttrading.com/SCArticleFS.html

There is just as much (if not more) risk with "professionals" handling your investments as there is with you handling your investments. Most reading this are probably in agreement with that statement. Considering the massacre in the stocks over the last 6 - 8 months, it becomes obvious that professional money managers only do well if the stock market does well (as a general rule). What proof do I have? 98% of all mutual funds lost money last year according to Morningstar. What is the probability of you choosing the 2% that did not lose?

I have been saying for years that the risk/reward ratio in mutual funds is a JOKE. At any given time, you are risking 50% or more to see average returns of only 5% - 12% annually. Again, I am speaking generally here, there are always exceptions. Regardless, with careful planning and proper money management, and the right tools, there is no question in my mind that every single person reading this has the ability to outperform 98% of all mutual funds on their own.

However, statistics do not support that statement. 95% of all individual traders end up losing money.  I have several theories about why this is the case, but it does not mean that YOU do not have the ability. This article is going to outline a few key areas critical to outperforming most "professionals" so that you can begin to take control of your investments and investment risks.

1. Risk Management

One reason most traders end up losing money is because they are trying to do too much. People get into the trading arena with huge dollar signs in their eyes. Instead of being content with 15% - 20% per year, they want to achieve 100% - 1,000% per year. Most of the time, in order to do this, you HAVE to take bigger risks than is prudent. This is FACT: No one wins all the time. Losses are a part of trading.

If you are going to take control of your financial future and your investments, you need to start off by proving your strategy first with a smaller amount, but real money. Many jump in risking 50% of their capital on something they know little about. 3-months of real time trading with a small amount at risk should be enough for you to know whether you should risk more. Further, it also gives you a chance to require the strategy performance to dictate any increase in risk or not. You can apply my Fixed Ratio money management from the start and if the performance grows the account, increase the risk accordingly.

2. Diversification

One strategy is generally not the ideal way to trade. Optimally, you want 3 - 4 strategies based on different logic, and generally trading different markets or market sectors. There are times when you find a pearl of great price and you should put everything you have toward it, but that pearl does not exist with any trading strategy based on technical (or fundamental) analysis. Accordingly, diversify.

3. Create Your Own Strategies if at all Possible

Creating a trading strategy is not hard. Below is a short lesson on the process of how to create a strategy. However, the reason you want to create your own strategies if at all possible is because you won't be blindly trusting someone else's work. Following someone else's work is easy as long as you are making money. However, as soon as you go into a drawdown, suddenly following someone else's work or strategy becomes extremely difficult, and for many, impossible. Many times traders end up losing money because they cannot trade through a drawdown. You MUST be able to trade through a drawdown.

Creating your own strategy is not difficult from a conceptual standpoint, but it can be time consuming and expensive. The process for creating a trading system begins with finding common conditions that exist before a certain type of move. For example, you might look at a chart and see a couple of points where the market moved higher. One common condition that existed just prior to the market moving higher was the 10 bar moving average crossed above the 40 bar moving average (I'm being overly simple here for the example). So, you begin to look at all the times the 10 bar moving average moved over the 40 bar moving average. You then begin to put together a performance history of what the market did after each occurrence. If you find that a majority of the time the market does move higher by at least some degree, you have started to create a trading system.

This requires studying a chart and listing common conditions that exist at certain points on the chart where you can visibly see certain price movement. This does take time and a lot of the time you will find that there really isn't something worth trading. If you know how to program, or you have the ability to hire a programmer, you can come up with a starting point with a few common conditions you have found and have the performance information returned to you automatically. This will save time, but it is still time consuming and if you don't have programming experience, could be have some additional costs associated with it as well.

However, this is what I have been working on for the last 5-months. The product scheduled to be released on October 1st was created to make this process more efficient. For more information about this upcoming product and the ability to obtain it prior to the official release, click on the link below.

http://www.smarttrading.com/SCArticleFS.html

4. Trade High Probability Trades

Like it or not, one question you will need to answer is whether you can follow the strategy(s) you have chosen to trade or created yourself. There are some great strategies out there that don't produce profits for many months at a time. The winning percentage ratio is below 50% and you take a lot of smaller losers. However, when the big winners hit, they more than make up for the losses. I have found that despite the long-term probability of performance, many traders cannot trade through the lengthy drawdowns. Either they quit trading the system at a loss, or when the big winners come along, they are so anxious to get a winner under their belt, they don't follow the rules and take a profit early. This changes the entire dynamic of the system and usually turns into a disastrous end.

I have found that if traders can experience winning trades more often than losing trades, they are far more likely to stick with the strategy through drawdowns. I cannot emphasize this enough. How many of you have quit trading a system during a profitable run? Very few. Most quit during drawdowns. Since drawdowns exist between 65% - 85% of the time (statistically proven), most quit a system as a loser...thus contributing to the statistics of those who ultimately lose.

The best thing you can do is make sure that the type of system you are trading is one that you will follow and continue to trade through a drawdown. Risk management also contributes to this, so that your trade size will keep the drawdowns manageable, both from an equity standpoint and psychological.

One other thing you can do is trade special opportunity trades that don't come around every day, but carry a very high probability of success in and of themselves. For example, late last year as the oil market was tumbling, the spread between the price of heating oil and gasoline became absurd. In fact, the spread had never even come close to approaching these levels. Heating oil was trading at around $1.80/gallon while gasoline was trading at around $1.20/gallon. The normal levels are within about 10 cents of one another, with either trading higher than the other from time to time (seasonal factors can affect this). Nonetheless, I sold heating oil and bought gasoline with a virtual 100% probability of success. I ended up making about $15,000 on that one trade alone on about a $20k account needed to make the trade.

You don't have to have too many of these types of trades to beat the pants off of mutual funds. They don't occur often and this was only one example, but they do occur in various markets from time to time. This is certainly something traders who are determined to take control of their investments should strongly consider.

5. Education

Finally, one trap that investors/traders fall into is that their education in one area transfers to trading and investments. For example, successful doctors have proven they have the ability to excel in their field. This often lulls them to believe that the very fact that they are "smart" should cause them to be successful in trading without being cautious and prudent with their accounts. This belief is no more true than a successful doctor who believes that he should be able to fly a plane the first time he gets into the pilot seat without properly educating himself in that field.

As a trader, you need to understand what you are doing, and why. You need to understand money management principles. You need to understand consequences to your decisions, and you need to be prepared to accept them. You need to have a well-thought out trading plan, and you need to stick with it. No matter your successes in other areas of life, it does not assure your success in this field. Be cautious and do your homework.

Summary

Over the next several years, there are certainly going to be repercussions to the activities of the government. How this is going to affect the stock market and most mutual funds remains to be seen. How it affects the dollar and other commodities remains to be seen. As a result, if there was ever a time for traders to take control and manage their own risks, it is now. I have provided a few guidelines above to help you continue or start your journey, and in a few months, will release a product unparalleled in helping you achieve your goals.

For more information, click the following link:
http://www.smarttrading.com/SCArticleFS.html

Take Control of Your Trading; Be Among the First!

This new trading tool will give traders the power to analyze and uncover trading opportunities (take control) that has never existed before. It is a product that has been in the making for four years, and it will blow your mind. To be in a select group that will receive information about this product before everyone else, simply click on the link below and provide your name and email address.

http://www.smarttrading.com/SCArticleFS.html