Thursday, May 1, 2014

Defensive Driving = Profitable Trading

By FSR staff
Speculating in weekly options is like handing the keys of a Corvette to a 16 year-old kid. The engine roars as the car is put into gear (trade is filled) and the tire shriek. (price moves) The car accelerates and the excitement builds, (profits grow)  but the driver is not used to the speed. (quick decisions)
Older drivers (experienced traders) down shift, look ahead, (set profit and loss targets) put their foot on the brake (scale out) and stop at red lights (sell out when red flags come up). The novice trader cranks up the radio, puts the petal to the floor, races other cars (speculates on earnings, buys out of the money contacts, averages down) only to lose money in the long run.
If an experienced trader speeds (puts on too  much risk) and they get a ticket (have a trade go against them) or get into an accident (go broke on a trade) they put the car in the garage for a few days. (stop trading) They take a deep breath (calm emotions) and regain their form by driving the station wagon (trade common stock) until they have full control over their bearings. (trade with reason, not emotion) Speculating in weekly options means setting your cruise control (defining your risk) so that you are driving the speed limit (following a strategy) and you aren't driving the car off of the road. (big losses)
Remember: If you're a weekly options trader, be a Sunday driver.


Foundry Stock Review has a long call position in Yahoo (YHOO)  as of 5/1/2014. Periodically, Foundry Stock Review or its contributors may initiate a position in a stock covered in this blog. If we do initiate a position in any security we cover prior to publication, we will disclose the position here in our disclosure. This stock disclosure is not a recommendation to purchase or sell any security.


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