Triple Tops and Bottoms – Chart Pattern Breakdown

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One thing almost every single layman knows about trading is that it involves a lot of charts. That is definitely true. However, unlike a layman, a trader will have to know how to analyze the charts and recognize certain patterns. Those patterns can be used to then maximize the potential of said trader’s gains. So, this time, we will be talking about the triple tops and triple bottoms patterns.

Triple tops and bottoms

These two patterns are reversal patterns. Reversals, or corrections, are, simply put, a price direction changes against current trends. They can be both positive and negative. Usually they appear when traders try to change the value of an asset past the levels of support or resistance. They would attempt to do so, of course, in the direction of the prevailing trend.

So, when the market tries to move a security in its trending direction and fails this pattern might emerge. Usually, after three attempts that did not work out, the traders give up.

Triple top

The triple top is a bearish reversal pattern, meaning that a downward trend follows it. The triple top is created when an asset that is already on an upwards trending path hits the resistance line three times without a breakout. In this scenario, the security will attempt to breach the resistance level and fall to the support area. Once it falls three times, this pattern ends, and with it, the stock plummets through the support. From there, it will usually continue the dropping trend. The actual first step in the triple top pattern is the creation of the new peak. This peak is slowed down by the selling pressure which defines the resistance level. The selling pressure will then cause a downward movement until the stock finds the buyers who move back into it. This is the support level. Now, as the price goes up those who came back into it will sell bringing the stock back down.

 

Usually, this will happen three times. At that point, the buyers, who have failed to increase the value three times, will give up. This means that the sellers take over the securities value. Since there is no longer a line of support it will trend down.

As it is, this pattern is not easy to notice in time as it can resemble several other patterns. However, what is important with it is to wait for the price to breach the resistance before buying. Once you can confirm this pattern, you will want to calculate the price objective. It usually does so by deducting the distance between resistance and support from the breakout point.

Triple Bottom

This is the opposite version of the triple top. Unlike the bearish triple top pattern, the triple bottom is a bullish one. This means that it will end up with an increase in value. Essentially, the triple bottom pattern is a signal of a reversal of a sinking trend.

Essentially, a triple bottom pattern shows an asset that is trending downwards but fails to go through support three times. Each time it fails, it goes back up to the level of resistance. Once the third try fails, the asset will break the resistance level and go up. Essentially, it functions exactly like the triple top pattern, except that the roles are reversed. This time the buyers are going against the trend and move the security up.

The importance of these patterns

These two patterns offer significant insight into the stock movement. We can see an ongoing trend finding itself in boundaries of support and resistance. This usually stops its ability to go on. It indicates that trading pressure that was helping the trend is growing weak. This also indicates that the opposing pressure is strengthening.

 

 

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Learning How to Use Flag and Pennant Stock Chart Patterns

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Whenever a layman hears about trading stocks the first thing that pops to mind is a bunch of charts. For a good reason. Charts are incredibly important to anyone who uses technical analysis to trade. And, in order to be a successful trader, you will have to learn to analyze them. Right now, we will speak about the flags and pennants patterns.

The Flag and Pennant

These patterns are a couple of continuation patterns that are very similar. The only real difference is in their shape during the consolidation period of the pattern. In fact, they are so similar that the terms can, and often will, be used interchangeably. Basically, a flag represents the period with a rectangular shape, while the pennant resembles a triangle. They are formed when a sharp upward movement is followed by a flatter, sideways one, that movement would either be the flag or the pennant. The pattern completes itself once the price breakouts and continues its rise. The entire movement of this pattern, that is the complete rise of the value is the flagpole for the flag/pennant.

The Flag Pattern

As we now know, the flag pattern is a pattern that will resemble a rectangle. In essence, the stock will go up and down, but hitting the resistance and support lines each time. For the flag pattern, these two lines will be parallel. The asset will not go over the resistance line or under the support line during the flag. As a rule of thumb, this is not a perfect flatline of the value. There is usually a slight movement that is opposite of the original movement. So, if the prices were going up, the flag will go slightly down. Once the breakout happens, the trade signal forms. The heavier the volume of the breakout is, the better the signal you get to confirm the pattern.

The Pennant Pattern

Unlike the flag, the pennant will usually create a pattern that is more akin to a triangle. Meaning that the trendlines for the borders of resistance and support will get closer. What happens is that the resistance line and the support line will both move towards the middle. And it is usually very symmetrical. This means that, unlike the flag, the pennant will usually remain horizontal. The rest would remain similar to the flag pattern.

4. The General Notions

In general, these two patterns are similar. There should be a sharp movement (either upwards or downwards. For the sake of the article, we were mostly writing about upward movements) followed by a pause.The main difference is that the construct the pause will create on the chart is different in shape. The most important factor is that the movement preceding the pattern is sharp and powerful.

Usually, this type of a pattern will form faster during downward trends and take more time in uptrends. Also, as a rule of thumb, you can expect one to last up to three weeks. Just bear in mind that they can be formed over longer periods too.

 

As the breakout signal is an incredibly important factor of these patterns you will need a stronger volume to confirm it. Once the breakout happens you will need to evaluate the price objective. The initial one is calculated by adding the prior move’s distance to the point of the breakout. So, for an example, let’s say you have a prior movement of 10 dollars. Once the breakout happens, simply add the amount ($10) to the value the asset had at the moment of the breakout.

 

 

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How to Analyze Cup and Handle Patterns

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Analyzing charts is a big part of a trader’s world. In fact, that is something almost everyone knows. The first thing a layman will think about when he sees the word “stock” is a pile of charts. And analyzing the patterns you can see on the chart will help you greatly when you set out to trade.

The Cup and Handle Pattern

This specific pattern is named after the shape it takes. Namely, if you draw a line under the pattern it will look like a cup with a handle pointing to the right. Now, to explain in actual financial terms. Simply put, this pattern means that an upward movement stopped and went on a decline, but will regain the rise after the pattern completes. This pattern can take a year, but will, in general, maintain its form.

This chart pattern usually follows an upward trend, which then slows down. As it slows down a lot of people will start selling off. The sell-off will drop the price down and then, the asset should trade flat for a while. However, afterward, the value should go back to the original peak. This is the cup part. The handle, or the last part of this chart pattern, is a lot smaller drop caused by the increase of price and selling. Right after that, it just continues on its bullish path.

Component #1: The Upward Trend

To confirm this pattern there are multiple components that need to happen in order to be a valid signal for trading. First of all, there has to be a stable rising trend before the cup starts forming. The bigger the trend was, the breakout is less likely to happen after the pattern completes. The more time the run-up to the pattern in the asset has to build the less potential the upward move has.

Component #2: The Cup

The shape of the cup is very important. To follow the pattern, it should be a rounded formation. After all, the shape forms when some of the investors choose to leave the asset while others keep it while expecting the rise. If the shape of the cup is more of a letter “V” it might not be the correct signal.

You should also focus on the height of the cup. Traditionally, this pattern should fall somewhere between 30 and 60 percent of the previous trend.

Component #3: The Handle

The handle is the component that ends the pattern. That is why it is very important. Once the cup forms and the asset is on the rise again, another, smaller sell-off should happen. As a rule of thumb, the handle should not drop more than a third of what the cup did. So, on the right-hand side of the chart, there should be a smaller drop. The breakout signal is formed once a descending trendline appears. And a move by the asset that is above the trendline in question is a signal that the upward trend is about to continue.

Look For Volume

An important factor in most patterns is the volume. You cannot truly confirm the existence of the pattern or the signal without enough volume. Focus on the breakout and follow the volume. The more volume there is during the breakout the more certain it is for the trend to go on.

The use of this pattern is tried and tested on the market. Of course, there are no absolutes and the signals can be misinterpreted. But, a lot of investors have managed to create a profit by recognizing this pattern.

 

 

 

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Understand the benefits of margin trading

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What can you do when you’re margin trading?

1. Leverage your assets for a bigger return

If you buy shares on a margin, you’ll be able to leverage what you gained. Then you’ll be able to buy even more shares than you ever could if you went only with cash. We’ll explain it all on several examples that will paint a rather interesting picture. You will see that share buying on a margin can allow for almost a double investment return when compared to a return that was obtained without margin.Margin Trading

For example, you have $10,000. A margin loan is 50%. If the stock price is $100, without a margin, you can buy 100 shares, for a total of $10,000. On the other hand, if you are using margin, and the stock price is the same, $100, you will purchase 200 shares, for a total of $20,000

Let’s say that those shares rise from $100 to $150 after 6 months.

If you bought them without margin, your share sale proceeds will be $15,000. Your gross gain will be $5,000 without commissions. Meaning that you will have a 50% investment return.

On the other hand, if you bought those same shares with margin, your share sale proceeds will be $30,000. Your gross gain without commissions will be $10,000. There will be margin loan interest, that is 8.5% or $425 in this case. In the end, you will have a net gain of $9.575 and a 95.75% return on your investment.

2. Portfolio diversifying

If you use it sensibly, a margin account can be a great asset that will hedge or diversify your portfolio. For instance, if you are focused on a few sectors, you can use your margin account to add positions in other sectors. This will improve the diversification of your portfolio.

On the other hand, if your portfolio is already diversified, and you want to hedge downside risk, you can use options for hedging, or to short sell a specific sector or the broad market. When you have in mind that short selling and certain options trades can only be done in a margin account, it sounds like this option is definitely worth trying.  Sure, short selling has its own risks. But, there’s no stock market that’s completely risk-free, that’s why the potential gains are so high as well.

3. Carry trade

This term means that you borrow at a lower interest rate, and then invest in something that can give you a higher return. While carry trades of currency are most used in the currency market, a savvy investor can use it in the stock market with quite an effect as well.Margin Buy And Sell

For instance, there’s an investor who has $50,000 and he takes on margin debt for the same amount and invests the entire amount in a diversified portfolio. Let’s say that that portfolio yields 12%. If the margin loan interest rate is 8.5%, that investor will generate 3.5% more on the entire portfolio than he would have if he had a cash-only portfolio with no leverage.  That means $1,750 more earned on that investment.

4. Take advantage of opportunities as they arise

When you trade shares on a margin, you’re able to take good opportunities as they appear. Just imagine the perfect stock showing up, and all your assets are trapped in investments? You would have to either pass on the opportunity, sell your investments, or find a third way to get cash. This way you won’t have to get rid of your existing investments to raise cash, and you won’t have to try and get it from other sources.

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5 Stock Market Order Types You Need to Know

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Trading is not as simple as only clicking on “sell” and “buy” buttons. In fact, there are multiple order types you should know about as they can have a great influence on your future. To be fair, you can still just choose to do it the simple way, but that’s both unsafe and inefficient. You will want to have a protective stop-loss order and you will want to avoid any slippage losses.

1. Long and Short Trade

Before we start with the rest of them, we need to cover the difference between long and short trades. The standard trade would be the long one. That means that you are expecting to gain from the rising prices of the market. To put it as simply as possible, you buy low and want to sell high. This is considered to be relatively safe. After all, you cannot lose more than you invested as the stock cannot drop under $0.Stock Market Order

On the other hand, we have the short trade. It is a bit more complicated, but it is a way to make money if you expect shares to go down. You do so by borrowing securities and selling them immediately. Then, once the price goes down, buy them back at a lower cost and walk away with the profit. Unlike the long sale, short sales can be rather risky. Since you do not owe the money, but rather the stock itself, the price rise could cost you a lot. In theory, there is no limit to the possible loss if the stocks keep going up. For that reason, you should use a stop-loss order to stop the losses from going too high.

2. Market Order

To make a market order, an investor will go through a brokerage service to immediately trade an investment. Of course, he will do so at the best available price. With the market order’s execution guarantees, the commission is usually low. However, it doesn’t have price limitations so you might be at risk of slippage or a wide spread. For those who do not know, the spread is the difference between the bid and the ask. With market orders, you are accepting the ask for buying or the bid for selling.  The good side is that it is a quick and a surefire way to get in or out of a trade.

3. Limit OrderStock Market Orders

These orders allow for you to set a price at which to sell or buy.  While this type of order will protect you from slippage it does have a downside. There is a chance for the trade not to happen. This can happen for two reasons. Either the limit was never met, or the limit was met, but there was simply no one selling or buying that stock at the moment.

4. Stop Order

A stop order is very similar to the limit order. However, it works a bit inversely. If you already have stock that is within the profit margin the stop order is there to make sure you keep it. Once the order hits the stop level it will immediately become a market or limit order and protect your profit.

The trailing stop order is there to follow the movement of the price and keep the trade open while it is moving in the right direction, or close it once it goes the opposite way.

The most common use of a stop order is loss prevention.

5. Conditional Order

Once you get a grasp on orders you will probably want to use conditional orders. They allow you to set certain criteria that will proc the sending or cancellation of the order. With this order, you can customize everything to suit your exact desires.

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Everything You Need to Know About Cryptocurrencies

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Cryptocurrencies are a thing of wonder amongst many individuals around the world. Not even banks, accountants or businesses really know how it works without properly studying it. The idea of cryptocurrency has sparked an entire new era of online buying and general money management. There are a ton of benefits to using cryptocurrency and there’s a lot to understand before you jump in and start to use them.

The first real cryptocurrency was Bitcoin and I’m sure you’ve all heard of it. It is incredibly popular and gained a lot of news coverage when it was first released. In fact, Bitcoin (or cryptocurrency in general) was invented by accident. Nobody actually thought the idea of cryptocurrency was possible until an individual called Satoshi Nakamoto released it to the world. Cryptocurrency (like Bitcoin) is now used throughout the world and is gaining momentum. But what is Bitcoin? What makes it special? Continue reading to learn more.Cryptocurrencies

What is a Cryptocurrency?

What-is-a-Cryptocurrency

A cryptocurrency is essentially a money transfer and management system that doesn’t require a centralized server. Unlike your bank where you deposit and transfer money with the bank controlling all transactions, there is no one entity that controls the flow of money. A Cryptocurrency is made up of a peer-to-peer network that manage and confirm money transactions. These peers have a list of all transaction and are required to validate them. With all the thing that could go wrong, it was believed this couldn’t be possible.

However, with the addition of miners and encryption, all was made possible.

How Do They Work?

Cryptocurrencies are all about confirmation of a transaction. This is because of the transaction is not confirmed it can be forged and changed. When the transaction is confirmed and is added a blockchain, nobody in the world can change it, no matter how important they are. When an individual performs a transaction, they use their encrypted public key to send the money and then it is taken to the P2P network, which is nothing new. However, when the transaction is in the P2P network, miners need to verify and confirm the transaction as legit so it can be added to a blockchain.

In order for them connect the transaction to the predecessor, they need to find a hash. This is a failsafe to ensure that the network cannot be dominated by one individuals or entity. Miners need to crack a code (SHA 256) in order to qualify for confirmation. Miners compete to crack these codes because they are rewarded with Bitcoins, which is the only legitimate way to create them.

Other Features

There are a range of features associated with cryptocurrencies that differentiate with centralized servers. Below are a few unique features you can only get when using currency like Bitcoin.

  • Fast and worldwide – because there is no centralized location where the money is going, cryptocurrency works worldwide and is not restricted by various currency rates. There is no Government or agency that controls the supply so the transactions work worldwide and are instantaneous.
  • Transactions can’t be reversed – The issue with cryptocurrency is transactions cannot be reversed is a mistake was made. Once they have been validated by a miner and added to the blockchain they can’t be changed. It is physically impossible.
  • More anonymity – When you use or send a cryptocurrency, the account you use is not attached to a centralized location or address, offering you more anonymity when you perform a transaction. However, you aren’t completely anonymous because your transaction produces a string of number than can release your location if studied.
  • Very secure – The transactions are secured with encryptions and can only be sent with one public key that the sender owns. A bitcoin address is unbreakable.
  • Free will – You don’t need permission from a bank or agency to open an account and start spending. Everything works independently of a centralized system so you are not controlled when making transactions.

Conclusion

Cryptocurrencies are a new and interesting way to send money around the world. No one thought the idea of such a thing was possible but with the application of encrypted networks and advanced P2P schemes, individuals can now send and receive money without the control of banks or Governments. Cryptocurrencies like Bitcoin are growing in popularity and give people the free will they deserve.

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Benefits of Keeping a Trading Journal

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During trading, a lot of questions are bound to arise pertaining to your ability to make adequate profits to keep your business venture afloat. These questions owe to the fact that trading is a continuous learning process and what may have worked a few years ago may not work for the current economic climate and as such, you need a guide to show you when you get off track. The more track you keep of your trades, the more your insight and hence the more experienced a trader you become with time.

Recording milestones is a method that is used to help people become better at what they do. This practice has been taken up by scientists who realized that if they kept track of all their achievements and setbacks in each experiment, they had better chances of realizing what they wanted. In the same manner, keeping a trading journal is one of the key steps towards realizing adequate profits from your business.stock-trading-chart

Benefits of keeping a trading journal

Tracking trades

With a tracking journal, you can record the earnings and losses that you have made from each trade in a detailed manner. When recording a trade, it is important that you jot down as much information as is useful to the determination of what went wrong or right in the form of the date of entry as well as the hour during which the trade occurred, the moves you made during the trade, the size of your positions, the reasons behind the opening or closing of the trades as well as if the outcome was negative or positive.

You do not have to write down the information in full sentences and neither does your grammar have to be correct. All that matters is that you can understand what you have written down when you refer to your notes at a later date. If you can jot down a few words that make sense to you, that will save you a lot of time.

Reviewing trades

You should have a strategy when trading as it helps you achieve your goals better when compared to operating without one. Reviewing your trades helps you tell whether your strategy is working towards your goals or not and should you find that it is not going the way that you hoped it would, you can make a few tweaks here and there to help you reach your goals.trading-journal

Learning

Reviewing your trades helps you learn from your mistakes. For example, you may find that you have not been having a reason as to why you are entering or exiting a position and that is the main reason behind your failures in trading. Learning from your mistakes helps you make better decisions in trading in future.

Growth

Once you have gotten a hang of what works and what does not work for you, you will be able to come up with good strategies. Keeping track of your trades will instill a sense of discipline in you that will help you better deal with trades.

Perspective

With time, you will be in a position to see the bigger picture involved in the whole trading process which will help you put what you have learnt in the past into good use.

We advise you to start recording in your trading journal as from the first day of your trading career for the best results. If you are already trading without a trading journal, get one now and keep track of each milestone as you watch yourself grow into a more experienced trader.

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Is Day Trading Right For You?

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Day trading (i.e. buying and selling of financial instruments once or multiple times within the same day) can be lucrative or non-lucrative! It can be advantageous to play with price moves in one day or can prove to be adverse too if you don’t adhere to a well thought method. Stocks have potential to earn phenomenal returns in long term but there are players are in market who are making big fortune every single day! Welcome to the world of intra-day trading. It is a mixture of profits and losses but there is a hope to start afresh the next day!day-trading-tips

Whether day trading is right for you or not, is something which is subjective question! It all depends upon potential, knowledge, experience and exposure of investor. But here are few aspects relating to day trading which can help you in taking a decision whether or not it is right for you!

  1.     Requires continuous monitoring: Day trading is not for those who have a busy profession as it requires continuous monitoring of stock market. This means from the time opening bell rings till the time trading session ends, it needs your undivided attention. So if you are into busy profession and have no time to monitor the ups and downs of the market then this field is not for you! Sites like StockTwits can be used to monitor ideas from other traders in real-time.    
  2.     Knowledge of stocks: stock-market-day-tradingIf you are into day trading then you should put your every effort to square your position at the end of day! Hence, it is necessary that you should trade in large-cap and index-based stocks as they are traded in high volumes and are very liquid. This is to ensure that you don’t end up holding those stocks that have no buyers at the end of the day! You would learn this gradually by trading regularly but if deep diving in this field is not your game, then it is better not to enter the streets!
  3.     Invest only what you can afford to lose: The risk involved in intra-day trading is more than risk in investing stocks. So you should invest only that amount which you can afford to lose! If you invest in nominal amounts then there is very less risk of losing big amount. But if you invest too much then an unexpected movement can wipe out your entire investment in few minutes! So need to have appropriate guidance and experience before you put your money into this market of sharks and bulls.

Like we mentioned before, whether day trading is right or not is subjective question! But if you have time to invest, willingness and potential to take risk and knowledge and experience then day trading is right for you! But if you want to enter it just because one of your fellows is making large profits out of it then it can be riskier! But not wrong! In the latter case, you need to be very cautious and gradually work towards increasing your knowledge bank. And never forget to set realistic expectations as they will only help you in taking necessary steps to achieve your big goals.

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DIFFERENCES BETWEEN DAY TRADING AND INVESTING

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In layman terms, we can say that day trading and investing are like chalk and cheese! Both involve buying shares but the underlying phenomenon is completely different. Both cannot be mixed as the first one takes into account technical knowledge while the latter one focuses on fundamentals. So while stock trading and investing might sound like synonyms but there is a major difference between them!

The Basic Difference

The basic difference between day trading and investing lies in activity frequency and the time period for which positions are held! Day trading requires active management and the positions are held for very short span of time whereas investing requires passive management and are done with an objective of long term holding. Systematic investment plans are basically investment and that is why they are called so whereas long, short and buying and selling of mid-cap and liquid funds is an example of day trading.investing-and-bussinesman

Frequency of commissions

Commission is basically dependent on the number of transactions and because day trading involves more number of transactions, it leads to higher commission costs. Commission is charged on every purchase and sale of a stock and a day trader buys and sells multiple times during a day. On the other hand, investors hold the positions for months and years and thus for them commission amount and frequency is insignificant. Day traders are sensitive to commission costs and it basically increases their purchase value and decreases their sale value.

Notion & Strategy

Day traders are not concerned if the company is running on hype or not because their focus is on price. They just target volatile stocks with high volume through which they can earn short term gains. They look for stocks which are highly liquid, profitable and saleable so that they can get out as quickly as they got in! Investors are always focused on investing in quality companies which have bright future. They want to invest their money for long term in those companies on whom they can rely on so that their money stays safe and secure. Investor is focused on underlying asset which is generating the income and day trader is focused on income itself!day-trading-bussiness

Involvement

Day traders have to be actively involved and monitor the market indices closely as sudden hypes and lows can have a huge impact on them. On the other hand, investors read the news of day hype after they get back from their work as they are more focused towards long term price movement of the stock.

Risk Tolerance

Traders have different threshold of risk tolerance as compared to investors. This is because investors carry a mind-set of holding that stock for months/years to come and thus intraday movements because of launch of IPO or merger is irrelevant for them. On the other hand, traders are sensitive and thus a minute drop say 5% makes them change their entire strategy for the day as they aim to square their accounts at the end of the day!

Apart from the differences listed above, there are separate tax regime for intraday and investing profits and losses!

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Getting Started With Stock Market Options

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Stock options are a widеlу used tool fоr mаking bеtѕ on thе mаrkеt. Thеу are dеrivаtivеѕ, in thаt thеir vаluе iѕ derived from the сurrеnt price of a stock. Selling аn орtiоn creates a соntrасt whоѕе parties аrе the buуеr аnd thе ѕеllеr, rеfеrrеd tо аѕ thе writеr. The buyer hаѕ the right tо buу thе stock frоm, оr sell it tо, thе seller.Stock Market Options

Stock орtiоnѕ givе ѕеаѕоnеd invеѕtоrѕ mоrе орроrtunitiеѕ tо trу and mаkе some mоnеу. Aѕ уоu discover more about thiѕ ѕubjесt уоu may ѕее a ѕtосk орtiоn referred tо аѕ a соntrасt. If уоu hаvе a ѕtосk орtiоn you bаѕiсаllу have thе right to buу оr ѕеll it if you wiѕh. Yоu саn аlѕо use them to оffѕеt a lоѕѕ or trаdе thеm аѕ уоu ѕее fit. Aѕ уоu саn see, bесаuѕе you hаvе mоrе thаn оnе option it саn get a littlе соnfuѕing initially as to whаt is thе bеѕt соurѕе оf асtiоn оnсе уоu hаvе ѕtосk options.

The Nature of Stock Options

The imроrtаnt thing tо rеmеmbеr is thаt уоu саn hаvе these орtiоnѕ withоut еvеr асtuаllу hоlding thе stock itѕеlf. Thiѕ еxрlаinѕ why уоu hаvе thе орtiоn tо buу оr sell it. Fоr еxаmрlе you соuld hаvе a particular орtiоn аnd nеvеr асtuаllу take the ѕtер оf buying it. Sinсе ѕtосk орtiоnѕ еxiѕt fоr fixed timе реriоdѕ they will еvеntuаllу run оut. Yоu might find уоu can mаkе a good рrоfit on оnе bу selling it bеfоrе it runѕ оut. Alternatively if уоu lеаvе it too long it won’t bе desirable tо оthеr реорlе whо аrе lооking tо buy that ѕtосk, simply bесаuѕе it iѕ nеаr itѕ еxрirаtiоn.stock analysis

Investors оftеn uѕе ѕесuritу trаding ѕtrаtеgiеѕ tо guidе thеir security transactions. Onсе thе futurе vаluе оf a ѕtосk hаѕ been projected, ѕtrаtеgiеѕ provide guidаnсе intо what securities tо buy оr ѕеll. In the jargon оf thе mаrkеt, оnе who thinkѕ a stock will gо uр is ѕаid tо be bulliѕh. That person wоuld tеnd tо fаvоr lоng роѕitiоnѕ, thоѕе that reward inсrеаѕеѕ in its vаluе. Likewise, bears think it will gо down аnd take ѕhоrt роѕitiоnѕ.

Calls and Puts

The buyer of a call орtiоn саn сhооѕе to buy thе ѕtосk it iѕ written for at a set рriсе. This iѕ thе ѕtrikе рriсе. Thе buуеr gives thе ѕеllеr a рrеmium fоr thiѕ. It еxрirеѕ on a stated dаtе and can be used up till thеn in mоѕt саѕеѕ.

Buуing a call оn a ѕtосk makes sense for ѕоmеоnе whо iѕ a bull on thаt ѕtосk. Thеir аѕѕumрtiоn wоuld bе thаt аt ѕоmе роint bеfоrе the орtiоn еxрirеѕ, thе stock’s price would riѕе аnd become highеr than thе ѕtrikе рriсе. The call would thеn give thеm a reduced рriсе for it.stock market graphs analysis

A bеаr would рrоbаblу wаnt to ѕеll саllѕ inѕtеаd оf buуing thеm. If thеу аrе соrrесt and the ѕtосk’ѕ рriсе dесlinеѕ, thеу аrе аhеаd bу thе рrеmium оn thе call, ѕinсе it wоuld nоt bе uѕеd in thаt situation. A naked call оссurѕ whеn thе ѕеllеr of the саll iѕ nоt аn оwnеr of thе ѕtосk. Thiѕ iѕ a high risk position. Thе ѕеllеr may have tо buy thе ѕtосk if it gоеѕ uр, аnd thеrе is nо limit tо hоw high it саn gо.

Put options аrе thе opposite of саllѕ. A рut аllоwѕ thе buуеr tо ѕеll ѕtосk tо the put seller at thе agreed price until thе рut еxрirеѕ. Put strategies аrе fоr bears tо buу them аnd bulls tо ѕеll them.

Wrapping it Up

Thеѕе are just thе ѕimрlеѕt bаѕiс ѕtrаtеgiеѕ. It саn gеt a lot mоrе соmрliсаtеd than thiѕ. The eternal secret оf trаding iѕ tо buy lоw аnd ѕеll high. With options thiѕ bесоmеѕ bе a bull if you еxресt thе ѕtосk to gо uр, аnd bе a bеаr if you expect it tо gо dоwn. Thе еѕѕеntiаl ѕесrеt of ѕесuritу trаding iѕ knоwing whаt thе futurе оf a ѕtосk’ѕ value will be. The bеѕt guess on thiѕ will lead tо the сhоiсе of оnе оf thе indiсаtеd орtiоn trading strategies.

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