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    • By Kim
      So when the going gets tough, you’ll need an answer for the above question - and you’ll need to meditate on it when you’re wondering whether to keep going.

       
      The truth of the matter is that for traders who take their efforts seriously, it’s always going to be a process with high rewards and potentially high risks, too. Below, we’ll look into some ways that trading offers you a different experience from a 9 to 5 - and why that can be a very attractive prospect for anyone looking to make a better future for themselves.
       
      You can work for yourself
      Being your own boss isn’t essential when you’re getting into trading - there are plenty of trading firms who offer the chance to benefit from institutional knowledge and greater capital. With that being said, flying solo is the preferred end state for any trader who wants an element of control over what decisions they make, what trends they follow and which instincts they listen to. When you get into trading, a major part of the attraction has to be the opportunity for financial independence - and you’ll feel that independence earlier on if you’re working for yourself.
       
      If you’re a solo trader and you quite simply don’t want to turn up one day, then you have that option. As long as you’ve got the appropriate instructions in place, or have no open trades at a given time, you can take some well-earned rest and enjoy the independence you have signed up for.
       
      You can trade from anywhere (within reason)
      Independence is all well and good, as long as you are actually putting it to use. Trading from home is a more attractive prospect than riding a packed train to sit in an office, and that sense of freedom can be expanded as far as you want to expand it. You don’t need to stick to the Dow Jones if you’re a trader in the US, or trade specifically on the FTSE if you’re in London. As the bulk of trading happens electronically, all you need is to be set up for remote trading, and you can do it from anywhere in the world.
       
      It takes the correct software, of course: you’ll need the right trading platform and a suitable payment gateway for when you want to cash out. As long as you have established these necessities, you can spend part or all of a year in a beachside paradise while you trade the markets of one of the world’s financial hubs like London, New York or Tokyo.
       
      Trading itself is a varied field
      The world of stock trading can look absolutely impenetrable for anyone who isn’t used to it, and there is no doubt that it can be intimidating to the point where some people simply turn away from the idea. But if your belief is that trading is too pressurized, confusing and hostile to newcomers, then you may need to simply find your niche. Once you’re comfortable in one area you’ll find that a lot of concepts are transferable between types of trading.
       
      It’s not such a long time ago that Forex trading became a household topic because of its popularity among people who would never have ordinarily even considered playing the markets. If you’re minded to follow international news anyway as a personal interest, then you can get a feel for how different stories such as election results can move the line, and can apply your knowledge to increase the chance of success. If, on the other hand, you’re trading the stock markets, you’ll get a feel for which ones have greater volatility at which times, and know how to react to that.
       
      Trading is a varied life that offers little in the way of guarantees, but so much in the form of opportunities. Working at it will open up new worlds to you, and there aren’t many jobs out there that regularly offer the same level of variety - in the form of working days, challenges, and rewards. As long as you’re not expecting every day to be the same, it’s pretty obvious why so many people come to see trading as their passport to the financially secure future they want.

      This is a contributed post.
    • By capitalstreet_fx
      WHAT IS A FOREX?
      Forex is the marketplace where various world currencies are traded. The forex market is the largest and is the easiest to liquidate within the world, with trillions of dollars changing hands a day. there’s no centralized location, rather the Forex market is a network of banks, brokers, institutions, and individual traders Many entities, from financial institutions to individual investors, have currency needs, and should also speculate on the direction of a specific pair of currencies movement. They post their orders to shop for and sell currencies on the network in order that they can interact with other currency orders from other parties. The forex market is open 24 hours each day, five days every week, apart from holidays. Currencies should trade on a vacation if a minimum of the country/global market is open for business.

      3 SIMPLE STEPS TO MAKE YOUR FIRST TRADE IN FOREX
      Select a currency pair
      When trading forex you are exchanging the value of one currency for another. In other words, you will always buy one currency while selling another at the same time. Because of this, you will always trade currencies in a pair.
      Most new traders will start out by trading the most commonly offered pairs of major currencies, but you can trade any currency pair that we have available as long as you have enough money in your account. For this walkthrough, we’ll look at EUR/USD (Euro/ U.S. Dollar). Analyze the market
      Research and analysis should be the foundation of your trading endeavors. Without these, you’re operating on emotion. This doesn’t typically end well.
      When you first start researching, you’ll find a whole wealth of forex resources – which may seem overwhelming at first. But as you research a particular currency pair, you’ll find valuable resources that stand out from the rest. You should regularly look at current and historical charts, monitor the news for economic announcements, check indicators and perform other technical and fundamental analyses. We’ll talk more about specific types of research later on. Pick your position
      If you’ve traded stocks, bonds, or other financial products, you know that you can usually only speculate on the one direction of the market: up.
      Forex trading is a little different. Because you are buying one currency, while selling another at the same time you can speculate on up and down movements in the market.
      WITH A BUY POSITION you believe that the value of the base currency will rise compared to the quote currency. If you’re buying EUR/USD, you believe the price of the euro will strengthen against the dollar. In other words, you believe the euro is bullish (and the US dollar is bearish).
      WITH A SELL POSITION, you believe that the value of the base currency will fall compared to the quote currency. If you’re selling EUR/USD, you believe the price of the euro will weaken against the dollar. In other words, you believe the euro is bearish (and the US dollar is bullish). ADVANTAGES OF FOREX TRADING
      A. Ability to go long or go short
      While you’ll go short on other markets by using derivative products, like CFDs, short sale is an inherent part of trading forex. This is because you’re always selling one currency (the quote currency) to shop for another (the base currency). The price of a forex pair is what proportion one unit of the bottom currency is worth within the quote currency.
      ● For Instance:– within the forex pair GBP/EUR, GBP is that the base currency and EUR is the quote currency. If GBP/EUR is trading at 1.12156, then one pound is worth 1.12156 euros. If you think that the pound goes to extend against the euro, you’d buy the pair (going long). If you think that the pound will decrease in value against the euro, you’d sell the pair (going short). Your profit or loss will depend upon the extent to which you get your prediction right, meaning it’s possible to profit whichever way the market moves.

      B. Forex market hours
      The foreign exchange market is open 24 hours a day, five days a week – forex can be traded from 9pm Sunday to 10pm Friday (GMT). These long hours are because forex transactions are completed between parties directly, over the counter (OTC), instead of through a central exchange. And because forex may be a truly global market, you’ll always cash in of various active session’s forex trading hours.
      It is important to recollect that the forex market’s opening hours will vary in March, April, October and November, as countries shift to sunlight savings on different days.
      C. High liquidity in forex
      The FX market is the most liquid market within the world, meaning there is an outsized number of buyers and sellers looking to form a trade at any given time. Each day, over $5 trillion dollars of currency is converted by individuals, companies, and banks – and therefore the overwhelming majority of this activity is meant to get a profit.
      The high liquidity in forex means transactions are often completed quickly and simply, therefore the transaction costs – or spreads – are often very low. This creates opportunities for traders to speculate on price movements of just a few pips.

      D. Forex volatility
      The high volume of currency trades each day translates to billions of dollars every minute, which makes the price movements of some currencies extremely volatile. You can potentially reap large profits by speculating on price movements in either direction. However, volatility may be a double-edged sword – the market can quickly turn against you, so it’s important to limit your exposure with risk-management tools.

      E. Leverage can make your money go further
      CFDs are leveraged, which can make your money go further. Leverage in forex enables you to open an edge on the currency market by paying just a little proportion of the complete value of the position upfront.
      The profit or loss you create will reflect the complete value of the position at the purpose it’s closed, so trading on margin offers a chance to form large profits from a relatively small investment. However, it also can amplify any losses, meaning losses could exceed your initial deposit. For this reason, it’s important to think about the entire value of the leveraged forex position before trading CFDs.
      F. Trade a good range of currency pairs
      Forex trading gives you the chance to trade a good sort of currency pairs, speculating on global events and therefore the relative strength of major and minor economies.
      With IG, for instance , you’ll choose between over 90 currency pairs, including:
      Major currency pairs, eg GBP/USD, EUR/USD, and USD/JPY
      Minor pairs, eg USD/ZAR, SGB/JPY, CAD/CHF
      Emerging currency pairs, eg USD/CNH, EUR/RUB and AUD/CNH
      Exotic pairs, eg EUR/CZK, TRY/JPY, USD/MXN
      G.Hedge with forex
      Hedging may be a technique that will be wont to reduce the danger of unwanted moves within the forex market, by opening multiple strategic positions. Although volatility is a component of what makes forex so exciting, hedging is often an honest way of mitigating loss or limiting it to a known amount.
      There is a spread of strategies you’ll use to hedge forex, but one among the foremost common is hedging with multiple currency pairs. By choosing forex pairs that are positively correlated, like GBP/USD and EUR/USD, but taking positions in opposite directions, you’ll limit your downside risk.
      ●For instance, a loss on a brief EUR/USD position might be mitigated by an extended position on GBP/USD.
      Alternatively, you’ll use forex to hedge against loss in other markets, like commodities.
      ●For instance, because the USD/CAD generally has an inverse relationship with petroleum, it’s commonly used as a hedge against falling oil prices.
       
    • By Kim
      Cut Your Losses
      All traders experience losses from time to time, so try not to panic if you make a bad trade. However, think carefully before trying to make back what you’ve lost. It’s easy to fall into the trap of trying to breakeven when you’ve made a loss but, more often than not, this mindset results in your compounding your losses. Instead, accept the odd loss and part and parcel of trading and focus on your long-term profitability, rather than an isolated loss. 
       
      Backtest Potential Strategies
      Traders use a variety of different strategies when playing the markets but finding the right ones for your needs isn’t always as straightforward as you might think. Before you use a new plan on active markets, be sure to test them against historical data. Using backtesting software is an easy and accurate way to do this. Once you know how the strategy would have worked, you’ll be able to determine its efficacy and decide whether or not to use it going forward. 
       

      Pexels - CCO Licence

      Diversify Your Portfolio
      Diversification can be an effective way to protect your capital. When you invest in stocks and shares or commodities that react differently to market events, you can offset potential losses and, to an extent, secure your capital. Similarly, investing in different companies or making various types of investments prevents you from ‘putting all of your eggs in one basket’ and can reduce the risk of major losses. 
       
      Reduce Commissions
      Now that you can make trades yourself, without having to use a broker, trading can be much more cost-effective. However, even relatively low brokerage fees can eat away at your profits over time. By shopping around for reputable brokers or platforms, you can ensure that you’re not paying over the odds to make trades. After all, you’ll want to keep every cent of what you earn as a trader. 
       
      Show Commercial Awareness
      You may not need to react to every piece of news, but it’s vital to be aware of what’s going on in the world if you want to be a successful trader. An environmental disaster, political unrest, or even new legislation can have a major impact on the markets, which means you need to be ready to react when necessary. 

      Planning Your Investments
      As new opportunities come about and existing investments mature, you’ll want to be proactive about managing your trades. By thinking strategically about the level of risk you’re willing to take, you can identify the trading vehicles that are most likely to generate a return over the short, medium, and long-term, and, in doing so, you can maximize your returns in 2021.

      This is a contributed post.
       
    • By Michael C. Thomsett
      The crossover is between the middle band and price.
       
      The default setting for Bollinger Bands is two standard deviations. When this default is applied, three bands appear. The upper and lower bands are the same distance from the middle band, because their application of standard deviation is always the same. Bollinger Bands is so reliable that with this default setting, you see violations above upper or below lower bands only rarely. And once violated price tends to retreat into range within a few sessions.
       
      A problem with Bollinger Bands is that once the move of price outside of the banded range is seen, it usually is too late to act. You expect to see a retreat soon, but the status of price outside the bands can persist for many sessions when a strong trend is underway.
       
      There is a solution, however.

      If you adjust the default and remove the two standard deviations, replacing it with three, you set up a very unusual situation. Price almost never moves above the upper band or below the lower band when three standard deviations are in use. In fact, a review of most charts and most durations shows that it is very rare to see such a move. However, when price does move outside of three standard deviations, it sets up an exceptional entry signal. The violation of three standard deviations inevitably reverses within one to two sessions in most cases. This is a signal of likely price movement in the opposite direction (bullish after a violation of the lower band, or bearish after violation of the upper band). When you see a violation on the lower side, you can act right away – buy calls or sell puts in anticipation of a bullish reaction.

      An example is seen in the 6-month chart of Home Depot Two violations of three standard deviation are highlighted in March. By March 23, price has declined about 100 points in one only month. For many traders in either options or stock, this big decline means you want to stay away from the underlying. It could signal a massive bearish move that could continue indefinitely. However, considering the brief moves below the lower band, the likelihood of bullish reversal is among the strongest you can find. But when should the entry occur?

      In this example, three bullish candlestick reversal signals identify the bottom of the downtrend. It is very unusual to see two consecutive and strong reversal signals. At the very bottom of the trend, you see a bullish engulfing immediately followed by a bullish piercing lines. Those two are strong just by themselves. But there also is a gap immediately before these signals and then immediately after in the opposite direction. This sets up the four lowest sessions as an island cluster, which by itself is a strong bullish reversal signal.

      The combination of the two violations of the lower band set up with three standard deviations, the bullish engulfing, the bullish piercing lines, and the island cluster is one of the strongest bullish reversals you will ever see.
         
      The next question remains, when should you exit from the position. Note the trendline drawn from the bottom of the March decline, all the way through to mid-June. This is a strong 3-month bullish trend. During this time, the underlying price rose from around a low of $140 per share, up to about $260 per share.

      There is an exit signal here as well, which often is found on charts using Bollinger Bands. Note the behavior of the middle band, the dotted line. It tracks the trendline consistently, until the first week of June, when it crosses over the trendline and moves to the downside. This is a strong signal that the trend is about to either reverse or flatten. By mid-June, a small decline takes place and then underlying price moves sideways. The middle band crossover is the exit signal. Altogether, this simple set of patterns and signals provides a compelling case for identifying option entry and exit.

      If an options trader already holds shares of an underlying, it is possible that a 3-standard deviation violation will never be found or will occur only rarely and during periods of extreme price movement. But for the options trader who is not in an equity position and is looking for opportunities to make strong options trades (long calls or short puts, for example), the observation of the 3-standard deviation opportunity is difficult to ignore.
       
      The question remains: Which issues work best for this type of timing strategy? A low-volatility underlying will not be likely to ever exhibit a violation of the three standard deviations. This is a strategy designed for higher-volatility issues, where the 3-standard deviation moves are more likely to occur. This is a higher-risk selection for options traders, but the opportunity to set up trades with high degree of reliability, is compelling and may offset the higher than average historical and implied volatility. Many options traders gravitate toward these higher-risk underlying issues anyhow, because the option premium tends to be richer and chances for larger profits are also better.
       
      This strategy employing three standard deviations, candlestick reversals, and center band crossover, takes the high risk of the volatile underlying, and overlays a high degree of certainty. Although no trade is 100% certain, this example lowers the greater risk that plagues options traders, the risk of (a) poor entry timing and (b) failure to exit when the trend ends. Both risks are well managed in the strategy employing all the required elements.

      Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Publishing as well as on Seeking Alpha, LinkedIn, Twitter and Facebook.

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    • By Michael C. Thomsett
      This assumes your timing is made more reliable by selecting long or short positions in close proximity to resistance and support, and that the moneyness of the option also is considered. For short positions, focus on high volatility and very short time to expiration. For long positions, seek low volatility and a balance between cost and time.

      The combined signals recommended for better than average timing are the combined 50-day moving average (MA) and the 8-day exponential moving average (which also is called the t-line). The combination of these two can be used to generate a trade based on crossover, and confirmed with secondary price signals.

      For example, the six-month chart of Caterpillar (CAT) reveals two strong examples of crossover between the two priced averages, and confirmation in candlestick reversals.
       

       
      In both instances, the predicted bullish reversal occurred. The initial signal is when the 8-day EMA (t-line) crosses below the 50-day MA. This first occurred in the first week of February. This was confirmed by two bullish reversal candlesticks, a bullish engulfing and a bullish harami. The harami too price to the bottom of the downtrend, closing at about $145 per share. At this point, a bullish options trade would have made sense. If a current long put or short call was already open, this was the place to close. If no options were open at this point, it made sense to open a long call or a short put.

      The subsequent bullish reversal too price up to $162.50 in only two weeks. Any open options could be closed after observing the running gaps at the end of this bullish run.

      The second occurrence was at the end of April. The same formation of crossover predicted a bullish turn. This was confirmed by an unusually long black candle that formed into a bullish piercing lines signal. This was further confirmed immediately by a bullish meeting lines. This was a mild signal with low daily ranges, but it still worked as confirmation, predicting another bullish run. Opening bullish trades (or closing bearing trades) at this point would be well-timed, as price ran from $142 to $155 in only two weeks.

      These short-term signals are exceptionally strong. The combination of a 50-MA simple moving average and an 8-day exponential moving average set up reversals via crossover; and as long as you find confirmation, it becomes a reliable timing signal for options trades.

      The combination provides a secondary benefit as well. The 8-day EMA serves as dynamic support as prices rise, and as declining resistance as prices fall. This tends to be more reliable than the traditional straight-line resistance and support trendlines most traders follow.

      Another secondary cautionary point: The 8-day trendline tends to give off reversal signals on its own, When this is below price, it indicates a bearish condition, and when above, the signal is bullish. At the conclusion of this chart, the 8-day EMA is below price, predicting a likely retracement to the downside. This is confirmed by another crossover, the move of the 50-day MA below the 8-day EMA. This confirms a likely bearish move to occur next.

      Both of these moving averages are lagging indicators, so they have to be accepted with caution. This is why candlestick confirmation adds confidence to any reversal signal. However, even lagging indicators are of value in trading options, when used together as crossover set-up for confirmation, as seen on the CAT chart.

      Any help options traders can get from price signals like these, is worth keeping on the chart. Once a position is opened, look for the warning signs that a favorable trend is ab out to level out or reverse. Once an option has been closed, look for potential reversal points to enter a new position and take advantage of a reversal.

      There is no such thing as a “perfect” signal, and no one will get 100% perfect timing. But using two or more signals together like these two moving averages, improves your overall timing and profits in entering and exiting options positions.

      Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Guide as well as on Seeking Alpha, LinkedIn, Twitter and Facebook. 
    • By Michael C. Thomsett
      To review: Bollinger Bands has three averages. The middle band is a 20-period simple moving average. The upper band and lower band are the second and third parts. Each are two standard deviations away from the middle band. This is a visual summary of historical volatility. Price generally is not likely to trade above the upper band or below the lower band for very long. When price does move outside of these ranges, it retreats back into range very quickly. So BB is like a “probability matrix” for timing entry and exit.

      The T-line is an 8-day exponential moving average of price that yields surprisingly reliable signals for changes in price direction. The rule is that when price is above the t-line, it remains bullish until it crosses below and closes for at least two sessions. This sets up a bearish reversal. When price is below the t-line, the prevailing bearish trend continues until price crosses above and closes above for at least two consecutive sessions.

      Taken apart, BB and the t-line are powerful on their own. However, when used in combination, you set up a very powerful dynamic trading range, making it easy to spot when a trend ends. As price advance, the BB upper band represents resistance and the t-line is support. When prices are moving down, the t-line is resistance and the BB lower band is support.

      The chart for Cummins (CMI) shows the reversal signals this combination highlights.
       

       
      The combined signal sets up the narrow channel based on whether price trend is bullish or bearish. In a bullish trend, the upper Bollinger Band is rising resistance and the t-line (red on the chart) is rising support. The bullish trend continues until price crosses below the t-line and closes there for two consecutive sessions.

      In a bearish trend, the t-line represents declining resistance and the lower Bollinger Band is declining support. The bearish trend continues until price crosses above the t-line and closes above for two consecutive sessions.

      The CMI chart shows how this works. In May, price had been declining down to as low as $140 per share. But at mid-month, price crossed above the t-line (the red line), demonstrating that the downtrend, for the moment at least, was ending.

      At the beginning of July, a further decline ended when price again moved across the t-line and marked the beginning of a gradual advance.

      The combination of Bollinger Bands and t-line is so reliable that it can be used effectively in two ways. First, it distinguishes between retracement (not moving across the t-line) and reversal. Second, actual crossover is the signal point for leaving a current trade and taking profits, or for entering a new trend based on the newly revised price direction.

      This solves the most disturbing aspect of short-term options trading. When do you enter and exit a trade? Even with the lack of clear reversal signals, the combined use of BB and the t-line is a powerful and reliable system to improve timing.

      Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Guide as well as on Seeking Alpha, LinkedIn, Twitter and Facebook.
    • By Michael C. Thomsett
      If you – like so many options traders – time entry and exit on a series of signals, then you already know that false signals appear. Confusing reversal with retracement, for example, is common. And even the strongest signals may be only coincidences of price pattern. Following are some suggestions for identifying when signals might be false and should lead to caution in timing of trades.
       
      Always require confirmation
      Many traders, wanting to make a perfectly timed trade, forget to look for confirmation. A true reversal must be confirmed with a second signal indicating the same likely reversal to follow. False signals are common because short-term price behavior is chaotic. Even strong signals can be misleading and confirmed signals also fail. But to minimize poorly timed trades, signal and confirmation are essential as a starting point.

      Don’t limit your use of confirming signals. Most traders have a short list of favorite signals. This develops from past success and makes sense. But it can also lead to a failure to see a reversal. Be willing to consider signals beyond your short list, and to rely on a broad range of possible confirmation indicators. Move beyond price indicators as well. Check volume, moving averages, and momentum oscillators to find additional confirmation beyond price. Even for price signals, check both traditional Western technical price signals (violations of resistance or support, big gaps, double tops and bottoms, island reversals) as well as Eastern technical signals (candlesticks).
       
      Avoid confirmation bias
      One of the most chronic problems traders face is confirmation bias, seeing what we want to see but ignoring contrary information. This occurs because all traders are humans, and we all want to perfect the science of chart reading. However, if you focus only on the science and ignore the equally important art of chart reading, you could fall into the confirmation bias trap.

      This happens when you believe that reversal is underway, and you want to time your options trade (either entry or exit) as accurately as possible. As a result, you find reversal signals even when they are weak or are contradicted by other price activity (such as continuation signals). A rational approach is to resist confirmation bias and analyze what the signals reveal; be aware that wanting to be perfect in timing can lead to errors.
       
      Lack of confirmation is a sign that you might be looking at retracement
      Some traders see an initial signal and think it represents a reversal. For example, price has moved strongly to the upside but has reached a plateau and is beginning to decline. An initial reversal is located, but there appears to be no confirmation in price, moving averages, volume or momentum.

      The lack of confirmation for initial reversal signals is one symptom of retracement. This momentary movement in price may be a passing attribute of price behavior, regression toward the mean rather than the  more dramatic directional change. Retracement and reversal appear identical at first glance but knowing the difference can save you from a poorly-timed decision.
       
      Be a contrarian
      Is everyone acting in the same manner? If the crowd believes price is about to turn and move in the opposite direction, it could be a good time to act as a contrarian. Apply logic and not emotion to the timing of trades. The talking heads on financial TV shows reflect the popular view, which is not always the right view.
       
      Remember that timing is not perfect
      Even when you find a reversal and confirmation, it does not mean the change in direction will be immediately. Traders often are frustrated because a strong reversal and confirmation is identified, but price does not respond. It could be several days, perhaps even a week or more, before the reversal takes hold.
       
      Don’t change default settings for the wrong reasons
      Default settings in online charting services are set for a reason. For example, Relative Strength Index (RSI) is set for a 14-day average. Some traders like to change this by reducing the averaging period, usually on the rationale that this produces more overbought or oversold signals.

      The flaw in this thinking is that more signals are not reliable. In any chart, you will discover that changing the RSI default produces numerous false signals. The 14-day average works and yields the right number of signals.

      Some default settings can be changed to improve your reading. For example, Bollinger Bands sets upper and lower levels at two standard deviations from the middle band. Violations of the upper and lower bands tend to be short-lived and of great value in spotting likely reversal. If the default is changed to three standard deviations, most charts show no violations of the bands. However, when violations do occur, the return to a previous range is as close to 100% certainty within a day or two, so this is an excellent system for spotting reliable reversal timing.
       
      Resist impatience
      Options traders tend to be analytical and like using a range of signals. But this can also become a trap. At some point, you must act. In fact, at some point, you need to convert reliance on signals and depend to some degree on intuition.

      However, a greater problem for many traders is impatience. Options traders like to be in the game, so a tendency is to want a trade even when the signals are not strong or, perhaps, do not even exist. Avoid making trades in anticipation of reversal at mid-range and acknowledge that reversal is more likely when price is near resistance or support. If reversal signals are not found and confirmed, don’t make the trade. Wait and be patient.

      The desire to make a trade can mislead you into believing a signal is there, even when it is not. Every options trader knows this but may easily fail to respond logically to rational analysis. An impatient trader will lose in too many trades. The cold, impartial, analytical contrarian might not make as many trades as others but is more likely to book profits from well-timed options trades.

      Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Publishing as well as on Seeking Alpha, LinkedIn, Twitter and Facebook.

      Related articles
      Island Clusters As Strong Reversals Powerful Channel Signal – Combining Bollinger And T-Line Great Reversal Signal – 50 MA With 8 EMA The Meaning Of Divergent Bars Those Golden And Death Crosses
    • By Michael C. Thomsett
      The attributes are easily spotted on a chart, but it does not appear often. It consists of three specific parts. First, price gaps away from the current trading range, either above or below. The gap itself is significant, but it can mean may things: reversal, continuation, or just momentary volatility.

      The second attribute is trading in the new range, but only for a limited number of sessions. The “typical” island cluster consists of three to six sessions. Every trader knows that several things can happen next: Continued trading in the new range, movement in the same direction, or movement reversing and going back to the previous range. In other words, at the point of the second phase, you cannot know what will happen next.

      The third attribute is where a call to action occurs. It consists of a gap in the opposite direction, setting up the cluster. Now there is a limited trading activity set off by gaps on both sides, concluding with price moving back to the previous level. This forecasts a strong trend in the direction of the second gap.

      An example of this was seen on the chart of Cummins (CMI). In August and September price was stuck in consolidation between $135 and $145 per share. A breakout in late September took price above the consolidation range and led to a strong downtrend in October. Price moved from a high of $152 down to $139 in less than two weeks. Then a gap appeared, moving price further, down to $134.
       
       
       
      The new low was significant, as it remained below the previous support level during consolidation, of $135 per share. Trading remained in this range, from $135 down to $125 for six sessions.

      Next, price gapped higher, from a close of about $133 up above $135. In this pattern, creating an island cluster, the signal was clear. Because the price after the gap closed at the previous support price during consolidation, the signal clearly predicted a new bullish move.

      This is typical after the island cluster. Price tends to move away from the cluster, often strongly, and to either set up a new range, or to remain volatile in the short term. Either event is appealing to options traders.

      In the example, CMI price did as predicted, moving higher. This is shown in the second chart.
       

        
      This chart extends beyond the timing of the island cluster. The six-day island cluster was visible after the pattern was concluded. As predicted, it took price higher over the following month, moving from $135 to as high as $155. It later plunged back to $125 over the first three weeks of December, then turning bullish once again.

      The volatility after the conclusion of the island cluster could be disturbing to many equity traders. But to options traders, this situation sets up attractive swing trading possibilities, especially given the overall range between $125 on the low side and $155 on the high side.

      Trading options at the conclusion of the island cluster is indicated in one of the following ways:

      Open short calls and open long puts should be closed based on this pattern. As the island cluster ended, the forecast was for a strong move to higher prices.

      Open short puts and open long calls should be left open due to the pattern. The conclusion of the island cluster predicts price move higher, meaning the open short put will lose value in coming days or weeks and can be bought to close at a profit or allowed to expire worthless.

      For traders with no open positions, the conclusion of an island cluster indicates new trades that should be opened, and timing is excellent for a bullish move. However, before embarking on any new positions, seek confirmation from a secondary signal. The long white session before the concluding gap, followed by another long white session on the second day after the gap, may be view as bullish confirmation.

      A bullish trade is indicated when the island cluster occurs to the downside, as in this example. This may consist of selling to open a short put or buying to open a long call. The opposite trades would be indicated when an island cluster occurs above the current range and pointing to the likelihood of a bearish reversal.

      Timing of trades depends on a trader’s strategic viewpoint. For long options, a one-month time to expiration is likely to work best. Price will not include excessive time value and time decay will not accelerate until the final two weeks of the option’s life. For short options, the idea timing is one week to 10 days. This will include a weekend with following Friday expiration and time decay will be rapid. This means the chances for being able to buy to close at a profit will be at maximum.

      The weekend is essential in the timing of a short trade. On average, options lose one-third of their remaining time value between he Friday before expiration and the Monday of expiration week. This timing, combined with the exceptional reversal signal provided by the island cluster, is the key element to timing of options trades in this situation.

      The same overall timing strategy can be applied to any strong signal with confirmation, and timing is as important as proximity in every instance. The idea option trade will be at the money or slightly out of the money (for long) or in the money (for short). These proximity guidelines minimize cost for long positions while keeping the trade close to the strike; and maximize premium income for short positions while setting up the opportunity for profits from rapid time decay – all if price behaves as expected. And this is the element of uncertainty that makes options trading interesting. Manageable risk levels produce profits when reversal and confirmation are recognized … most of the time. However, traders – especially swing traders – also need to be realistic about the possibility that even the strongest signals are misleading at times.  

      Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Guide as well as on Seeking Alpha, LinkedIn, Twitter and Facebook. 
       
    • By kesh
      Hello, Traders!
       
      There are hundreds of assets in the market that may be interesting for trading.
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      OptionClue options screener analyzes the 400 most liquid US stocks and due to a special algorithm chooses the most relevant assets to trade.
       
      The screener saves you time and identifies the most promising assets that may start actively moving (for example when they are in sideways trends and triangles) and at the same time, it takes into account conditional «high cost» or «cheapness» of underlying options.
       
      These signals can be used in options market when trading straddles and strangles, and in the classic stock market.
       
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    • By Lazlo
      Hi everybody, 
      I searched for a similar thread but couldn't find anything close to my question. 
      I want to ask a rather personal question and therefore hesitated to do so. If this is not adequate just let me now.
      How much of your entire capital do you invest in different strategies? And with different strategies I mean preserving your capital, steadily increasing it or increasing it dramatically, like Anchor-Strategy, Steady Condors, and Steady Options. I would also count investing in businesses and real estate as a valid approach. Personally, I would not only say it is a valid approach to invest in multiple assets but almost a necessity. But what about you?
      For example, do you allocate 10% for Steady Options and 25% for Steady Condors and 50% for Anchor Strategy? Do you own real estate? Do you plan on doing so?
      I know, I already can hear "you have to answer this question for yourself" and "depends on your risk tolerance". But I want to know your opinion and experience on how you would approach investing, now that you know what it takes. What would YOU do if you started from 0 again?
      I'm not interested in answers like I could imagine doing this and that. I would expect something along the lines. First I would start saving x amount of money while I learn the Y-Strategy with paper trading. After z time I would then use x amount of money in A-Strategy until I reach point S (some amount of money). At this point, I would still do Y-Strategy but also get my hands on Strategy Z, which promises higher returns. And so on. 
      I'm aware that this is a question not particularly related to SO but I value your opinions and at least to me a plan for investing is the absolute most important aspect. It's like having an exit strategy for your trades before you open them, just the other way around.
      Why do I want to know your experiences? Because I seek a rough guidance on approaching investing. I would like to compare each other approaches. 
      I think this topic is a significant aspect of investing and therefore for trading. It's equally important for beginners as it is for experienced investors and traders. 
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