Thursday, March 17, 2016

Grow Your Account By Trading Right Instruments

There is a general misconception about the size of capital one needs to start trading/investing in the capital markets. Often times, this perception is reinforced by the mass media outlets, through news, movies and reality shows.

However, the reality is much different and quite the opposite. My view is that, actually having small amounts of capital is not bad, it's a good thing. The limited amount of capital will help the person not to fall prey to human temptations, like greed and fear.

Now, let's turn to the instruments that one can use to grow his/her capital.

Options: Options is a way underrated instrument that many people with small base capital can utilize. Directional bets might payoff huge if donecorrectly, with proper trade and money management principles.

Here is an example of an actual trade:




In the first picture, we can see the 1 hr chart of a stock, that has found a support at $58.50 - $59.00 level, and next leg is planned to be to the upwards.

Accordingly, on the 2nd picture we see that I have entered into a call option at a price of $1.60. So one could theoretically could have bought 5 contracts for a total sum of $800!

On the 3rd picture, we can see that the price of a call option has appreciated to a level of $3.3 per contract. The gain of 106.7%!!! So, I have doubled my money in a couple of days, by purchashing call options at the right time.

On the 4th picture, you can see the price action of a stock up to the day of sale of call options.

Of course, this might seem to be easy on hindsight, but, with proper risk managment techniques and emotional stability one can easily find such opportunities from time to time.

It's not necessary to trade every day, or make concentrated bets. However it is vital to have identified a technical levels that can be used to profit and be able to sit through market ups and downs...

In the next post, I will provide my perspective on using futures.

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