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2. Option Selection Procedure
Now that you have chosen your stock, you need to determine which option
qualifies for your option trading system. Your personal option trading
system may be based on OTM options or ITM options or even based on
bullish or bearish spreads.
3. Entry Procedure
Now that you have determined what stock to watch and which option to
buy, it is time to determine under what conditions to make that move to
buy on. It may be as simple as to enter upon market opening or as
complex as to watch the underlying stock movement for a pre-determined
period of time before it qualifies for entry. Whatever it is, it must
compliment your personal option trading style.
4. Exit Procedure
Now that you have an open position, you need to determine what must be
true for you to take profit or to stop loss. There are 2 classes of
exit procedure that you must establish; Stop Loss and Profit Taking.
Stop loss in option trading can be simply based on a % loss of the
option position or based on a % loss on the underlying stock. Profit
taking can be based on the stock’s target price or a % gain on the
option position. After you have done that, you would want to see how
your broker can help to automate that for you. Commonly, people break
their own stop loss or profit taking points due to emotional
involvement, that is why many brokers have features which allow fairly
complex stop loss or profit taking strategies to be automated. If your
broker does not support such automation and you are the type who cannot
properly enforce your own stop loss or profit taking strategy, then it
may be good to consider switching to a broker that does.
Now, give that option trading system a name and paper trade it for at
least 6 months. Do not expect to get it right the first time.
Developing a profitable option trading system takes time, knowledge and
experience and is something which cannot be rushed. My Star Trading
System (www.MastersoEquity.com)
took me years of work to arrive
at a stage where even complete amateurs can follow easily and make a
consistent profit from.
So, have fun translating your option trading philosophy into an option
trading system and to watch it in action. I am sure it will be an
extremely fulfilling experience whether or not the system turned out to
be profitable.
Article Source : http://www.article-matrix.com
Jason Ng is the Founder of Masters 'O' Equity Asset Management. He is a
fund manager specialising in options trading and his Star Trading
System has helped thousands. For Free Option Stock Trading Knowledge, please
visit www.MastersoEquity.com.
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