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Difference Between Intraday Positional Options Trading

Learn what the is difference between Intraday and positional options trading.

Traders start with buying options due to the lure of limited loss and unlimited profits, forgetting that this is only possible if they are good traders. Fact is “limited loss and unlimited profits” is only on paper. I have not met, known or heard in media a single trader who bought a call for 10 and sold if for even 100, forget about unlimited profits.

Even Warren Buffett profits are limited every year. His Compound annual growth rate (CAGR) is just over 22%, but on a multi-million, sorry, multi-billion corpus. Still he went on to become the best stock market investors the world has ever produced.

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In this article learn what is short selling of stocks, options and futures and how much margin is blocked.

A lot of traders fear short selling of options, however for some reason they do not fear short selling stocks and futures. This is a very strange traders mindset. In this post learn why you should not fear short selling options if you know how to limit losses by hedging.

What is short selling?

Short selling of any stock or index is done by experienced traders when they feel a particular stock or index may go down.

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Do Not Try To Time The Stock Markets

Read to know why you should not try to time the stock markets as it can be very dangerous.

In this article we will know why investors and traders fail to time the stock markets and end up making losses. Therefore it is highly recommended that traders should not try to time the markets and learn non-directional trading.

Read this article to know why emotional investing and trading must be avoided. This is one of the most important reason why traders try to time the markets and fail.

Historically Investor Behavior is bad and influenced by fear and greed

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Learn To Avoid Emotional Investing And Trading

In the article why emotional investing and trading must be avoided we discussed why emotional trading is bad for traders and must be avoided.

This article helps to understand how to avoid emotional investing and trading in stock markets. Advice in this article will help you to understand how to keep emotional trading and investing under check and control.

Bad Financial Portfolio Risk Management

Most stock traders get into stock investing and trading more for the “greed part” and “make money fast part”, and in haste forget their finances and investment capacity. A lot of them take a personal loan for no reason except to trade the stock markets. This is a huge mistake.

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Why Emotional Investing And Trading Must Be Avoided

Read to know reasons why emotional trading of greed and fear must be avoided to avoid losses.

Stock traders biggest enemies are greed and fear. I have written a lot on why you must avoid greed while trading and why greed is not good for stock trading. Greedy traders never make money.

Even if you trade in fear you will not make money trading, as trading is a business where risk is involved. Those who fear taking risk never start a business and end up doing a job to earn money.

Both greed and fear are emotions which can hamper in trading profits. Therefore any kind of emotional trading must be avoided.

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Difference Between Shorting A Call And Buying A Put

Lot of new traders get confused on difference between shorting a Call Option and buying a Put. Almost all new traders buy a Put when they feel a stock will fall down instead of shorting a Call.

Note that in technical terms the objective of both trade is the same – to make money when a stock falls. The trader can either buy a Put or sell a Call, if correct both makes money, however there are some differences.

Here is the difference between shorting a call and buying a put:

On paper shorting a Call has unlimited risk and limited profit and buying a Put has limited loss but unlimited profits.

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What To Trade During Stable Stock Markets

Learn what to trade when the stock markets are stable and not much move is expected in future.

Since last few days stock markets Nifty is stable and not moving much.

Here is what may happen to world markets:

  • Stock markets waiting for news for, in which business sectors Donald Trump will focus more. It is obvious investments will start in those sectors. Please keep a watch on Trump policies and news.
  • Dollar getting stronger is a worry for Asian markets, but since US markets are on a roll Asian markets are not falling much. But for sure it will rise depending on what Trump says after taking over.

    Do not forget that like any country America also needs business to survive, so I do not think Trump can do anything to give a negative impact on doing business with USA. He himself is a business man, for sure he will try something good.

  • Demonetization effect has still not gone away. News is already in that in December quarter India’s internet companies were not able to perform well. But for certain this will have a temporary effect till end January. Things will improve from February 2017 onward.

All of the above suggest one thing – stock markets in India will be stable. They may either fall down a bit or go up a bit, but it will be a slow move in a stable way. A swift fall or rise will only come after Trump business policies get clear. This will be known only after Trump resumes office on 20th January 2017.

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Short Sellers Add Liquidity To Markets

There is a misconception among traders that short sellers, or short selling is bad for markets. In fact I talk to at least 10 traders everyday and 50% of them say they do not want to short sell by giving two reasons:

First reason – The margin blocked is very high by brokers and,
Second reason – It can make unlimited loss.

Well it is a misconception that short selling of options or futures is bad or unethical.

This is knowledge for those who only buy and never sell:

Who sells you the Equity, Options or Futures? They are the sellers. If no one is a seller a trade can never get completed. There has to be a buyer and a seller for the trade to be completed.

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Average True Range ATR Stop Loss Method

Average True Range (ATR) stop loss method is more popular among the experienced traders. In some countries like India it is also known as Day Moving Average (DMA).

Please note that MA (Moving Averages are different than ATR or DMA). Simply put, Moving Averages are calculated on the closing price of a stock on daily basis. It can go from last 5 trading days up to 200 trading days. Moving Averages are mostly used by stock traders who buy stocks for the short or medium term, not Intraday or day traders.

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Percentage On Margin Blocked Stop Loss Method

Percentage on margin blocked stop loss method is stop loss or profits taken on total money risked or blocked as margin trading for that day.

This is continued from the article on best ways to keep stop loss for intra day trading. There we discussed the most popular method called the normal stop loss order method.

In India percentage stop loss method is the second most popular method after the normal stop loss order method.

For example let us assume an Option Intraday trader has bought Options worth Rs.45,000.

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