Iron Condor - Oh Man, I Want My Mommy…
The Iron Condor is perhaps the most dangerous option strategy around.
See here’s the deal: when a new fresh faced option trader first hears of this trading strategy - he or she becomes so enamoured with it that they just can’t seem to help but jump right into trading them - risking way too much money - and without much thought of what they are going to do if the trade starts to go wrong.
And unfortunately what always seems to happen to a high percentage of them is that they promptly wind up getting their trading accounts demolished and their heads handed to them on a platter.
Now stop.
Before you start to get the wrong impression, please, let me clarify something here.
I actually LIKE iron condors. I like them ALOT.
I think the iron condor really IS a great trade.
And yes, I absolutely believe all those stories and claims you hear swirling around about iron condors generating ten percent plus monthly returns and providing trades that have the probability of winning somewhere in the range of eighty to ninety percent. In fact, I KNOW those stories are true because I see it happen all the time in my very own trading account.
The problem is - there is something big that is being left out of all those claims and stories - and this something is causing way too many fresh new doe eyed option traders to misunderstand this strategy right from the beginning and blindly jump into them with completely wrong expectations.
Yes it’s true that iron condors and credit spreads can be put on with an eighty to ninety percent probability of winning. And yes it’s true that they can generate returns of over ten percent a month. BUT - they also come with a dangerous risk to reward ratio that can be in the range of ten to one.
10 to 1! That means that in order to try and make just one dollar, you need to be willing to risk ten. Or, put another way - in order to make 100 dollars, you need to risk 1,000 dollars. Or - risk $10,000.00 to hopefully make just $1,000.00!
And as mammy used to say to us kids - ‘that ain’t nothin but a real awful bad egg’.
Because once you do the math you find that even with those glorious monthly returns with 80 to 90 percent probability of winning - all it takes is just one problem month to come along and cause a loss that will completely obliterate the 8 to 9 wins you’ve managed to rack up - as well as potentially the rest of your entire account!
Nevertheless…
There is still hope…
Like I said before, I LOVE the iron condor trade.
Over the last ten years it’s been extremely profitable for me.
So obviously there’s a way around that horrible risk to reward issue and the inevitable problematic losing months.
And there absolutely is.
It’s all in how you manage the trade.
That risk to reward problem quickly becomes a complete non issue as soon as you educate yourself on the proper way to initially set these trades up and how to correctly manage and adjust them.
You just need to take the time BEFORE jumping into the iron condor pool to equip yourself with this little bit of knowledge. A few simple ‘tricks of the trade’ - so when those problem months DO come along (and they WILL believe me) - you will know exactly what you need to do to immediately squash that threat, easily adjust yourself out of the problem, and experience the iron condor for all it’s ‘really’ cracked up to be.
Five Reasons Why Retail Forex Is Becoming More And More Popular
In 2008, many small investors got their finger burnt when they lost their lifetime savings in the stock market crash. Many turned towards the retail forex market. The major reason for the growing popularity of retail forex in the investors is its 24 hours liquidity that means that retail forex market is open 24/5 plus no commissions per trade with tight spreads.
If you have some experience of trading stocks or bonds than you can esily switch to forex trading as the fundamental analysis and the technical analysis basics are almost similar. Now, many sophisticated investors are also turning towars forex as well.
In the last decade rapid technological advances were made meaning that there is now more and more price tranparency in the forex market with better risk management using the stop loss and the trailing stops.
Managed forex account also make forex trading easy for many people who don’t have the time to learn forex trading. These managed forex accounts give them the opportunity to profit from the forex market without having to trade it. These accounts are managed by professional traders on behalf of their clients who have full access and control over their capital in the account.
In the last decade, algorithmic trading systems became more and more sophisticated. These automated trading systems are also know as Expert advisors or Forex Robots. Over the last few years, forex robot developers have been able to develop a number of good robots that have been giving consistent performance.
In December 2009, the first ever Forex Robot World Cup (FRWC) was held. FRWC had a cash prize of $150,000 and hundreds of robot developers participated in the competition. This was the first ever live trading competition.
Forex robot developer from Croatia won the cash prize of $100,000. The next round of the FRWC will be even bigger than the first and will start in a few months time. Transparency and tough participation rules meant that the robots that took part in this competition had to really prove themselves in live trading. This live trading started in December and ended in January.
What this all means is the future of retail forex trading is exciting. These robots can be used by anyone. Even those who have never traded forex before can use these forex robots to make money from the comfort of their homes.
Before Short Selling-Know These Shocking Facts
Short selling is one of the favorite day trading strategies employed by many day traders. Many companies hate short sellers as they believe that short sellers were responsible in the fall of their stock prices. Nothing can be far from the truth. Short selling is just like anyother market mechanism that provides liquidity and better price discovery. Short selling can never destroy a company if its’ fundamentals are strong. Many stock brokers now let you short stocks with just the click of a mouse. When you sell stocks from your online brokerage account, the message asks you whether you are selling your own shares or short selling. You just need to click once on short selling and the rest is taken care of by the broker. These shares are a loan to you by the broker that you will have to return at a later date!
In some cases, the brokerage firm cannot borrow the shares as so many people have sold the stock short that there are no more shares to borrow. In that case, you will have to find another stock or use another strategy.
Now, shorting is one of the favorite strategies employed by day traders. A day trader may short stock on the mundane reason like its price had been going up for three days and it’s time to come down! Day traders are not fundamental traders. Day traders are simply interested in the daily volatility in the stock. Most even don’t do any financial or fundamental analysis of the companies whose stocks they are trading. Almost all are technicians or what you call technical analysis experts.
You have to be careful about the uptick rule as stock exchanges have rules in place to help maintain an upward bias in the stock market. What this means is that you can only short a stock when the last trade was a move up. In other words, you can’t short a stock that is moving down.
Now you have to be careful when shorting a stock as certain risks are involved. In theory, there is no limit on how high a stock price can go high. So when betting on something going wrong, if you yourself go wrong, the potential loss in case of a stock price going up can be immense.
Know something known as Short Squeeze. Once that happens, almost all short sellers get desperate to dump their stocks and exit but when they try to buy back the stock, they get more hurt as the prices go even higher and higher on rising demand for the stock in the market. Now, don’t get caught in the market with short selling when good news spreads about the stock that you had shorted driving its price up.
As said before, companies, investors and many brokers hate short sellers. They think that short sellers had intentionally driven down the stock prices. So sometimes, they will spread rumors of good news to create a momentary short squeeze. Sometimes, a campaign will be started by the owners of a particular stock instructing their brokers not to loan out their stocks to short sellers. So if you have already shorted that stock, you might get a call from your broker to return that stock immediately. In such a case, you will have to immediately return the stock even if it doesn’t make any sense to you!
Mr. Ahmad Hassam has done Masters from Harvard University. Read this 49 page Quantum Swing Trading FREE Report plus the shocking Profit Button Report that applies no matter what you trade-stocks, forex, futures or options! Turn $200 into $100K in just 3 months with this Penny Stock Trading FREE Report!
