Stock Trading Strategies That Work | Stock Market For Beginners Step by Step Part 1 of 2

Stock Trading Strategies That Work | Stock Market For Beginners Step by Step  Part 1 of 2

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welcome back to my channel one of my friends asked me to teach him the way i trade stock options so i am making this instructional video for him and i like to share it with everyone this video is not spamming it's not about self-promotion i don't sell anything i don't have any website minas whatsoever the only intention is if my trading strategy can help you to get more winning trades then that's all i care about this video is very detailed so it will be long and it is probably one of the longest video that i will ever make for my youtube channel if you are trading stock options right now and you find yourself in a position where you barely break even you may have a one great week and then you may lose it all the next week or if you are a beginner or never three stock options before but is interested in learning about trading stock options then this video is for you even though the video is very long i do encourage you to spend some time and try to watch it from the beginning to the end because i am very sure that you will find at least some or maybe all of what i presented in this video will be useful to you my trading strategy is actually very simple it requires discipline but it is very effective this strategy has helped me to achieve a high percentage of winning trades thurs enable me to make money on a consistently basis week after week now a quick reminder i am not a financial advisor this video is only intended for entertainment and educational purposes now i would like to make a very clear distinction between trading and investing because this video is about trading and not about investing so investing is when you focus on long-term buying and holding securities while trading is completely opposite you are focusing on the short-term buying and selling by taking the advantage of the swing in stock prices so investing is like getting married while trading is like a one night stand so if you are looking for information on investing this video is definitely not for you there are four topics that i will address in this video first is the question why why do i trade stock options second is the what what are the mistakes that traders tend to make that you have to do your best to avoid then i will talk about my trading strategy in detail first part would be the basics of stock options and then the second part would be my trading strategy then the last part would be the next steps assuming that you are interested in trading stock options what should you do next first if you have not subscribed to my channel please show your support and click the subscribe button and subscribe that way you will be notified when i release new videos all right now since we got that out of the way let's talk about the first topic which is why why do i choose to trade stock options the nc is very simple stock option is the only quote unquote investment out there that is legal that can provide unlimited upside potential with limited out downside and does not require a lot of capital investment you can do a lot in the option market worth one thousand dollar but there's not much you can do with one thousand dollars in the stock market isn't trading stock options very risky isn't it like gambling because uh it is so easy to lose it all yes the answer is trading stock options is very risky but then just like very much anything else that you invest in there are risk associated with that for example you see that your friend become quite successful investing in real estate so you decide to jump in and invest in real estate and yet you have no idea you have no experience at all about the real estate market so what's going to happen the probability that you're going to lose money investing in real estate would be extremely high so there's really no difference between trading stock option versus investing in real estate the risk increases if you don't know what you're doing and obviously the risk decreases if you know what you're doing so i like to trade stock options because it give me that unlimited winning potential with limited risk and best of all i don't really need a lot of money to start trading stock options and i have been successful with trading options because i have a strategy that emphasize on risk management and i do spend time to do my homework before every trade so with a cell trading plan and the willingness to put your time in to do your homework before every trade i think everybody can be successful at trading stock options and be able to make money consistently on a weekly basis just like i do right now so now let's talk about the typical mistakes that traders make when trading stocks or stock options that we can learn from i think the best way to find out what mistake people are making when trading stock options is to go to google and search for lost money stock options you will see a lot of articles or videos that people make regarding how much money they lost along with their own reasons as to what mistakes they make that cause them to lose money so if you are serious about jumping into options trading i strongly encourage you to spend at least few hours reading through these articles as well as watching these videos so at least you have an idea of qualcomm how easy it is to lose money in options trading if you are not disciplined so don't jump in head first and start trading options right away just because your friend told you that he was able to turn five hundred dollars into five thousand dollars in one week he's probably conveniently forgotten that lost all that the following so far he is still trading stock options i have spent a lot of time reading these blogs as well as videos and here are the top five mistakes that i see these people make mistake number one is not having a trading plan benjamin franklin once said if you fail to plan you are planning to fail and that couldn't be any truer for day trading because without a trading plan it is no different than if you were to take money and walk into a casino and head over to the roulette table and put everything on red and then praying that red would come out because without a trading plan it is pure gambling and believe it or not i had my fair share of making this mistake two times and it cost me dearly every time i still remember a company called x-pang the thickest symbol is x-p-e-v this is a chinese electric car startup company i remember my friend called me up one night and told me that i have to get into x-bang because x-bang is the chinese tesla and the stock will run up to 100 soon he told me when the stock closed at 72 the next day i was watching the stock price in real time the stock opened at 72.44 and within a few minutes after opening the price shut up to 74.49 and i was all nervous about missing out this once in a lifetime opportunity my brain kept on telling me that hey stupid you need to pull the trigger now because the price will only get higher and higher so like a dummy i went in bought 100 shares as well as 10 call options and just my luck right after i bought it the stock price loaded drifted down and closed the day at 70 53 then for the next two weeks the stock price kept one dropping and dropping and dropping like a rock i finally had to sell my stock and options and this stupid mistake cost me over two thousand dollars so you see how dangerous it is to trade without a trading plan because without a trading plan to guide you you tend to let your emotion dictate how you would trade and that's the last thing you want to do i had a trading plan but i just let my emotion took over i shall my trading plan and the result was a disaster had a discipline enough to follow my trading plan i would not have made that big mistake that's why it is so important that you spend time create your trading plan before each trading day and be disciplined enough to follow that trading plan to avoid making this kind of very costly mistake the second common mistake is wrong position size this typically has to with greed what happened is most of these people when they first traded they started traded small let's say they trade 100 at a time then they started winning and now after about a week of winning they figured that hey instead of trade 100 at a time if they were to drive 500 at the time their winning could be five times more but the only problem is when they started trading large like that all it takes is one or two batteries and that could potentially wipe out their entire trading account so choosing the correct position size is extremely critical this is part of a risk management strategy you absolutely have to avoid getting into a situation where one single battery can wipe out your account ultimately when deciding on the tray size you should be comfortable with the amount of capital you will lose if the trade doesn't go in your favor ideally the tray side should be large enough to be meaningful to the account but small enough so you don't lose sleep at night mistake number three is over trading people makes this mistake because they either don't have a trading strategy or they do not adhere to the limits of their trading plan so why is it bad over trade isn't it like if i can make fifty dollar per tray then if i execute 10 trays a day my winning would be 500 instead of just a meager 50 bucks now that's a wistful thinking because the probability for you to lose money with over trading is much greater than with just a few address see when you try to squeeze in more trays you tend to cut the profit of each tray short and likely would make the mistake of jump into a tray that the setup is not in your favor and then it's likely that you would lose money on that trade so now what happened is the next trade you try to win your money back so it's a cycle where at the end of the day you're not really making any money and worse you probably lose money as for me i never make more than two trades a day what i do is i wait for the opportunity that gives me the highest probability of winning and then and only until then i enter the cherry mistake number four that traders frequently make is double down on the trading mistakes how many time have you seen people or even yourself got into a trade that you feel there is no way that you could lose but what happened is after you enter the trade the stock price when opposite the way that you project it and then the price of your stock or your options went down then instead of exiting the position what you do is you feel that hey this stock is definitely is going to bounce back and the nice thing is the price is much lower than what you paid before so you decided to increase the positions and guess what the stock price continues to go in the opposite direction and then you ended up losing everything so never fall in love with a stock and when you make a mistake admit that and move on never trying to double down on a mistake mistake number five that beginners frequently make is do not have an exit plan this is really really bad because how many times have you seen people enter a very good trade so the stock goes the way they anticipated and they start seeing that they're gaining a lot of money but then they really don't know when to exit they keep on waiting because they hope that the price would go much higher higher then all of a sudden the stock price reversed and when it reversed they hold on and wait for it to go up so that they can regain what they have just lost but then what happened is the stock price continued to drop so what they ended up is they sold it but they lost and that is the big problem without an exit plan so the rule is you never enter a trade unless you have a clearly defined strategy of when to exit that trade regardless of winning or losing so in summary the five commonly mistakes that beginners makes that cause them to lose money are number one trading without a trading plan number two is incorrect position size number three is over trading number four is doubling down on a mistake and number five no exit plan so you have to try your best not to make these kind of mistakes so the idea is have a trading plan and then spend time to plan each and every trade now i am going over the basics of options tradings it's going to be very basic so if you are interested in learning more about options trading like in-depth i would encourage you to go to youtube and search for options trading there are so many really really good videos that the author went through great detail in explaining about options trading so uh i encourage you to do that but what i am going over is really the basic step just enough for you to understand options trading and be able to use my system to start trading so what is stock options stock options are contracts between two people a seller and a buyer for the right to buy or sell certain shares of stock at a given price and the given price is known as the straight price these contracts are valid until the expiration date and it's important to know that for every one contract of option it's equal to the right to buy or sell 100 shares of stock there are two different types of stock options call options and put options now the call option give the buyer the right to buy stock at a certain price and conversely put option gives the buyer the right to sell stock at a certain price and now the obligation of the seller for the call option the seller has the obligation to sell stock to the buyer at a certain price and also conversely with a put option the seller has the obligation to buy the stock from the buyer at a certain price it may be a little bit confusing right now but i will give you an example later on that will definitely clarify this whole thing about call and put now here are some of the terminologies that you need to understand first one is the expiration date which is the date that the option will expire straight price is the price that the buyer and seller agree on option premium which is the cost per contract there are two components in determining the option premium first is the intrinsic value which is the value between a stock option straight price and the underlying stocks price and then the extrinsic factor which is the value pay on a contract based on external factors of time and volatility so now what is the difference between owning a stock versus owning a stock options well when you own stocks you really own a piece of that publicly traded company while owning an option is different option are just contracts that give you the right to buy or sell the stock at a specific price by a specific date so just keep in mind that your option could go to zero and that is why trading stock options is risky while owning a stock you wouldn't lose that stock unless the company goes out of business one very important concept that you have to understand when dealing with stock options is time decay what is time decay the definition of time decay is it is a measure of the rate of decline in the value of an options contract due to the passage of time this graph illustrates the relationship between the time premium in option price versus days remaining until expiration as you can see the nearer it is to the days that the option expire the faster the drop in the value of the option price let's say let's have an example here if you buy a call option for apple computer uh at certain straight price okay assuming it costs ten dollar per option and that is 90 days until expiration assuming apple stock price doesn't change doesn't move at all it stayed the same after 30 days which is 60 day until expiration your option now may may worth only eight dollars 30 days to expiration now your option probably was just only five dollars you see how fast the decline in the value of the option price that's why it's really important to understand this concept because when you're dealing with stock options the minute you purchase an options every days after that the value of the option price decreases remember that so you lose money the minute you purchase an option that's why this is so critical when i talk about the trading strategies because the strategy will maximize on the game at the same time minimize on the losses due to time decay all right now the good part let's go through an example of a core options so you have two parties the seller and the buyer let's say the seller has the seller has 100 shares of apple now he want to see if there's a way that he can make money uh instead of like just leave the share sitting there either now he looked at the price of apple right now it's february 1st and the current price of apple is 125 he's thinking he's thinking that there's no way apple stock would get over 140 by the end of march 31st so he decided to sell one call option after he sell one code option he pocket six dollar per options or six dollar multiplied by 100 shares he pockets six hundred dollars then we have this buyer here he's extremely bullish about apple he figured that apple would definitely goes over the 140 dollars by the end of march so what he did is he purchased this core option so now what's going to happen by the end of march if apple's stock price goes up to 160 just 20 higher than the straight price he would pocket 160 less 140 which is the straight price less six dollar that he has to pay to purchase the option that would equal to fourteen hundred dollars now if he was wrong and the price of apple stock is equal to 146 or lower he would lose everything all of his money or he would lose the 600 that he paid for the option another option that the buyer could do is to exercise the options and purchase the 100 shares of apple at 140 dollars and he can keep it but then he would still lose the 600 that he paid for the option put options is essentially the opposite of call option the seller who owns the upper share he believed that the price of apple would drop in the near future right now the stock price is 125 and he believed that the price of the stock would drop but it's probably will not drop below the 100 per share by the end of march so to reduce the potential losses due to a future drop in the stock price he could take advantage of the price that people are paying per option he could sell a put option with a straight price of one hundred dollar expiration day is three thirty first and the price for option is six dollar so he will collect six hundred dollars and now what's going to happen is if by expiration date which is 331st and the price of apple is above 100 then he get to keep the 600 and not lose his shares and now you have the option buyer i mean this guy is really pessimistic about upper stock he think that apple stock is gonna take a dive and it's likely that the price would drop from what it is right now which is 125 to much lower than the 100 strike price so he jump in and he buy this call this put option and he pays 600 for the put options now at the end of march if he is right and if apple's stock price dropped below 100 let's say it's dropped down to 80 then he would make a hundred dollars which is the straight price subtract eighty dollars which is the stock current price and subtracts the six dollar per option that he paid for the option time 100 shares he would pocket fourteen hundred dollars if he were wrong and if the price of apple stay at 94 or above one important thing that we need to keep in mind is when you purchase either a call or put options you don't have to wait until expiration date before you can sell the option you can sell the option anytime so let's say if you buy the put option today and two days later the stock drop and the value of your options goes up let's say from six dollar to nine dollars you can just sell it and be able to pocket the three dollars difference so now what is the advantages and disadvantages of trading stock options in term of risk reward ratio stock options give you unlimited upside potential with limited outside the most that you could lose is the six hundred dollars that you pay for the option whereas with core options the higher the stock price go up the more money you would make so there's no limit to that the second advantage is low capital requirements you don't really need a lot of money to start a stock options trading account now the disadvantage of stock options is that buying options is not like buying a share in the company buying stock options if the stock price does not go up or go down more than the straight price then you would lose everything and that cover the basics of stock options if you are interested in learning more about stock options there are so many really really good videos on youtube explaining about the basics as well as advance of stock options trading so it may be worthwhile for you to watch some of those videos

2021-02-09 00:50

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