When it comes to executing a trade with exchange traded funds (ETFs), there’s a process that everyone should follow. Do you know the steps?There are four basic steps to trading that will never leave you guessing what happened or what went wrong. Scott Kramer for Optionetics describes his steps in trading that applies no matter how complex or simple your goal is.
- Identify an opportunity: This step is hardest, because it deals with likes and differences and you have to decide what you want or do not want. Do you like to sell vertical spreads to receive a premium? If you like to ride big trends, then there is a different approach in looking for opportunities than that of a stagnant stock. Pick a name or ETF and stick with it.
- Find a low-risk opportunity: Most will simply buy a stock and hold it, but those understanding options have virtually an unlimited choice of strategies to choose from where they can literally customize their risk and reward characteristics. Base your trade on the information currently available in the market and what is actually happen, rather than on speculation or gut feeling.
- Have a plan: Almost everyone successful at trading has an entry and exit strategy prior to hitting the “send button” to initiate the trade. Know your risk tolerance, as well as the total dollar amount you are willing to lose, along with a stop loss. There are two types of traders: those who are successful and pay strict adherence to their loss exit points, and those who rationalize, hold the position and continue to lose. Stick to your discipline.
- Take action: Do not get caught up in the emotions of trading; take action! Take action when it comes time to get out because of a loss. Other times, taking no action is action. When you have the time take action and learn a little more about trading, rather than listen to everyone else.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.