7 Simple Steps to Financial Freedom and Wealth Building - Step
5
Copyright 2005 William Tan
This is Step 5 of CashFlow Avenue's 7 Simple Steps to Financial
Freedom and Wealth Building.
STEP 5 - Arm Yourself with Options Trading Knowledge
Today, we move forward to understanding the business of Options
Trading. Just like when we get into any new business, we have to
equip ourselves with knowledge of the business. Many amateur
traders pay the ultimate price by "messing" with their hard
earned risk capital and end up losing all their money. In any
business, when you do that, you would be out of the game.
So before you go charging into the market, with the hope of
unrealistic profit, please consider educating yourselves with
knowledge of the business. You may get lucky a few times, but
the luck will run out. Understand that for you to profit, some
other trader will lose. Basically, in the equity market, you
are, essentially, trading against other traders. It may be
against amateurs, professionals, or even institutional trader,
which probably explains why most new traders will lose money
when they start. In fact, most amateur traders will quit the
business before completing the 1 st year.
It is easy to educate yourselves but you would have to pay a
small fee to learn how to trade. Just go to www.google.com and
search for "Options Trading Course" and you would be able to get
a pretty long list of trading courses available. The biggest
problem with trading courses is you may need to take a few
months before jumping into action. Also, learning the rules of a
game does not necessarily make you a good player. You can teach
beginners the rules of poker but it does not mean they can all
turn out to be good poker players.
Another simple way, just like any business, is to hire a
consultant - in your case, an Options Trading Advisory service.
There are plenty out there too. Again, when there are too many
choices, it can be confusing. To make sure you appoint a
"consultant" or Options Trading Advisor, you should evaluate
them on:
Performance - how much money have they provided to their
subscribers in the short term and long term? Read closely - if
they are emphasizing on huge returns on single trades or overall
monthly portfolio gains. Be cautious of advisory services that
boast impressive returns per trade because they obviously are
not reporting their huge losses. It is important that you
evaluate their monthly performance rather than on per trade
basis. It is pointless to have excellent returns per trade but
still losing money end of every month.
Trading Style - do they provide high risk trading or steady
income building strategy? High returns mirror the risks. If you
are an aggressive trader, this might be suitable. If you are
planning for early retirement, or your child's education fund,
then this is something too risky.
Customer Service - try writing a mail to them and understand
their response time. You want to know that they are there for
you when you need them. What's the point of having a lawyer but
when you are in jail, you can't find them.
Stop Loss - understand if capital preservation is priority. You
would not want to follow an advice that will cause you
substantial losses. When the chips are down, there must be an
exit plan. This is easy to spot by going through the website. Is
the website emphasizing more on profits or on capital
preservation?
Number of Trade Recommendations - be cautious of websites that
provide too many recommendations. It reflects on their
confidence in their suggestions. As rule of thumb, you should
not be holding more than 8 positions at any time. Moreover, it
is unrealistic to hold so many positions simultaneously - you
may not have enough capital and you cannot monitor all of your
trades.
Motivation - this is an important factor. When following trade
recommendations, you need to know if there is any motivation
behind the trade signal. Use only Advisory Services that invest
together with you. That way you are sure that your "consultant"
is also facing the same risk.
Trade Holding Period - understand how long before you can expect
to see profit. Gone are the days of long term investing. Do not
get into the "hold and pray" trap. Many advisory services will
hide or delay losses by not closing losing positions. Ideally
you should hold and close a position not longer than 60 days.
With these as guidelines, you can now identify and appoint a
reliable Options Advisory Service as your business consultant.
There maybe a few that qualifies. For certain, CashFlow Avenue's
own Options Trading Newsletter, CashFlow Advisor, meets and
exceeds all requirements. CashFlow Advisor is created to provide
options trading advisory to aid common traders and investors in
their pursuit of financial freedom and wealth building. If you
truly understand the value that we bring to your Brokerage
Account and Financial health, we are sure you would be with for
a pretty long period - like many of our susbcribers.
Now, with expert knowledge behind you, it is time to move to the
next step -
STEP 6: Time to Execute - It's Show Time