Low Probability Trades
Trading some low probability trades isnít always a bad thing.† It can help you to make a huge return if you are right and you can always manage your risk when you are wrong. By a low probability trad...
Trading some low probability trades isnít always a bad thing.† It can help you to make a huge return if you are right and you can always manage your risk when you are wrong.
By a low probability trade I am talking about trades that will probably not be profitable. Even so it can be a good idea to take a few of these trades now and then if you consider the following.
1.†††††† What You are risking
You donít want to be risking a lot of money on any one trade.† But, this is even more important when you are entering a low probability trade.† The amount you risk should be only a small fraction of your account, something that would not affect you that much if you lost it.
2.†††††† Does it have a huge Reward
The only reason to consider a low probability trade is of course the possible reward. The reward should be great, for example if you buy an Out of the money option for $.30 you shouldnít be hoping to sell the option at $.40 later on.†
Instead you should be planning on selling it for $3 or more in the future.† If you are only going to make a small amount if you are right it might not be worth it to take the risk.
3.†††††† Why are you entering the trade
You should still have a reason for entering the trade to begin with other then the option is only trading at $.10.† You should still have a reason for buying and a game plan for getting out.†
Of course taking such a risky bet isnít for everyone, but there is no reward without risk of some kind.† It isnít a bad idea to take a high risk high reward trade now and then provided it will not cripple your account if you lose. †
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ABOUT THE AUTHOR
When I was young I wanted to learn how to trade the stock market.† So I traveled around the country listening to professional traders talk about how they are making money in the market.† Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.