Currency Options give you Unlimited Profit Potential with Limited Risk
By: Steve Todd
Options give you unlimited profit potential and limited risk. If
used correctly currency options will give you staying power and
huge leverage, but most traders dont know how to use them
correctly.
What you need to do is know how to use currency options correctly
which the bulk of traders fail to appreciate.
Getting the Odds on Your Side
We are not going to go into details about how currency options
work, theres plenty of free information on the Internet - here were
going to look at strategies to increase your odds of success.
Potential Rewards are not what they Seem
The first thing a trader needs to consider when buying an option is
how much time is needed, and what strike price is a good
target.
Many inexperienced currency options buyers look at the profit
potential, and dont consider the potential losses.
They buy strike prices too far out of the money, and options that
are to close to expiry.
Just like the mug gambler who always backs the outsider, they lose
their bet.
So, How Can You Increase the Odds of Success?
There are two points to keep in mind:
1. Time to expiry of the option
2. The strike price targeted
Firstly, you need to keep time on your side, and buy strike prices
that are not to far out of the money - buy in the money, or at the
money options.
Your profit potential may not be as great, but your risk will be
reduced - and your chances of Success far greater.
Keep in mind your option does not just need to go your way from
when you bought it - it needs to trade in the money by expiry.
For example, a trader sees the pound trading at 1.70 and buys a
1.90 call. The price goes the way they thought and reaches 1.87 -
they then run out of time and the option expires worthless. This
happens all the time - prices move in the right direction, but the
trader makes no money.
The trader feels they were unlucky - and tries the same again.
However, keep in mind being close does not make you money in
options trading!
To make money in options you need to buy in the money options, with
plenty of time value - this will increase your odds of success
dramatically.
How to Buy Currency Options in Longer Term Trends
When trading the longer-term trend, position yourself into the
trend in the following way.
. Identify the long-term trend via technical analysis
. Wait for a dip in the currency to position yourself in the
trend.
. Watch for dips to support - and then look for confirmation with
stochastic crossovers, or other momentum tools to initiate the
trade.
. A great way of buying options in the long-term trend is to look
for dips to the middle of a Bollinger band to time entry. This is a
good timing tool in strongly trending markets.
The above is a simple strategy, and one that can help you make big
profits from currency trend following. Use options correctly, and
you will have limited risk, unlimited profit potential and great
odds of success.
Dont make the mistake that most novice traders do - make sure you
use time to your advantage - and keep those strikes in, or near the
money, and you will create big capital gains longer term.
New! A valuable FREE Currency Trader CD containing 9 critical trading reports, tips, strategies and currency options info. Visit our web site now and grab your CD www.tradercurrencies.com
Article Source: http://www.articledashboard.com