This is one of the most common issues for newer traders, and people that are still struggling to find the time to trade. Most people think that you need to spend hours in front of the screen as a day trader to make money trading forex. This is a huge misconception that couldn’t be further from the truth.
When SAAB declared bankruptcy, SAAB trade-ins lost at least 40% of their normal trade-in value. Jaguar and Volvo are two brands that are currently struggling (along with many others) in new car sales and this hurts their resale value. Saturn trade-ins are barely worth anything today. It’s simple, if there isn’t a great deal of demand for a manufacturer’s new car, usually there isn’t a great deal of demand for the same manufacturer’s old car. Inversely, BMW, Subaru and Hyundai are on a tear, thereby increasing their resale value and therefore their trade-in value.
There are a number of drawbacks in converting from the collar to this type of ratio spread. The first problem is the number of variables that you have to contend with leading up to the final execution of the short futures trade. If you hold on to the short futures position too long, the market has the opportunity to rebound on you and take back your profits.
This one is tough. Too often, you never know until you participate. It’s kinda like “Mystery Date” where you don’t know if the person on the other side of the door is “dreamy” or a “dude.” The best advice is to ask your suppliers or strategic partners who may participate in the same show. What’s their take on the trade show and has it been beneficial? If possible, ask for specifics such as lead numbers, sales from the show, and promotional ideas. What works and what doesn’t work.
Whether you look for a return of two, three, four or even five times your potential loss is really down to you but as we have looked at 1:2 is a good starting point for beginners. Then as you become more experienced build on that and you will find that some trade s offer more easily to three to four times your potential loss but always make the goal two. If you don’t you will be just gambling your hard earned money away. Remember if the how to day trade for a living is not worth doing then be patient there will soon be one that is worthy of risking your money.
If the stock moves up as forecast, and if I am not stopped out at my entry stop, I ratchet my trailing stop losses upwards one per cent beneath subsequent swing lows. I only ever ratchet them upwards. The ratchet effect reduces potential losses, and then locks in increasing profits. My trailing stops are also triggered by a daily closing price. Any daily closing price below a trailing stop loss triggers exit the next day.
Finally, a trade that originally took only 26 days to profit now takes 103 days before you get all of your money, and the whole time you are not sure whether the trade will work. This is almost a quadrupling of your trading time frame with little guarantee that the market will continue down. If the market were to move against your two puts, you would lose the $1,100 in premium. This risk simply may not be worth it. That’s why it is important to do your math before you execute a trade like this.
