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Currency Options
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Currency Options - Four Simple Tips for
Bigger Profits
Options in theory give you unlimited profit potential and
limited risk. Sounds good? In theory it does, but keep in mind
that 90% of options that are bought expire worthless, so that’s
a 90% chance of losing your money, if you don’t know what you
are doing.
Getting the Odds on Your Side
You can however increase your odds of success with currency
options by knowing which options to buy and sell and by knowing
how foreign exchange markets work.
Four Simple Tips to Increase Your Odds of Success
Let’s assume you want to buy an option and the price of
the British Pound is at 1.60, you are expecting the British
Pound to go to 1.90. What option do you buy?
1. Potential Rewards are not what they seem
The first points to consider when buying an option is how
much time value you want and what strike price you wish to buy.
There are two points to consider
. Time to expiry
. How far out of of the money the strike price is
2. Get time on your side
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.
3. Buy realistic strike prices
If you want to make money in options trading, buy strikes
that are in the money or close to the money, with plenty of
time to expiry.
4. How to buy options in longer term trends
If you are trading currencies and trading the longer-term
trend, position yourself into the trend in the following manner.
· Identify the long-term trend via trend lines.
· Wait for a dip in the market to position yourself
in the trend.
· Watch for dips to nearby support and then look
for confirmation with stochastic crossovers, or other momentum
tools to enter the option.
· Another way of buying options in the long-term
trend is to look for moves to the middle of a Bollinger band
to time entry. This is a great tool in strongly trending markets.
· The above will work well in strongly trending markets
and if you buy in the money options or realistic strike prices
with plenty of time on your side, you will increase your odds
of success dramatically.
The above is a simple strategy and one that can help you
make big profits from currency trading buying options.
What about Strategies that are more Complicated?
You can do a whole number of options strategies, but our
view is why make it complicated?
Many traders think the more complicated the strategy the
better the chances of success but this is not true in currency
options.
There is no correlation between how complicated a strategy
is and its chances of success.
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