Before you start trading, you absolutely have to know what stocks you want to buy and hold for a while, which is called going long or holding a long stock position. You likewise have to know at what point holding that stock is no longer worthwhile. Similarly, you need to know at what price you want to enter or trade into a position and at what price you want to exit or trade out of a position. You may be surprised to find out that you can even profit by selling a stock without ever owning it, in a process called shorting.
You can even make money buying and selling options on stocks to simulate long or short stock positions. Buying an option known as call enables you to stimulate a long stock position, in much the same way that buying an option known as put enables you to simulate a short stock position. You make money on calls when the option related stock rises in price, and you make money on a put when the option related stock falls in price.When placing orders for puts and calls, you are never guaranteed to make money, even when you are right about the direction a stock will take. The values of options are affected by how volatile stock prices are in relationship to the overall direction (up or down) in which they are headed.
Managing your trades so that you don’t lose a bunch of money is critical. Although one can’t guarantee that you will never lose money, experts can provide you with useful strategies for minimizing your losses and getting out before your stock portfolio takes a huge hit. The key is knowing when to hold them and when to fold them. You must think of your trading as a business and the stocks that you hold as its inventory.
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By: Thomas Morva
