The butterfly spread is a conservative strategy with both limited profit potential and limited risk. It is actually a combination of a bull spread and a bear spread. It can be constructed using all calls, all puts, or a combination of each.

Three strikes are used: one high, one low, and one in the middle. You buy the upper and lower strikes and sell the middle strike.

For example, suppose a stock is selling at 50 and your option pricing model indicates the 50 strike front month options are "rich" and should be sold. Your opinion on the stock is neutral. You sell the 50s and buy the 45 and 55 strikes.

Another way of looking at the butterfly spread is selling a straddle and buying a strangle: Selling the 50 strike straddle and buying the 45/55 strangle, in this example.

If you took in a net credit of $3.50 per spread, that is your maximum possible profit for selling the spread.

The risk is the difference between strikes (5 points) minus the credit received (3.50) or 1.50 points per spread. Not bad.

Your profit range, in this example, is the middle strike (50) plus and minus the credit received (3.50): 53.50 - 46.50.

The risk is limited should the underlying fall below the lowest strike or rise above the highest strike. The maximum profit, as in all strategies involving the selling of option premiums, is at the strike price of the options sold. In this case, the middle strike.

Should the underlying experience a large move in either direction, some strategists close out the profitable side of the butterfly spread near its maximum profit point thus preparing to capitalize on a price reversal, should one occur.

Caveat: In this, or any, strategy involving the shorting of options, avoid early assignment by closing the position if the short options trade in-the-money, at or near parity.

Always keep in mind the "time value" of money. By that I mean consider closing the position early if most of the potential profit has been earned and there remains a considerable amount of time left till expiration.

For instance, if you find that you've earned more than half of the maximum potential profit in less than half the time to expiration, is it wise to stick around for the small remaining profit?

Suppose, for example, you're ahead 80% of the maximum possible profit in less than 50% of the time remaining. Do you really want to stick around for the remaining 20% and risk losing back the profit that you've already earned?

The butterfly spread is a favorite strategy of many traders.

The Iron Butterfly spread, as the name implies, is a variation of the butterfly spread. The "iron" terminology part of all spread strategies means to widen the range of the protective strangle purchased.

By purchasing the protective "wings" of the spread further out-of-the-money, the overall net credit received for selling the spread (that is to say, the potential profit) is increased, although with correspondingly increased risk of the overall position. Gee, increased reward/increased risk! No surprises there.

However, widening the range of the spread also offers possibilities for "rolling" the position up or down as a follow-up action, if needed, without disturbing the protective wings of the spread. Increased flexibility. Nice.

The Condor spread is also a variation of the butterfly spread.

Think of it as selling an expensive strangle while buying a cheaper one. The entire position is put on for a net credit.

Because the strategist is selling a strangle, rather than a straddle, the condor spread takes in less credit than the butterfly but has a broader profit range.

The ideal time to put on this spread is when the stock is trading mid-way between strikes.

For example, if a stock were trading at 47.50, the strategist would sell the 50 calls and the 45 puts and buy the 55 calls and the 40 puts.

The maximum profit range would be between the strikes of the options sold, 45 and 50 in this example.

The break-even points would be at 45 minus the credit received and at 50 plus the credit received.

A diagonal spread involves different strike prices and different expiration dates in which the options held long have a later maturity than the options held short.

It is a conservative strategy with limited risk and considerable profit potential.

If the spread is put on for a debit, that is the maximum risk and the possibility exists for writing options more than once against the same long leg.

If the spread is put on for a credit, the maximum risk is the difference between strikes less the credit received.

The advantage of owning options that are still "alive" after the shorter term options expire worthless, or at least closed out for a profit, means that the strategist then owns the remaining options at a substantially reduced cost, or possibly even for free.

If the diagonal spread was originally put on for a credit and the short options expire worthless, the strategist makes money no matter what happens after that; sometimes a whole lot of money. It can be like hitting the lottery or winning the Kentucky Derby!

Can you see why professional option traders love the diagonal spread? Especially, when put on for a credit? Heads they win big, tails they win small; but they still win, no matter what.

It just doesn't get any better than that.

Markets are trading with little sense of direction at this time as we wait for the second quarter earnings that will begin with General Electric (GE) next Friday.

After showing some recent improvement in market breadth, the bias remains neutral. Trading volume continues to be lackluster due to the summer and apprehension to take new positions.

The markets have shown some oversold buying over the past eight days but the upside has not been sustainable.

Markets will not be able to sustain any upside break unless we see the technical metrics improve.

Market sentiment remains quite weak. Take a look at the new high-new low ratio (NHNL). On the NYSE, we have not seen a bullish 70% reading since back on June 2 and May 9. In the technology sector, there have only been two readings at above 70% since May 10. Unless sentiment improves, the near-term upside will be limited.

Given the recent 10% plus correction on the NASDAQ and Russell 2000, there have been some decent opportunities to trade stocks. But if you are the worrisome type, you should stay out. This market is not for heroes. You do not have to sacrifice capital.

Risk adverse investors or traders may want to sidestep this market for now until we see some strengthening in the technical metrics.

But if you don’t mind assuming some risk, I believe there are some decent risk-to-reward trades out there given that stocks have sold off to levels that are more attractive.

Over the next several weeks with the end of the second quarter approaching, the market will turn its attention to quarterly earnings. For this market to jumpstart itself, we need to see strong quarterly results. If not, stocks may continue to edge lower.

The price chart below shows daily SPX (green line and right scale), daily NYSE Summation Index (NYSI; red line and left scale), and the NYSE Oscillator (NYMO) 50-day MA (blue line). Normally, when both NYSI and the NYMO 50-day MA rise, SPX also rises. Moreover, both NYSI and the NYMO 50-day MA fell to low enough levels recently to create an SPX intermediate-term bottom. Also, above the price chart is the CBOE Put/Call (CPC) 21-day MA and below the price chart is the CPC 50-day MA. Typically, a falling CPC 21-day MA is market bullish. Both the CPC 21 & 50 day MAs reached all-time highs recently, which are bullish, since CPC is a contrarian indicator.

Although these intermediate-term technical indicators are bullish, it doesn't mean SPX will rise sharply. A volatile trading range may take place instead, until these indicators reach market neutral or bearish levels. At that point, the downtrend may resume. The indicators suggest SPX will not test the June low at 1,219 near term. However, a rise above 1,290 would be bullish to test the 1,326 high. SPX closed at roughly 1,265 Friday. Major resistance levels are 1,290 (downtrend high), and 1,280 (top of recent congestion area). Major support levels are 1,263 (slightly rising 200-day MA), 1,258 (top of prior congestion area), 1,253 (multi-year Fibonacci level), and 1,246 (previous support & resistance).

Chart available at PeakTrader.com Forum Index Market Forecast category.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

The stock market has fascinated people all through the years. Many have made fortunes, others have lost them investing and trading on the stock market. But what constitutes the stock market and how does it work?

Many countries have their own stock exchanges where one can buy and sell shares for company stocks, options and bonds that trade in that particular market. The US stock market is the most volatile of them all, where traders and brokers perform millions of transactions every day. The most common exchanges in the US stock market are the New York Stock Exchange, Nasdaq and the American Stock Exchange.

The Price
The stock market is a place where people, either on behalf of their clients, their organizations, or themselves, bid to buy a number of shares of a particular stock at a specific price. On the other side, another set of people asking to sell the same stock for a different price. These are technically called the ‘bid’ and the ‘ask’ price. When a price from the bidding side agrees with a price from the asking price, a trade is performed. In heavy volume transaction stocks, the difference between the ‘bid’ and the ‘ask’ price is marginal.

Why does the stock market fluctuate?
The answer to this is the variation between the supply and demand of the stock in question. In simple terms, when a particular stock is demanded heavily and the supply is short, the share price for the stock goes up since people are ready to buy that stock with a higher price than the current price, and people who want to sell are ready to wait and sell at higher prices.

When the reverse happens, people want to get rid of the stock but there are not enough people ready to meet the selling volume on the other side. As a result of this, the price goes down since people are willing to sell the stock at lower prices than the current price, and people who want to buy are ready to wait for the stock to go lower. The volume and quantity by which this happens relies heavily on the number of shares demanded against the number of shares supplied and the level of aggressiveness buyers and sellers (also known as bulls and bears) are buying and selling their stocks.

Shares Ownership
Once a number of shares are owned, as a result of a stock market transaction, these shares can be kept for a specified amount of time. This time can be years, months, weeks, days or even minutes. This depends on whether the shares have been bought for a long term investment (years and months), short term investment (weeks and days), or as a trading scalp, which normally lasts for hours, minutes, and sometimes even just a few seconds.

When entering the stock market, the first question one needs to ask is whether he/she wants to be an investor or a trader. This depends on whether one is looking for a long-term commitment or a short one. While investing in the stock market can be controlled quite easily, requiring only limited amount of knowledge, trading, on the other hand, is quite a different ball game requiring much more knowledge and skill to perform and master.

When you write for an investing site, you see them all the time. You hear from the subscribers who are looking for that one stock pick they can invest their $500 in that is going to make them rich. Or ones who say they have a foolproof investing system, only to find that their method only works when the market is bullish. Notice there aren't as many day trading or investing systems as there were back in the late 1990's?

What you never see enough of though are investors who have an investment plan. A clear set of rules dictating when they will buy, how long they will hold, and where their stop loss is. This is what separates the successful investors from the rest. The cost of this investment strategy? A few minutes!

Its not difficult to get caught up in the emotion of investing in the stock market. The joys of when our research pays off with a profit, and the anguish and despair when we have to go against our own logic, and place that sell order. We've all been there. Unfortunately, we've done that a lot.

Its key to remember that the best investing strategy is capital preservation. While it makes sense when you read it, how many times have you watched a $200 loss turn into a $500 loss just because you thought for sure it would move higher? How many times have you turned that $500 loss into something worse?

A 50% loss means you need to make a 100% gain just to break even. While the world of investing in penny stocks provides opportunities, not many of them will give you a 100%. In the world of medium to large caps, it takes a long time with a successful company to get that 100% return.

QUit turning your small losses into larger losses.

Lets look at what you should include in your investment plan:

a) Starting capital. Its key to know how much capital you are putting at risk today. Its possible that you may invest in a company, only to learn later on that day that its shares are being delisted. Just because you invest $10 000 at the start of the day, doesn't mean you will go home with that same amount. You need to set an amount that you are comfortable with. Capital preservation.

b) How much money are you prepared to lose per trade. Good traders ask themselves this question before they trade. If you are prepared to lose $500 today, establishing where to set your stop loss becomes easier.

c) Where is your stop loss? Are you basing your stop loss on share price? Are you basing your stop loss on the amount you are prepared to lose today? Are you basing your stop loss on a percentage of the trade or a percentage of your trading capital? What is your plan for a trailing stop loss?

d) Entry - where are you entering the trade? Is it based on a price? Are you trying to time the bottom? Are you placing a stop buy to take advantage of momentum? Was there news this morning?

d) How'd you sleep last night? If you are having one of those days where you wish you just stayed at home, then you should turn off the computer. Emotions will be running high, and you will make trading decisions based strictly on emotion, not your investment plan.

e) Duration of the trade. How long are you willing to stay in? If you are making a day trade, make it a day trade. Don't justify holding a position for the long term if the stock doesnt move in the direction you want it to.

There's the best investment advice that anyone can offer you. And it didnt cost you anything, but may save you thousands of dollars.

Load is defined as the fee or the commission that an investor pays to a mutual fund at the time of purchasing or redeeming the shares of the mutual fund.

If the commission is charged when the investor buys the shares, it is known as a front-end load. On the other hand if the commission is charged when the investors redeems his shares, it is known as a back-end load.

Certain funds apply back-end loads only if the shares are redeemed within a specific time period after being bought.

The argument for applying loads on mutual fund transactions is that these loads will discourage investors from trading frequently in mutual funds. If the investors quickly move in and out of mutual funds, the funds have to maintain a high cash position to meet these redemptions, which in turn decreases the returns of the funds. Also frequent trading means the expenses of the mutual funds go up.

There are various arguments against load funds:

-The fees that the mutual funds collect as loads are passed on to the fund brokers. The loads do not provide any incentive for the fund manager for better performance of the funds. In other words, a load fund has no reason why its managers should perform better than those of no-load funds.

-In the last few decades, no difference has been seen in the returns of load and no-load funds (if the loads are not considered.) When the loads are considered, the investors of load funds have actually gained less than the investors of no-load funds.

-When a sales person knows that he is going to get a commission from a load fund, he tends to push the load fund more - even when the load funds are performing poorly as compared to no-load funds.

-Loads are understated by mutual funds. If an investor invests $1000 in a fund with 5% front-end load, the actual investment is only $950. Thus his actual load is $50 in $950 investment - a 5.26% load.

If an investor is already invested in a load fund, it doesn’t make sense to exit now. The load has already been paid for. The hold or sell decision should now only be based on what the investor thinks about the future performance of the fund. In a few funds, the exit load depends on the period for which the fund was held.Check the details of the fund prospectus for more information.

In most cases it is better to avoid load funds; however, investors should keep one thing in mind. Sometimes load funds can be a better choice than no-load funds. For example, an investor has a choice of two classes in a fund - class A and class B. Class A has 3% front-end load and Class B has no load. The investor however misses the fine print, which states that Class B has 1% 12b-1 annual fees.

Dutch auction is descending price auction where the bidding process is used to find an optimal market price at which the issuing company can sell its shares. It is in complete contrast to the traditional method of the price range set by the underwriters and people can only bid in between that range.

How the process works

Taking a simplified example, I will try to explain how the whole process works. Like the traditional underwriter method the company appoints underwriter for their issue.

The applicant first has to open an account with the underwriter before the process starts.

Next the applicant will receive all the information provided by the company in form of prospectus and other documents.

After getting prospectus ahead of auction the bidder must obtain a unique ID. These ID’s can’t be given once the bidding process starts.

Once the applicant qualifies, he or she can make a bid for the number of shares they want and at price they want. The price in Dutch auction is not range bound and one can quote above or below the range speculating that the demand may be lower or higher. The important issue here is that all the bids are confidential.

The final IPO price will be determined once the auction is closed. The underwriters will then calculate the cut off price. The people who bid above the cut off price will get shares.

How is this Cut–Off Price Determined

Suppose the company is willing to issue 1000 shares in the market and it received bids for 100000 shares. The break-up of 100,000 shares is as follows

A $1000 - 100 shares - 900 shares left

B $100 - 700 shares - 200 shares left

C $50 - 200 shares - 0 shares left

D $ 49.95 - 10000 shares

E $48 - 89000 shares

As we can see the company has only 1000 shares so they will go to A,B,C and D&E won’t have any shares. The cut-off price or the IPO opening price in stock market will be $50.

It may seem so unfair to A as he gets shares at such a high price but this very aspect of the process keeps away the speculators in opening trades and thus avoids the kind of Pop-ups we had during the dotcom burst in late nineties.

Investing in penny stocks is all about defining the rules and playing by them as all of the big time investors have before you.

Big time stock traders and investors have played by the rules and started out small, or even very small, swearing by a defined set of rules that basically state they will not continue any cycle of failing that loses them money, over and over.

Losing money instead of learning these rules is something that is unacceptable and potentially crippling to a new investor - even though your brain is trying to tell you that "Heck, it doesn't matter, they're only Penny Stocks after all!" (Damn you brain!!)

However, follow a few simple rules and you should be ahead of the penny stock investing game.

Number One and MOST important - Never, ever, under any circumstance borrow money to invest; this is possibly the biggest rule to stay out of investment trouble.

Yes, I know! You think you have the upper hand with some “inside” information that could help you build a huge portfolio in no time!

So have thousands of others before you - and they were all WRONG!

Please, don’t jump on a story with the only answer being borrowing money. If you start to lose money on the stock market, then the debt repayment will come directly out of your pocket. If this happens, trust me - you are now in big trouble.

Even if you begin to make money then you will be spending it to repay the loan instead of saving or reinvesting the funds.

This money will stand by and haunt you as you continue to try to make a living off of the stocks you are trading.

Always save up to be able to invest as a rule of thumb, debt will be chased until you finally catch up by being farther behind than you were to begin with.

DON'T DO IT!

Investing in profitable companies is a big rule to keep in mind when investing in penny stocks. I know that reads and sounds awfully silly and a waste of breath but believe me - sometimes people simply invest in a company without determining if the company is profitable or not.

Either they like the name itself - or the product / service the company offers - or even they know a cousin of the manager of the typing pool and reckon it's keeping it in the family!

Don’t be the sucker that buys a stock and then tunes in to the television or logs on to the internet to see that its quarterly earnings are down and its revenue per share is dropping like a four-ton boulder of the Empire State building - very hard and very fast!).

Find information on how to find a profitable company, it is readily available on the internet, and then determine which company to invest in. Guides for how to evaluate companies, their accounts declarations and markets are readily available.

Also, do all of your homework, research and analysis before you buy a stock that is not garnering any type of attention.

One of the most important things for investors to look at is volume, anything less than one million shares per day is not worth touching. It is a pointless task to purchase a stock that is trading 9,000 shares a day because it will be nearly impossible to sell once you are ready to do so.

Stocks need attention to have liquidity, which basically means that for it to sell it must have value. Don’t be stuck with a rising stock that you will be unable to sell later. Don't just think of all the lovely profit you'll generate - think about the mechanics of actually being able to realise that profit. After all - so what if you've made $1.20 per share in three months - if you can't actually sell them!

Probability is very relevant to trading, and one of the main things I look for when entering trades for example, is to have a high probability of having a profitable trade. In other words, because all of my conditions have been met, I enter the trade with confidence knowing there is a fair chance of the trade resulting in a profit. As we know, there are never any certainties.

Probability has its place in money management too, specifically position sizing.

Let’s set the scene. Perhaps we have a trading method that results in half of our trades being profits and the other half being losses or close to breakeven. We start with $10000 and after a few losses, our trading capital has lessened to $9400. (3 x $200 losses in successive trades).

Now, we begin to think that we are behind and need to make up the deficit so we can move forward and begin to make money. As each losing trade passes however, the money we need to make to get back to breakeven (back to the initial $10000) increases and we have less and less capital to do it with, which places pressure on us to perform.

The trap we can fall into is to increase our trade size on the back of successive losses. In the back of our mind are desperation, and the thought that we need to have a massive winner trade soon to get back on track.

Here is where probability enters the scene. As each losing trade passes, we can easily think that the chance of the next trade being a profit increases significantly. It is too easy to think this and with this in the back of our mind, we can be tempted to increase our trade size to get back to break even quickly because the chance of the next trade being another loss is not great.

Let’s explain this scenario with some numbers. The probability of an event is generally represented as a real number between 0 and 1, inclusive. An impossible event has a probability of exactly 0, and a certain event has a probability of 1.

As we have a proven method that is profitable in half of the trades, the probability of having a profitable trade is 0.5. The most common analogy used with a probability of 0.5 is that of tossing a coin. When we toss a coin, the probability that it will land heads up on any given coin toss is 0.5 or 50%, and the same of landing tails. So if we toss the coin 10 times, we would expect that the result will be 5 heads and 5 tails. There is however, no guarantee that this will occur. It is possible for example, to result in 10 heads in a row. The key here however, is that each coin toss is independent. In other words, the outcome of the next toss is unaffected by previous coin tosses, as the coin has no memory retention.

Let's assume I am now tossing a coin. We toss the coin once and it result in heads. For the second coin toss, the probability that heads will come up again remains at 0.5. The second toss now results in another head – that’s two heads in a row. For the third toss, the probability that heads will come up again still remains at 0.5. Guess what? The third toss was also a head – that’s three in a row. Do you know what the probability of the fourth coin toss being a head is? It remains the same probability as a tail coming up.

This scenario is applicable in trading.

If you have had 3 losses in a row, the probability that you are going to have a profitable trade doesn’t automatically shift in your favour. Nor does it continue to shift as each losing trading passes. We like to think it does, but it doesn’t. Perhaps we think, “The next trade HAS to be a winner!” Like the coin, the market has no memory retention and doesn’t keep track of your previous trades, in order to influence the outcome of future trades.

The key message here is that don’t increase your trade size according to these unfounded thoughts. This is a sure recipe for disaster. After a few losses, your trade size should be decreased slightly to reflect your diminished trading capital, even though you don't want to.

Stuart McPhee is recognized as a leading trading coach and expert when it comes to developing solid and profitable trading plans.

In trading the stock market, no-one has a crystal ball. The price of stocks can go down, as well as up. What is needed is an exit strategy that will enable you to survive the bad stocks, and make a good profit on the good stocks. The method that I have found to work the best is a trailing stop loss. For those who don’t know what a stop loss is, I shall explain briefly. A stop loss is an order for your stock broker to sell your shares if the price dips to the level that you have specified.

There are two ways of doing this. The simplest method is to decide on how much you are willing to lose as a percentage of your investment. A good rule is not to go less than 10%. Work out the price of the stock at this level and set that as your stop loss. As the price of the stock increases, keep moving the level of the stop up to keep the percentage gap the same. Some brokers offer a trailing stop loss service, where you tell them what percentage to set the loss at and they do it for you.

The second method is slightly more complicated, and comes from “Nicolas Darvas” in his book “How I made $2,000,000 in the Stock Market”. The markets tend to flow in stages. a stock on the rise will reach a peak, and then dip back down. It may do this several times at each stage. The idea is to follow the chart of the stock and see where the dips are the lowest, and set the stop loss just below them. A second part which Nicolas propounds is that when the stock breaks out of the sideways trend, to buy more of the stock, and when the stock starts going sideways again to move the stop loss up again to just below the lowest part of the dip.

Using the stop loss as an exit strategy, only works if you stick to it, and not lower it, thinking that the price will go up again in a few days. In a few cases you will be right, but what usually happens is the price keeps moving against you, and you loose even more money. As a secondary to this, the money still tied up in the first stock that is falling can’t be used on another trade.

With the boom in numbers of people accessing the internet everyday, is it any surprise that they'd be looking to be able to trade stocks and invest online?

Nope, not really!

Because of this demand, the number of and quality of internet based trading companies has grown, providing stock trading solutions with more efficient, secure, and manageable applications.

Now this is the reason for the popularity of online stock investing; anybody can open an account with a stocks or funds trading company and easily and quickly arrange for a trade commission based on the volume and amount of trades.

Once all of the online paperwork is finished (it isn't a huge amount really) and you feel comfortable with how the online trading system works then, well, off you go trading.

Now, even if you're an old hand and a veteran - and especially if you aren't! - reading the online technical and fundamental research analysis really is a must. T.he online companies have teams of qualified and experienced research analysts who check reports, follow the latest news, trends and forecasts and who are experienced enough to give advice - direct to you over your computer

The differences between traditional investing - when you'd call up your tame stockbroker, discuss the info he had on the company or companies of interest and then buy,buy,buy and ordering the stocks, buying and selling them purely online - is something you should make yourself familiar with in a hurry.

The more traditional investing method gave you a personal contact inside the game, almost like a comforter. How can you get that same feeling from sitting in front of your computer in your kitchen or study though?

Investing online isn’t completely without the traditional personal contact that the investor was familiar with though.

Personal advice is always possible through private message boards and the like. This personal contact can recommend companies and stocks in which the investor should consider.

But be warned - never buy solely on a "hot tip" you heard from 'good old Tim' in the forum!

Never!

Listen to the tip and make note of the details, certainly. But do your OWN RESEARCH before shelling out thousands of dollars only to find them plummet and vanish from trace. (That's when you find out that gold old Tim is 13 years old and his mum and dad have been meaning to put restrictions on the internet access on his computer for ages!!)

You've been warned!

Now you must choose what companies or stocks to invest in instead of getting full decisions made by companies or brokers.

Reading articles created by the internet investment companies can give the investor information about the field and products available. Don’t simply read anything you can get your hands on about investments on the internet, read what is published by the established companies that you are paying to make your dollar. Find credibility, and then find information.

The first time online investor should plan well for their first excursion into investing on the internet.

Gain as much knowledge as possible on how the online trading system works and just how small or large you plan to start.

Starting with a small investment to understand the way the system works is smart for any first time investor, don’t lose everything before finding out if it is right for you or not.

Don’t put all your investment eggs in one basket, your savings are there from hard work and dedication, don’t blow it on hope and a pipe dream of being as rich as Bill Gates.

In numerous traders clubs and forums, you will often find people who routinely disclose what positions they have and why. Often, the intentions of these people are innocent in that they want to help others to discover an approach that is going to work for them. They want to teach the recipients and empower them to learn more about trading. Sometimes, the person disclosing the information may have other intentions however there is always the chance that this could have a detrimental effect on the person disclosing the information.

They need to be careful that they don’t start believing too much in their position just because they have disclosed it to others.

At the best of times, taking losses can be difficult. It is probably the most single identifiable reason why traders fail. Taking a loss means that you must accept that you got the trade wrong and this can be difficult for a lot of people. Now that you have disclosed your trade to a group of people, it can make it even harder to accept that you were wrong and therefore close the trade when you should. Advocating the trade to others instills in you the positives of the trade and these may eventually subconsciously influence your decision to not exit the trade.

Traders should avoid discussing their open positions and their opinion on various potential trades because it may affect their objectivity when in that position themselves and make it harder to take a loss, even when that is their best course of action.

Confident traders rely on their own methodology and not what others are saying.

If you make a habit of discussing your open trades, there is a chance it will end up costing you money, especially if you repeat your opinions often enough, in that you might actually start believing what you are saying.

The same goes with tips. A common rule is to not give nor listen to tips. A trap that you can easily fall into with a tip, can occur when your position starts to move against you. You are more inclined to break the rules and not cut your loss because of the ‘reliable’ information you have heard about the security’s future. Have confidence in your own approach and never worry about tips of any nature regardless of whom they are from.

When you give a tip, and the position moves against you, it is possible to feel some obligation to stay in the trade because of the relationship you have with the person you gave the tip to. It is unlikely that you could face up to the person one week after the position was entered, and tell them that the tip is no good and they should exit.

In his book ‘Reminiscences of a Stock Operator’ (a fictionalised biography of one of the greatest market speculators, Jesse Livermore), Edwin Lefevre mentions how destructive tips can be to one’s trading. This is coming from a book that was first published in 1923 and is one of the most highly regarded financial books ever written. Back in 1923, tips were considered disastrous, so there is no reason to think that they are different today.

Trust yourself and have confidence in your own methodology.