Profit and loss and the successful trader
To be a truly successful stock market trader, requires an ability to consistently make greater amounts of profits than losses through a series of trades over a length of time. The ratio of wins to losses is not as important as the amounts of profits that can be consistently achieved compared with the total losses that occur. To be successful requires the ability to correctly forecast, a sufficient number of times, the direction in which the price of stocks will move, whether up or down, and to take the appropriate trading position that can derive financial benefit from those anticipated stock price movements.

When you can successfully forecast the future movement of most of the stocks you examine, there are several ways to trade and take advantage of the price movements of those stocks. You might call them trading strategies, ways of trading that entail varying amounts of risk and potential gain to compensate for that risk.

Knowing that not every stock selection will be a winner, sometimes for reasons not directly connected with the individual stocks, a successful trading strategy must have established guidelines on actions to take that can minimize risk and preserve trading capital if and when the inevitable unforeseeable losses occur. Therein lies the art of survival in the trading arena, a very unforgiving and costly environment for the unprepared.

This article is important, it discusses stock options basics information for beginning traders or aspiring traders, information which is often neglected by many because they may have heard a common refrain that “options are risky” — or are “complicated”. Learn about options trading first and then let knowledge and experience guide you on whether that is an accurate description of options and options trading.

For most stocks that trade on the major stock exchanges, there is also an active market in the trading of related options that convey the right to buy or sell those stocks, usually referred to as the underlying stock, at a specified price and within a specified period of time. While that right to buy or sell the stocks exists, it is rarely exercised, options are used for trading the options only, in and of themselves.

Options are traded through a broker in the same way as stocks and other than understanding the basic principles, it is not really essential to know much more.

However, our next few articles on this site will provide a standard definition and some other details on stock options basics and strategies that may be of interest, together with suitable examples of comparative results, and some suggestions of option plays that can be followed, in real-time trading as it unfolds, by visitors to this Stock Market Basics website. We will do that by paper-trading to compare the results of buying shares of a few selected stocks versus buying options for those stocks — we have done that in the past on this website and shown some very profitable paper-trading results.

For the purposes of the stock market trader, an stock option is just another financial vehicle to trade, something connected with a stock to buy or to sell with the intention and expectation of making money on the transaction if the stock performs as expected.

Related posts:

  1. The First Time Trader — How Much Money is Needed to Start?
  2. Stock Market Software, an Essential Tool for Stock Market Research
  3. Stock Market Strategies
  4. About Stock Market Courses and Learning How to Trade Stocks
  5. Read to Learn: The Stock Market for Dummies Books and Other Titles that Provide the Basics
  6. Introducing Stock Market Basics as it Relates to the Beginning Trader
  7. Let the Simulated Trades Begin, the Next Step in Learning Stock Market Basics

Filed under: Stock Market Basics

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