Most professional traders employ some form of downside protection. And it’s even more important for beginner traders to know risk management techniques to hedge their positions against losses caused by their long positions turning against them.
But the biggest issue in this situation is figuring out how much downside protection should be in place given the risk and potential return on the trade.
I find that sometimes put options work best...
But from a practical perspective, the position doesn’t always make sense because the option may have low liquidity, the spread may be too wide or the option that fits my requirements just doesn’t give me enough risk protection or time value.
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A Stochastic Oscillator is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period, or by taking a moving average of the result. It is used to generate overbought and oversold trading signals, utilizing a 0-100 bounded range of values.
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Disclaimer: *Stated results are typical for given period. Past performance is not indicative of any future results. Trade at your own risk.
**Stated results are atypical for given period. Past performance is not indicative of any future results. Trade at your own risk.
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