Navigating Effective Strategies For Future & Option Trading

If you are a veteran in the field of trading war and want to maximize your portfolio to its full potential, future & options trading is the convenient way to do that because they are helpful for hedging and speculating. It is the best way to increase your profit potential while minimizing the risk factors; even if someone is a novice trader looking for the best options for investment in the share market, the F&O trading technique is the ideal approach towards that.

Let us first understand why it is crucial to focus on robust strategies before we invest in shares for futures & options trading.

  • To manage risks effectively: To mitigate risks effectively, well-defined strategies are vital because it allows investors to set clear risk parameters, invest capital wisely and establish stop-loss levels.
  • To remain consistent: Well-planned strategies help investors make calculated decisions without being emotional and impulsive before buying F&O stocks. It gives them the confidence to stay strong-footed and not chase minor market fluctuations while following a disciplined approach.
  • To gain maximum profit: Robust trading strategies are all about making timely decisions based on technical and fundamental analysis. Only then can one identify high-probability trade set-ups and make the most of favorable entry and exit points.

Following are some of the effective strategies for options trading:

  • Long call- is the technique traders use when they are very optimistic about the expected price hike of the underlying assets. When it happens, traders gain profit from those underlying assets without even buying the ownership of those stocks. However, they may lose the entry amount if the option price does not increase above the strike price before expiry.
  • The traders use Short call based on their negative belief of a commodity as they anticipate that the price of a particular commodity will not increase and will remain stagnant because they feel the company is overpriced. In this case, traders can benefit from a steady or declining commodity price without owning it. Risk factors revolve around traders being forced to sell the stocks at a loss if the strike price increases before the expiration.
  • Put option- By buying the put option, traders can earn profit by dropping underlying asset prices before the expiration as they have the liberty of selling the underlying asset rather than be obligated to do so. Traders who don’t want to hold longer on stocks are depleting in value, and it may also be risky sometimes when the price doesn’t fall, and traders usually lose the option price in that case.

Following are some of the strategies for Futures trading:

  • Riding the trend train: As the name suggests, it is all about analyzing historical data and the current market conditions, especially when the market is moving strongly in one direction. Algorithmic trading systems are the best tools to apply this strategy as they enable traders to make the most of trends in the share market online. Possible risks include market reversal and false breakouts.
  • Mean-reversion: This strategy involves narrowing down the market that has diverged considerably from its historical average. They are designed to capture profit from market reversal and can be highly profitable in range-bound or oscillating markets.
  • Breakout strategy: Involves targeting the markets that have broken through a major support or resistance level and are designed to extract profit from significant price movements. Whenever a breakout happens, it creates great momentum for traders by speeding up the asset price movement toward a breakout.

Having discussed some of these strategies, we must learn from our experiences because we will never know which works best for us if we don’t try different approaches. So, whether you believe in trend-following or mean-reversion and breakout, there is a technique for everyone who wants to create wealth through this thrilling online trading platform.