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Hi I suppose this could relate to all derivatives but I'm particularly interested in equity options. Can someone answer this question. I have always been baffled as to why one would price derivatives using binomial or Black Scholes models for derivative pricing. I am assuming it is so one can work out the price of the option and only trade that option when the market price (separate from the calculated price using Black Scholes or whatever) falls below the calculated price using a derivatives pricing model? Is this a correct assumption or am I completely on the wrong track? Thanks
Good Morning All; Many traders who study our methods learn in a fairly quick time how to trade properly. Most are taken aback by the ease and beauty of the method. If problems arise, it usually is due to not following some rules, and often the top rule to be broken is an improper entry. This entry is often due to not having patience, or not having a well-laid plan to remind you what to do. Here are a few basic reminders. The Best Time to Enter There are a few concepts that seem very basic, but often get lost in the day-to-day noise that can often cloud your judgment. Just taking a few minutes every day and a few seconds before planning every trade can often help keep you out of trouble. If you are core trading or swing trading, you need to ask if it is the best time to enter trades. Are you entering swing trades during the first 5 minutes, when the market really has no direction on the daily charts? The majority of stocks will get most of their move from the market in general, and the sector they are in. Are you fighting the main move of the market or the sector when you are entering? There are many times that longer-term trades should wait until the market is in the proper trend. When the market is in a major uptrend or downtrend most money can be made by taking stocks for the big moves with a long-term account; sideways or trendless times in the market are better for playing the range provided. If you are entering intraday trades, are you accounting for reversal times? Are you following your trading plan in terms of what strategies to play at what times of the day? Your trading plan should do everything possible to keep you out of trades. Are you trying to enter late day break outs during lunch? Are you going long at the 10:30 A.M. reversal time after a strong rally because you are afraid to miss the longs? Closing Comments Set realistic targets for the market you are in and make sure your stops make sense for the target projected, or pass the trade. Do not worry about missing plays. Worry about playing quality and preserving capital on days and times when the market is not in the same mode you want to be in. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.