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Stocks and Shares in Dubai UAE : How To Profitably Combine Stock Option Trading With Momentum Stocks

Stocks and Shares in Dubai UAE : How To Profitably Combine Stock Option Trading With Momentum Stocks. Dubai Stock Exchange : Stocks and Shares Trading in Dubai UAE. Invest Money in stocks and shares. How can I trade on the Dubai stock exchange? Can I invest in Dubai Stock Exchange? How do I buy shares? How do I start a trading account? How do I start investing in stocks with little money? How can I be successful in trading in Dubai UAE? How to Invest in UAE Stock Market.

Momentum stocks have been proven to be the strongest stocks that lead the stock market to new highs while proving themselves to solid growth stocks in any investment portfolio. It is now uncommon to have 50% to 500% gains in any given stock that proves it is a market leader. Stock option trading has also proven itself a profitable investment in any portfolio that allows even the average investor superior leverage and risk control. In this article I am going to show you how to scan for the strongest momentum stocks, how to spot momentum stocks with the potential to explode into huge bull runs, why you should consider stock option trading when taking a position in a momentum stock making an up move, and what advantages you have when trading stock options on a stock rather than the stock itself.

Using any stock scanning feature on MSN or Yahoo Finance you can scan the universe of stocks for viable momentum stocks. You must select stocks based on consecutive earnings growth of 25% or greater, ROE (return on equity) of 17% or greater, annual earnings growth of 25% over the last three years, minimum daily volume of 100,000, price trading at or near a 52 week high, and a leadership role in the market. While all of these fundamentals can be quantified by data the last characteristic of having a leadership role in the market needs to be clarified and expanded on. A potential stock investment for momentum based trading needs to have a special product, solve a complex problem for business or the public, or have a “unique selling position”. For example, Baidu.Com solved the internet demand for China, Microsoft in its heyday served public demand for software solutions, and Apple Computer positioned itself to be an upscale boutique computer company with huge inroads to the online music market.

Determining which stocks are set to explode in share price is done by using simple price pattern recognition within the stock’s price movement. These include looking for price gaps in the direction of the trend, new highs in price, strong closes in the daily price bars where price closes in the upper 25% of the day’s range, and watching for thrusts or wide range bars that are twice the range of the previous five day’s range. All of these patterns show strength in the direction of the trend so take note of how many times you locate these price patterns over a period of weeks and they will give you an indication of a potential breakout to the upside.

Once you’ve created a list of potential momentum stock candidates then it’s a good time to consider stock option trading if the stocks begin to breakout to the upside. As stocks begin to explode forward usually out of a price base pattern then you can take positions in call options as they surge to a new high. By using options over stocks you can take advantage of the huge leverage that options offer. Each stock option controls 100 shares of stock versus buying the stock you are then limited to how much capital you can spare. For example, if you buy the stock on ABC company which is trading at $70 and you buy 100 shares you must have $3500 and buy the balance on margin for a total investment of $7,000. If the shares explode upwards to $80 a share and you sell at that price you net around $700 for a 20% gain on capital invested.

However, if buy call options on ABC while it is trading at $70 a share, you pay a small premium say around $700 to control 100 shares of stock. If ABC also explodes in price to $80 a share and you sell your option then you could conceivable net around $700 for a return of 100%! Now, options have a limited time period before they expire and your timing must be excellent which is why momentum stocks are the best choice in my opinion. When they make a move it is usually rapid and can be exploited for less risk with stock options because the most you can lose is the original premium ($700).

You can also “roll-over” your option position as the stock begins to move in your favor to lock in profits and lower your risk even more. Stock options come in at different strike prices where they are bid upon. If you were to buy the $70 call option in the above example then when the stock reaches $80 a share you could sell it and then buy rolling over to the next strike price at the $80 call option. This is allows you to lock part of your gains and still stay with the trend while controlling your risk the whole way because the most you can lose with stock options is your original cost of buying the premium.

By combining these two strategies I hope you can understand some of the raw potential of potential superior returns. It takes some skill and knowledge but if you spend the time mastering some of these concepts and develop a good trading strategy then by using a small portion of your risk capital you can conceivable enhance your returns. Spend some time selecting strong stocks, watching their price action for some of the patterns in this article, and then learn how to time your entries with stock options and you put yourself in the position to bag a big winner during the next high-flying bull run!

Copyright 2007 Billy Williams

Stocks and Shares in Dubai UAE
Stocks and Shares in Dubai UAE

Stocks and Shares in Dubai UAE : How To Profitably Combine Stock Option Trading With Momentum Stocks. Dubai Stock Exchange : Stocks and Shares Trading in Dubai UAE. Invest Money in stocks and shares. How can I trade on the Dubai stock exchange? Can I invest in Dubai Stock Exchange? How do I buy shares? How do I start a trading account? How do I start investing in stocks with little money? How can I be successful in trading in Dubai UAE? How to Invest in UAE Stock Market.

There is a lot of money to be made from stocks and shares but the only hitch is nobody knows a sure fire way of a method. Let us now see some of the basics of stocks and shares. You can earn money in two ways by investing in stocks and shares. One is trading and the other is investing. Buying and selling stocks, shares, futures and options over a short period of time is known as trading. If you buy shares, stocks, futures and options and retain them for a longer period of time then it is known as investing.

When it comes to searching for the best stocks and shares prices, you will want to do some research. Prices vary greatly for many reasons. It will depend on the company, the amount available, why they are up, and any other fees associates with making the investment or trade. One of the most important things to keep in mind when you are going to get into stock and share trading is that it is for real and it is for keeps. This is real money you are playing with when dealing with stocks and share, your money.

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