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Trading Options For Dummies, 2nd Edition by Joe Duarte

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Chapter 7

Practicing Before You Swing

In This Chapter

arrow Understanding option price changes

arrow Practicing by paper trading

arrow Testing an approach

arrow Gaining strategy mastery

Baseball players take a few practice swings before they step up to the plate. What’s at stake for them might be a base hit, but when you trade, your game is all about money. So, it makes sense to try some practice trading (called paper trading) before you put real money on the line. Thus, even if you’re excited about trying new trading strategies, be careful before pulling the real money trigger. Before you trade in real terms, be prepared.

Here are three critical steps to take before using a new strategy in the market:

  • Understand the security’s risks and rewards
  • Practice strategies
  • Analyze a trade

This chapter is different than previous ones because it takes the leap from “learning” and “analyzing” to trading, even though it’s about paper trading. You are transitioning from concept to action.

There are two important steps. First, by monitoring different option pricing components and paper trading, you simulate ...

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