Since prices on the trading market are hard to predict and can be changed in a blink of an eye, many users are wondering whether it is possible to calculate possibilities. While it may be less simple than working with a stable number, it is still possible, with the help of a professional Forex broker. This article will help you to learn how to calculate your possible profits and avoid losses.
Probability of Profit
Do you know what Probability of Profit or POP is? In short, it is a chance that no matter what, you still receive the $0.01 during the trade. It relates to everything, from the selling and buying options to cutting and rising the stock basis. Here is the major formula for POP with different options:
- POP in selling. When you sell, you have two different variants. You can either sell at strikes with money with the trading stock price or without money for the better price than in trading. Using this basic information, you can understand that there is a 50 percent possibility of success if you continue to only buy or sell. You have to consider the stock price that can be the same, go in favor or against. If you can make money in different ways, the probability of increasing your budget rises significantly. While we sell, we collect the cash that may be used as a buffer to protect your wallet from losses. If the broker’s company-related directly to the POP, they will be able to cut down possible losses as well;
- POP for buying. Buying spreads must be the first thing to consider during the buying process. Professionals strongly advise against buying a naked variant since you don’t limit its cost. Buying spreads meanwhile increases your chances to receive profit. You have a 50 percent possibility here;
- POP and basic cost reduction. You can always add a short call, absolutely for free, to the stock trading. It earns money without delays and does not need any buying power. If you want to increase your chances for success, you can try to sell a call once in 100 shares. You will be able to gather premiums and reduce the basic cost of shares. It will increase your chances up to 50 percent. Don’t forget to do it once in a while if you choose this strategy, since you don’t know when the stock numbers go the very next moment.
Don’t waste all your money on one operation. If you are completely new to trading, there is a chance you will lose profit. It takes time to learn how to act. This is why it is important to stay calm, take small steps, and understand how the market works.
Keep Your Profit Safe
Once you gain money, take some time before you return to the bold steps on the market. Just breathe out and in. Try to keep your head cool and not risk everything you have. If you have already tried trading, you can share your tips in the comments below. Which method is your favorite?
