Iron Condors, Why Most Traders fail

Iron condors give you a great way to make money in a sideways market.  Yet most new traders who attempt to trade it wind up broke.

The reason?  Most people tend to just place the order and then forget about it.  It isn’t hard to do with an iron condor, if you are right 80% of the time and the options just expire it doesn’t seem like you need to check on the position that often.

This can lead to huge losses because when it does turn against you, and it will you will probably lose your shirt trading it.  That is why the average new trader lasts until their first big loss when trading condors.

Even if you are right 80% of the time you can still lose money if the risk to reward ratio is bad enough.  The only way to get around this problem is to limit your losses as much as you possibly can while still letting room for the stock to move.

So what does that mean?  Well whenever you enter an iron condor trade, think about how much you are willing to lose on that single trade.  Once you do cut your losses there and don’t let them get any bigger.  For instance if you are risking $4.5 to make $.50 obviously you want to cut your losses before they get to $4.5.

Instead pick a spot that you would feel comfortable getting out at.  So if you lose say $.75 on this trade then you will just close the position and move on.  This way your losses are much smaller than they would normally be if you had just let it ride.

Taking smaller losses is one of the keys to becoming a successful trader, and in fact it is the first thing you should think about when creating your trading plan.

For more information on iron condors visit http://www.stocks-simplified.com/iron_condor.html