Making Money in Sideways Markets

Sideways markets are always harder to trade then trending markets.  Trying to hit every swing can be difficult for a trader.  Instead of trying to predict the movements you can make money in a sideways market by using a strategy called an iron condor.

This is how it works.  Say a stock is moving between $400 and $550.  That is a very wide range that the stock seems to be staying within.  Instead of trying to trade this we can simply, sell far out of the money options.

Now say we buy the $390 put for $2 and sell the $400 put for $2.5.  We also buy the $560 call for $1 and sell the $550 call for $1.5.  We would make a total profit of $1 and all we need the stock to do is to stay between $400 and $550 by the time the options expire.

I’m sure you can imagine the real benefit to the iron condor strategy.  If you are just asking the stock to stay between wide ranges you are going to be right a lot.  You also can make a good return on your money doing this.

Despite this however there is one serious drawback.  You are often risking a lot of money to make a smaller amount of money.  This strategy can lead to a nice monthly income when it is used correctly, but it can also lead to huge losses.

To prevent this you must limit your losses.  All stock trading strategies have 1 thing in common, you can either focus on limiting your losses, or you can lose your shirt.   The iron condor even with its large success rate is no acceptation.

Before you enter a trade you should have a set amount of money that you are willing to lose.  For example if you are attempting to make $1 then you might want to exit the trade if you lose $1.5 or more.

Controlling your risk can stop you from experiencing severe losses in your account.

To learn more about the iron condor visit http://www.stocks-simplified.com/iron_condor.html