Low Probability Trades

Trading some low probability trades isn’t always a bad thing. It can help you to make a huge return if you are right and you can always manage your risk when you are wrong.

By a low probability trade I am talking about trades that will probably not be profitable. Even so it can be a good idea to take a few of these trades now and then if you consider the following.

1. What You are risking

You don’t want to be risking a lot of money on any one trade. But, this is even more important when you are entering a low probability trade. The amount you risk should be only a small fraction of your account, something that would not affect you that much if you lost it.

2. Does it have a huge Reward

The only reason to consider a low probability trade is of course the possible reward. The reward should be great, for example if you buy an Out of the money option for $.30 you shouldn’t be hoping to sell the option at $.40 later on.

Instead you should be planning on selling it for $3 or more in the future. If you are only going to make a small amount if you are right it might not be worth it to take the risk.

3. Why are you entering the trade

You should still have a reason for entering the trade to begin with other then the option is only trading at $.10. You should still have a reason for buying and a game plan for getting out.

Of course taking such a risky bet isn’t for everyone, but there is no reward without risk of some kind. It isn’t a bad idea to take a high risk high reward trade now and then provided it will not cripple your account if you lose.

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