Our aim with any form of investment is not to overexpose ourselves to high risk games of chance, but to minimise our risks and at the same time retain our profits. You are out on a limb when you trade shares in little known companies. But the form is on the board with "Blue Chips" - established performers. These tried and tested favourites offer opportunities for profit with more peace of mind.

When it comes to the share market, there are dozens of trading strategies out there. Like many people beginning their investing education, you might think firstly to trade shares, that is you would buy and sell the shares outright to make a profit. For many of us though, owning Blue Chip shares is expensive. What if I told you there's a way of trading Blue Chips in an affordable way...

Through Stock Options

When Options Trading your starting capital is considerably less, and you'll understand in a few moments, how money can easily be made whether share prices go up or down. You cannot earn money, or profit from a falling share price when you have bought the shares outright.

Trading Stock Options gives you control over shares. These Options are contracts to buy or sell shares.

• Call options are contracts to buy shares.
• Put options are contracts to sell shares.

Either way, buy or sell, each contract stipulates an agreed price and an expiry date.

Owning a share is more expensive than owning an Option over that same share. For example, a share might cost $15 to own, whereas $1.50 could buy an option to buy or sell that same share.

One option contract typically relates to a parcel of 1,000 shares n the Australian market, and 100 shares on the U.S market. So in the previous example on the Australian market, control over $15,000 worth of shares would have an Option cost of only $1,500 (plus broker's fee, a relatively small amount).

Options present opportunities because they give you leverage. And making money on Blue Chips suddenly becomes more affordable and more effective.

To own an Option means paying a fee known as a Premium.

A person buying an Option is called a Taker. A "Taker" pays a Premium to acquire an option. He or she then has the right to sell that option, exercise the option (transact the ‘buy' or ‘sell'), or let it expire.

A "Writer" is paid a Premium for selling the option in the first place, which means he or she is under obligation until the option's expiry.

What Happens When Share's Go Down?

When the share market goes UP, Call options go UP in value. Interestingly, when the share market goes DOWN, Put options go UP in value.

Which Shares Are Profitable?

When it comes to selecting which share to follow, two methods command respect: Fundamental Analysis and Technical Analysis. Fundamental Analysis involves assessing the value of the company behind the shares - "account book" analysis aimed at determining whether or not a particular share is a worthwhile investment opportunity.

Technical Analysis on the other hand involves graphing a share's trading history, usually in the form of a "bar" chart or "candlestick" chart. When we see a visual representation of a share's past and present trading performance, the price extremes (tops and bottoms) become obvious.

Spotting the obvious on such charts is relatively less complicated and more accessible than analysing the fundamentals (perhaps the reverse is true if accountancy is your forte).

Technical Analysis can push the odds in your favour by alerting you to forthcoming changes in share-trading trends. The tell-tale signs are known as "indicators". One example indicator is known as Support & Resistance.

These are lines drawn on the chart to mark a share price's tops and bottoms - the significant turning points of price behaviour. The more often a share price hits and rebounds from its support and resistance lines, the more reliable these turning points become.

Moving Averages is another technical indicator - used to confirm trends. Moving Averages are lines that trace the average closing prices over a selected period of time.

Professional traders, the world over, look for indicators to predict "turning points" at which the share price can be expected to change direction. These points are relied upon because it's reasonable to expect that share prices will not trade beyond their historical extremes but instead conform to past recorded history.

Computer trading programs automate the drawing of charts based on real trading data (input either by downloading from the Internet or by manual input). The programs' charts show a selection of popular indicators.

Simple Technical Analysis Tools, available with most good trading software, is all we need for the trading strategies we'll use.

Why Trend is Your Friend

Share prices follow any of three directions: They trend:

• UP,
• DOWN,
• or SIDEWAYS (staying basically within a narrow sideways band, showing no definite up or down trend).

An increase in the number of buyers causes an Up trend; a decrease in the number of buyers causes a Down trend. More motivational force is needed for an up trend than for a down trend. A down trend needs only a moment of fear or panic, whereas for people to participate in an up trend, not only is sufficient good reason a requirement, but also money is needed.

The secret to trading success is......

NEVER TRADE AGAINST THE TREND.

It's a simple rule, but worth repeating: Never trade against the trend!

Question: How do you make a small fortune?

Answer: Start with a large fortune and ignore the trend.

So, how often should you trade against the trend... NEVER! Okay?

Strategy #1 -Short-Term Trading

This is a high leverage, high return trading strategy where we Buy Calls in an Up trend and Buy Puts in a Down trend. Profits from this strategy can be extremely high. Beware! High leverage and high returns also mean high risk! Short Term Trading calls for disciplined application of strict rules, including confirmation and re-confirmation of trends, and appropriate defensive actions.

It demands much practice ("paper trading") until you are truly ready to enter the market with real money. Then proceed slowly and carefully, starting small and working your way up. Always allocate to this strategy only a small proportion of your trading capital. Only use money you can afford to lose!

Many of us already know someone who is successfully trading for a living right now. Those who continue to trade for a living make money steadily, not freakishly over night. Keep in mind that it's a case always of higher gain means higher risk. Th eobject is not to look to options trading to get rich quick.

Six Rules for Buying Shares:

1. Never buy or sell shares and options without first checking charts.
2. Never buy shares because they appear cheap after getting smashed.
3. Never buy shares in a down trend.
4. Don't hang on to shares in a down trend.
5. Always be consistent. Buy shares in an Up trend and sell shares in a Down trend.
6. Buy Calls in an Up trend and buy Puts in a Down trend.

There are 2 reasons why people lose money when investing:

1. Inadequate knowledge.
2. Doing too much, too quickly, with too little skill.

You can avoid these potential dangers by first investing in your education of these strategies prior to investing in the strategies themselves. Through proper research and understanding of the strategies you will become aware of the tools and skills required to be successful in these techniques.

Once you've been educated, practice before committing large sums of money into the market. During your practice you want to ensure that you are trading successfully on a small scale and only then should you consider increasing the size of your trading bank. It is not unusual to allow yourself at least 6 to 12 months of practice before proceeding further.

Rushing into any strategiy is like driving a car without understanding the road rules - extremely dangerous! Even after learning the road rules, you need sufficient practice behind the wheel of a car before proceeding to drive at higher speeds. The same principles apply to trading.

Invest in your personal education and knowledge of the strategies first!

Once you are comfortable with your understanding of the concepts, start paper trading for the experience. This is where you use an imaginary amount of money and practice your trading on paper without any real money committed in the market.

Once you are comfortable in your understanding of trading concepts and paper trading practices, consider proceeding to the next level of using only a small bank of real money in the market.

After at least 6 to 12 months of consistent, proven positive results in the market, you may then consider increasing your trading bank. Please do this only after careful consideration of your overall financial objectives and personal circumstances.

It is wise to obtain qualified professional financial advice before committing heavily to any strategy.

 Finding Information

If you'd like more information on this income strategy or would like to know about other wealth creation strategies please contact Jules Dawson at Jule Corporation on:

Tel: 1300 557 881 (within Australia) or International : 61 2 6626 6881

Email: info@julecorp.com or visit our website at: www.julecorp.com