RedGage

There is nothing more important to a day trader than being flat the market at the end of the day. No matter the circumstances (win, lose, or draw), making sure that no capital is at risk of being exposed to overnight market gaps defines what day traders are all about. This attitude is both good and bad. The good is that it keeps traders focused on their activities, making sure they take no opportunity for granted as well as teaching them the discipline to exit losing trades quickly and efficiently. The bad is that many winning market decisions are cut off at the knees.By ending your trading decisions during the day, large trends are being ignored. In spite of what random walk theorists propose, the market has a memory. What occurs today affects what will happen tomorrow. This effect is particularly felt when traders are involved in markets that deal with macro-economic influences, such as currencies and stock markets. Yet the two most commonly day traded or actively traded markets are currencies and stock indexes.No one would argue that the Dow Jones has steadily increased in the past 20 years, nor would they argue that the euro has made a steady beeline up in value since its inception. Nevertheless, the insistence on day trading these markets negates the fact that there has been more value that has been achieved by buying and holding these particular markets for the long haul. This is in sharp contrast to attempting to scalp profits on the short and long side on a daily basis while simultaneously losing money because of predictive mistakes.There is a reason why weathermen can predict the weather two months from now, but can’t tell you precisely what it will be like on any given day. There are patterns that present themselves from a bird’s-eye view that simply can’t be seen when your face is pressed against the canvas. This is where collar trading comes in. Day and active traders can convert their winning trading decisions into something more than just a hit and run. They can use options to protect their downside risk as they go for a longer-term trending profit opportunity while having the market pay for their protection by collecting premiums.At any given time a day trader or active trader can exit the primary trade, but there won’t be a requirement that they do it. Worrying about losing everything in case the market gaps overnight against your position becomes a feeling of the past. Active traders can have an option in place to protect them and sell an option to collect a premium to offset the costs. A collar strategy, when compared to the actual amount of losses and commissions that can accumulate during day trading, is a small outlay of time and money in order to open up more profit-making opportunities. This can be an effective way for active traders to catch major trends in addition to the day-to-day fluctuations that they attempt to scalp.Spot Forex TradersSpot forex traders are some of the most volatile traders around. With leverage as high as 500 to 1 in some instances and penalties for holding positions overnight, spot forex traders are constantly in and out of the market. Trading under such extreme pressure is not for everyone. The majority of traders who are forced to operate like this actually end up making unnecessary mistakes and burning through their principal. Only by stepping back from the canvas of active trading can spot forex traders truly see the big picture.The collar trade is not perfect. Like many of the strategies, it has positives and negatives. Unlike many of the strategies, it has a simple way of strengthening an opportunity while reducing your overall exposure. It can be applied in multiple situations with varying degrees of versatility. As a retail trader becomes more skilled in how the markets interact with one another, this particular strategy will become second nature.