I thought I would show a bit more of an advanced strategy to deal with risk when trading on margin. I have a quite large long CFD position on ASX:CBA. The weekly uptrend is still quite strong and I don't have any reason to believe the uptrend will end. This seems at this stage to be an ordinary pull back. In the case that it turns out to be something more serious, I want to have some insurance. If I want to, I can maintain my long CFD trade and at the same time, I can take an equal put option position. This gives me protection form downside and I also should make a profit on the put options if all goes well. Once the pull back is finished, I can look to add to my long CFD trade or just let it continue as it is. If I am wrong and the uptrend continues, then I just exit the put option. The gain on the CFD makes up for the loss of premium on the option, so I just neutralize the position for a short time. This strategy can't really go wrong if you go about it the right way. The best part is that if this was the end of the uptrend, I can close my long CFD position and the gain from the put position has made up for the lower exit value on the long trade. It's quite simple really.
The CBA weekly chart is showing a potential temporary top. The uptrend is still quite strong.
The daily CBA chart is showing a small double top with a gap down.
The 4 hr chart is showing that a bearish kumo break down is likely.
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