How to be Successful in Option Trading

How to be Successful in Option Trading

Before I answer this question, you must first ask yourself, “what is my definition of success?” For some, it might be “to become a self-sufficient trader.” For others, it can be “to day trade while on vacation in the Maldives” whatever your definition is, let's break down the steps you need to take to become a successful option trader.

1. Prepare daily

If you’re new to option trading, I recommend taking a course to learn the basics like our Introduction to Trading SPY. I chart SPY “entry and exit” levels for both put and call options and fill my watchlist with the potential contracts I'm looking to trade. I do this because it helps me mentally prepare for the day and eliminates the need to enter unnecessary trades. Create a plan and stick to it. DO NOT feed into FOMO (fear of missing out). There will always be another play. Preparing will help you control your emotions during the day. Learn how to manage them early in your career, and continue to look into methods that will help you maintain perspective.

Insider tip: Rippy Global admins release daily watchlists with strike prices, support and resistance levels, and live entry and exit points.

2. Growing a trading account

I will assume you have already read “how to start option trading” if not, here is the link. I hear a common question: "how do I grow my option trading account?” To grow your trading account you must protect it. No matter your account size, the best practice is to enter a trade with no more than 10% of your account - for example, if you have a $1,500 account, you don't want to purchase contracts higher than a $1.50 strike price; you will open yourself up to unnecessary risk.

Let us say you're in a trade, and it goes against you. If the reason you got in the trade is no longer valid, why wait for a -20% stop loss? Cut your losses and re-enter a trade when an opportunity presents itself.

Growing an account can seem tedious, but it builds the foundation you'll need to be a successful option trader. Setting a goal of 10%-20% account growth a week won't seem like much when starting with $1,500 or less, but the compound growth will add up, and soon, you can average 10%-20% a day.

Insider tip: pay yourself, no matter what your profits are at the end of the week. Pay yourself 20%-50% of your weekly profits. Don’t work for free.

3. Keep a journal

The best way to monitor your growth is by keeping a log. Write down every trade you take, explain why you entered, what contract you purchased, what time you entered and exited, did it go your way or against, at what percentage did you take profit or cut your losses, and how you feel throughout the trade.

Journaling can also act as an emotional catharsis and helps the brain regulate emotions. It can help provide a greater sense of confidence. Writing these things down will help you process trades and reflect on past experiences to avoid making the same mistakes again.

These steps are the basics of becoming a successful options trader. I can't stress enough the importance of being patient through this journey, but you don't have to do it alone.

Join our community of traders and learn the Rippy way!