Tips for a Beginning Options Trader
Let’s be real. There is no secret formula for becoming a millionaire overnight, so there is no one way to become a successful options trader. Every trader has their own style of trading, now it’s a matter of finding what works best for you.
As you develop your trading style, here are a few traits of a successful options trader that a beginner should not overlook.
1. Manage your expectations
So you may feel like you got a grasp on things. In the beginning, you have so much confidence starting off with a new skill and then you start to realize you know nothing after you start losing some money. Does that sound familiar to you? Hence, called the Dunning-Effect. Trust me, we’ve all been there.
Once you’ve kept that skill for a long time, you are going to gain experience and then build your confidence and actually gain expertise in options trading. As you continue to practice the skill of trading, your expectations will change. Your goal might be to make $500 or $1000 a day, but you soon start to realize that as you develop your skill and proper risk management you will want to focus on percentages that match your portfolio size.
2. Figure out what works for you
With each strategy comes its own likelihood of success. Some people prefer to make quick profit (scalping), while others like to hold on to contracts longer for potential bigger returns (daytrading or swinging). It really depends on how risk adverse you are and what works best for your lifestyle.
As you continue to observe the stock market, you then start to realize which sector appeals to you. Is it oil or tech – maybe even futures? Do you like slow moving contracts or do you like em’ fast? Sector plays a huge role in regards to volatility, so keep on researching.
You should also take into account which specific stock you like to play. Maybe you figured that scalping is the way to go, so TSLA morning pops are your thing. Are you interested in smaller caps like RDBX? Observe your emotions, and see which stock is right for you.
Once you picked out a few stocks to follow, what about spread? Do you go far out, due to its expiration or near the money because it expires the day of. These are a few things to consider when figuring out what works best for you.
3. Develop risk management
Bottom line. Don’t risk what you are not willing to lose. If you need help, Rippy Global can assist you with what percentages work best for your portfolio size. Do not overlook risk management. Blown up ports = no risk management.
4. Track your progress
Got a paper and a pen? Use it. Journal. Journal. Journal. If you don’t want to go the archaic route, keep a digital spreadsheet of your wins and losses. Write down what stock, what option, and what the chart looked like at the time. Ask yourself, what you were feeling at the time. Was it fear, was it happiness? Learn how your emotions affect your decision making capabilities. In the end, when you track your progress you will start to develop a trading style that will be consistent with what you are willing to risk. Some people may say “no risk, no rari” but trading is not gambling, it’s a calculated risk that you need to keep track of.
5. Don’t stop learning
The stock market is unpredictable, which means you need to adapt. Once you find a style that works for you, it’s always helpful to continue to fine tune your strategy like any master of his or her craft. Just because you hit it big once, doesn’t mean it will always work - so continue to learn each and every day so you don’t repeat the same mistakes.