23 Tips for Profitable Options Trading

1. Read Optiontradingpedia.com. Make sure you know everything about options BEFORE putting down your first trade.

2. Completely understand your trading interface. Most beginners make their first losses through incorrect trade placement due to not being familiar with their trading interface.

3. Avoid call in brokers. Nothing is more destructive than a busy line on an urgent trade and brokers who don’t even understand the kind of order you are trying to make.

4. Use only brokers with user-friendly trading interface. The commissions saving you get from a lousy trading interface hardly offsets the single losing trade you will make because of an order mistake.

5. Make sure you are familiar with advanced orders such as contingent orders and trailing stop loss as they automate your exits, helping you avoid emotions.

6. Review your order before hitting the send button! That’s your final chance to rectify any mistakes that you may have made. Incorrect orders due to human errors contribute to about half of all the losses beginners experience.

7. Get a mentor. Nobody can learn to trade profitably on their own.

8. Profit is made only when the underlying stock performs within the specifications of the options strategy you use. It’s the movement of the stock that produces your profits, there is no magic options spread!

9. Higher Profits = Higher Risk. Understand your risk tolerance and use options strategies that conform to your risk tolerance level.

10. Be familiar with technical analysis. At the end of the day, all options trading is short term as all options have a finite life. Technical analysis helps you select the most optimized entry points so that you don’t waste that finite life.

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11. Cheaper isn’t always better in options trading. Sometimes, “cheap” options can be deadly while more expensive options would be safer.

12. Trade the charts, not the news.

13. Follow a proven options trading methodology such as the Star Trading System.

14. Have plenty of rest! Nothing triggers emotions more than fatigue + options trading.

15. Make sure your family supports your decision to trade options. Family support helps overcome those tough losing sprees.

16. The aim in options trading, like in all trading, is to make more wins than losses. There is no such thing as 100% winning only. If that is the direction you are looking at, you will be disappointed and you will lose money.

17. All options strategies have limitations. There is no such thing as a 100% sure win spread. Make sure you understand the limitations of the strategy you are pursuing.

18. Trade to win, don’t trade for fun. Only trade when the chances of winning are high. Money in your account doesn’t hurt you; don’t be eager to get rid of them.

19. Wait one day before selling. More often, beginners sell too early, not too late. It is always best to wait one day from your decision to sell before actually selling.

20. Learn how to create synthetic positions in order to increase your position management flexibility. http://www.optiontradingpedia.com/synthetic_positions.htm

21. Don’t monitor the market if you are not a day trader! Nothing triggers your emotions and spoils midterm to long term positions more than monitoring the market!

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22. When in doubt, Stay out!

23. Options trading is exciting only when you are losing money. Making money is a repetitive, objective and boring process. When options trading is finally routine and boring to you, you would be able to make a living out of it!

Happy trading! Learn more about Options Trading.

Reference:

  • Options Trading
  • Options Mentor
  • Stock Options