Trading without a plan is akin to driving without a road map in a foreign city. Unless you know where you are going and how to get there - you are bound to get lost. 2. Backtest your trading style and system.
Until you know what kind of results you can expect from trading a certain 'style' - you will never know when to enter - exit or just how choppy a ride a trading idea can be. 3. Always - always follow your trading system rules.
The best traders ALWAYS follow their rules. Trades never become personal - always professional. If you separate the two - you will join an elite crowd - traders that trade systems - not emotions or instincts. 4. Ignore rumors.
Trade fundamental and technical analysis. Remember - institutions learn about stories long before retail customers. To that end - be mindful that your buy orders MAY be their sell orders AFTER they have already enjoyed a nice move in an option. 5. Never trade against a trend.
'A trend is your friend'. To fight this is to fight a losing AND expensive battle. Again - remember - if institutions and technical indicators suggest a certain pattern - ride the wave. 6. Carefully monitor your fear AND your greed.
Equity options is an exciting trading vehicle. It can be terribly disheartening if you don't follow a strict exit plan after entering a trade. To see a contract trade from 2 to 6.25 is indeed exciting - BUT take your profits. Never - ever allow your winners become losers. Tight stop losses and trailing stops are what savvy traders do - you should too. 7. Never commit all of your trading capital to one trade.
As sound as an idea may seem at first NEVER - EVER put 'all of your eggs' in one basket. Anything can move the price of a stock - and if by chance an announcement turns against your trade - you can be wiped out. A sound system of 10-20% of trading capital per idea is both safe and smart. 8. Always use stops (stop losses).
When trading options - you will have more losing trades than winning trades. The key to your success is preserving your trading capital. Always enter a stop loss AFTER you have been confirmed on your trade fill. Stop losses protect your capital and give you the peace of mind needed to concentrate on trading ideas. Remember cut your losses QUICKLY and let your winners ride. 9. Miracles can and do happen - but nothing - beats preparation.
Sound research, tested trading systems and entry/exit controls ALWAYS beat the luck of the draw. Preparation and discipline are rewarded handsomely when trading options. 10. Be comfortable in your trades and have fun.
Only you can define that comfort zone. Do not trade more than you can handle (50, 75 or 100 contracts). Trade within your comfort zone. By following these simple rules - you are well on your way to becoming a profitable, successful and knowledgeable trader.
Click here for Basic Options from Mann Financial
Note: Need Acrobat Reader to open this file