Unbeknownst to many people, trading options can be traced back hundreds of years.
Trading in options involves the trade of securities, specifically in the options market. As an investor, you are given the option to buy or sell the security at a specific price for a given period of time.
Option trading can be very profitable, but it also comes with its own risks. However, some of the things that keep novice traders from becoming profitable can be remedied by taking up good practices.
In this article, we shall take a close look at some things you can do to improve your trading experience.
Find a Trading Strategy That Works for You
To turn in profit trading options on a consistent basis, you should follow a methodical plan. Write it down in detail and ensure you always stick to it.
There are many platforms filled with current trading tips. There are even some designed for traders to discuss and advice one another. Though the idea for such platforms may be noble, it can do a lot more harm than good to your success.
When executing trades, avoid any discussions with other traders. Opinions that contradict your strategy will only cause you to second guess your strategy and make trading stressful.
This is the quickest route to losing money. Once you’ve set a plan, follow it even if a trader you respect plans to sell when yours says you should buy.
Ensure that you monitor and record every trade that you make. Take time to do thorough reviews weekly and monthly. After a month or so, you can make adjustments to your trading plan based on your observations.
The daily reviews should not be skipped as they are a way to see if you deviate from your strategy.
As a trader, failing to plan is indeed planning to fail. Develop your trading method and stick to it. The only changes you make to it should be prompted only by your experience executing it.
Get a Trading Referee
Having a trading strategy and sticking to it are two different things. You will need to have a lot of discipline to ensure you never deviate.
This is easier said than done. Even the most seasoned traders suffer from lapses in discipline.
It is therefore important that you find a trading referee that will keep you accountable for your trades. This will help keep the lapses and costly mistakes at a minimum.
The referee you choose should be someone who will demand the highest standards from you.
It could be a friend, relative, coach or your mentor. They do not have to be traders themselves, but you have to let them in on your trading interests.
Set a schedule for updating them of your progress. It should be daily if possible but not longer than a week.
This will ensure that any lapses in your discipline will not last too long. With the knowledge that you will have to report your trades to someone, you will be able to stick to your strategy.
Having a trading strategy is the foundation of successful trading. However sound your trading plan is, you may not be able to execute it perfectly from the onset.
Though it dictates when you will trade, the market conditions you trade in and how you enter trades, it may still prove to be difficult to execute perfectly.
Start by practicing on the components of your strategy individually. Once you have mastered each, you can practice them all together. This is how you will instill habits required to sustain the discipline required for success.
Trading conditions change every day and with every trend. For you to be able to identify the suitable conditions for you on time will require a lot of practice. It is better to test your trading plan on a demo account until you master it.
As you get better, you can start making tweaks to improve your trading plan.
Seek Mental Clarity Before Starting a Trading Session
Ensure that your sole focus is on trading before you start any sessions. This is not the time to watch funny videos, check your email or social media accounts.
Eliminate all distractions and take a minute to clear your head to ensure that you are focused on the present.
Create your own pre-trading routine to help you become more mindful of your goals. Close your eyes and turn all your attention to your trading plan.
Visualize it and commit to not deviate from it. You can even summarize it with a list of affirmations that you can use as you trade.
Before you begin trading, make sure you check the economic calendar to find out any events that may affect the market. This will help you make more informed trading decisions and avoid surprises.
Make it a habit to follow your routine. These small steps may not seem like much but they will give you more control over your trading.
Set up Measures to Manage Risk in Option Trading
Risk is an unavoidable aspect of any investment. The key to becoming a successful trader, in the long run, is your ability to manage your risk exposure.
Having a trading plan and sticking to it is the first step, but it should be backed by a sound baseline for how much you can invest in any one trade.
You should always be comfortable with the level of risk that comes with any trade. Putting a huge chunk of your investment in one trade is not a sustainable approach.
Even the best traders have losing trades. If you put too much into one trade and lose you will end up with the pressure to recover your loses, which could lead to more losses.
Set up Measures to Manage Risk
Option trading has its own risks, but it can be very fruitful with the right approach. However, becoming a successful trader requires patience and commitment.
Keep in mind that the most profitable traders are not those with the most winning trades but those with the fewest losing trades.
Are you new to trading or an already established options trader in need of a platform designed to give you the best trading experience?
IQ option has a range of accounts, 24-hour support, and a range of tutorials to guide you. Contact us today, and we’ll set you up for success.