Successful Option Trading Strategies are not some unicorns would be traders dream of.
They delight those who have honed and mastered them over time because they can consistently benefit from these trades in all types of market conditions.
We are going to share today with you how to recognize when your trades have not gotten you to that status.
Then we will explore what to do to get out of that perilous situation, and finally provide the perspective from the right side of the trade along with its own risks.
Successful Option Trading Strategies: What Are These Strategies ?
Before we tackle on the characteristics of successful option trading strategies, allow me to elaborate a bit on the situation most traders find themselves.
Beginners and seasoned veterans are bound to struggle with the markets because that is the very nature of this profession.
If It was that easy, the lure of quick and big money will have everyone taking on the stock market to get their share of the pie.
Unfortunately, the reality is far from that.
Each year, the market churns out great deal of traders.
Statistics show that only about 2% of traders worldwide report profit each year.
That means that the lion share of traders are far from being successful.
Here are some of the things that such traders go through while trying to make it.
When You’re Not in One
A lot of signs are displayed when a trader is not constantly involved successful option trading strategies.
Most of these effects start with what is in between the two ears.
You mind become restless and you have a tendency to be on edge more than usual.
Things you can start doing:
Spending too much time on stocktwits.com or any other platforms looking for news or anything that can give you a hint that the trade could go in your direction.
Putting scenarios in your head.
Things can derail quite rapidly. Since you are anxious, you can’t sleep well.
Bad trading decisions start to accumulate. It is a vicious circle.
You do not have a good balance on life.
Other aspects of your life start being affected.
You are always chasing trades.
Even when you score a win, behavior such as Revenge Trading will creep in.
There is never Need any need for Revenge Trading.
I tell traders some time to just remember this: The market is NOT really aware of you particularly.
The market will always do what it does whether we believe its actions are directed towards us personally.
How to you get out of the slump ?
The best recommendation I can give you is that the sooner you recognize the above situation the better.
Otherwise, after a while, you will just keep going until one of two things happen.
One, you run out of money. Two, mental exhaustion take you out of the game.
As you can tell, none of this is particularly a measure of success.
Therefore, the proper plan of action is to Trade less or even better take a break. It is counter-intuitive, I know.
The time away from trading will enable you to re-focus on other aspects of Life: family, loved ones, other passions.
Our Passion for trading should never in the first place obliterate other good things in our lives.
Find a new to restore your internal JOY before thinking about a come back.
It is really hard for some of us to do this next one but it is a MUST.
Do not let your trading performance define you, who you are because You are better than you last quarterly trading card.
Just like the companies you are trading, a bad quarter is not the end of the world.
They often go back to the drawing board and start a TURNAROUND PLAN.
For instance, I can remember companies in recent years such as AMD or LULU who re-branded themselves and have been prosperous ever since.
Here is the weekly chart of LULU I extracted from TradingView.com.
The stock dropped 20% or so after Earnings in March 2017. They changed the CEO put in a new plan and have gone up 360% since.
The takeaway of this story is that you have the ability to change your trading narrative at again time by identifying what is holding you back and taking actions to get yourself into Successful option strategies in 2020.
The Characteristics of Successful option Trading Strategies
These strategies have ONE major trait in common.
They can be repeated over and over.
Traders like to use the phrase Rinse and Repeat.
In other words, you do it today, wait for the next set up, you repeat it and over time, it becomes second nature without much major adjustments in all market conditions.
When dealing with such a strategy, you can answer these questions without hesitation:
Why you are in the trade ?
What was the entrance criteria ?
when will you walk away ?
How will you walk away ?
How will you Take Profit ?
From a mental perspective, you are relaxed, you have a very clear plan of action.
You are aware of when to scale up to maximize gains, when to pull back and minimize your risk exposure.
Professional traders do not sweat their trades.
Let me give you a comparison I used to remind myself of this.
Professional athletes execute the same play until they cannot get it wrong (with their eyes closed).
Amateurs are content to do it until they have it right one time.
Successful traders ought to be like professional athletes.
Leverage what you know Works and do not let your mind sabotage your trading.
Patience is one of the toughest habit to cultivate in trading because the market throws so much noise at you.
But because you have seen the rodeo before, you are able to wait for the proper opportunity.
One such application of patience is to wait for a close of the candle to make a decision on entry or exit
Because you get a clear confirmation of the direction.
As a new trader, your focus is on a tick by tick mostly starring at screen will hurt your eyes.
I had such an experience with AGN in 2016. I was winning big on a some puts on Expiration Friday.
But I lost track of time, my broker closed my position at a loss.
My lesson ever since is simple.
I close my positions my own terms.
You can roll over your position if your analysis indicates further profits to come later.
Here is a big advantage of booking early profits. You have more capital in hand to invest on next trade or same security.
EXAMPLES OF SUCCESSFUL OPTION STRATEGIES
Winning Strategies that can be repeated are more prevalent than most traders may think.
However, they require a disciplined approach.
The first one is:
Strength in Weakness
You can identify a one sector that is resilient while rest of the market is weak.
This is performed through Finviz.com with a Top Down Analysis
This also works for finding individual stocks within your watchlist that meet the above criteria.
For example, in my watchlist, I know that Roku and TSLA are prone to be green while the market is bearish.
The opposite of this can be used if you are looking for Puts opportunities.
The Value of A Trading Journal
The value of the Watch sit is that you become very familiar with those stocks.
Therefore, you can set up alerts for key levels such as Support and Resistance.
An illustration of this is provided in this video.
I will stress the importance of having a trading journal. This is a book where you record your daily actions and plans.
Because it will Help you understand both your own trading patterns and well as market patterns.
Are you a person to become enamored with one stock ? Option trading should never become a marriage to the stocks.
Capture your Market Observations each day, you will gather great insights that will lead to good trades.
You Can go Back in History and See lessons learned.
This should trigger studies that will lead to Successful option trading strategies.
Your Big Opportunities: Earnings Seasons
We have highlighted through tour previous discussions how traders can really make a living during Earnings Seasons.
These one time time events each quarter provide disciplined traders with a lot of safe traders after the companies have reported Earnings.
Learn about how to stay on Top of your Trading Plan and your account will greatly benefit from these successful option strategies in 2020.
Lastly, when you reach that level, just be aware of this own thing.
BIG Wins are dangerous, at least for me they were.
Because they are followed by big losses.
The untrained trader’s brain starts acting with too much exuberance
Taking more Risk. Getting a bit Greedy.
The Solution ?
I advise you maintain Risk/Cash Ratio constant around any of these numbers you feel comfortable with.
66% 33% or 50% are all good so that you are not wiped out by an unexpected tweet in 2020.
We provided guidance on how to avoid staying swamped in bad trades.
Recommendations on how to get yourself into Successful option strategies in 2020 were presented.
I hope you found this discussion valuable for your trading plan.
If you would like to increase your knowledge and further your understanding of these concepts, may I suggest this similar article.
If you would like see how we put this information in application to make money trading Options, click here.
Please leave us your thoughts, comments, experiences or questions about this content so that we can continue to tailor it to your needs.