One Simple Tip To Improve Your Options Trading
Options trading is risky. This is what you hear about all the time.
However, above all, Options Trading is STRESSFUL! Yes, most beginners lose
money in options trading not because they cannot choose the correct stocks
(most professionals cannot consistently get the correct stocks too!) but
because they cannot handle the stress that comes with options trading and then
crack and make all the wrong moves.
Are you one of them?
Have you ever bought a bunch of call options for a few stocks and then
have your account value go down 30% to 40% overnight just because the stock
vibrated in the wrong direction? What did you do? Your emotions got fired up
and you decided to do the clever thing and executed your stop loss policy just
to see the stock go back in the expected direction a few days later, denying
you hundreds of percent in profit.
Yes, options
trading is leverage and therefore is volatile! It is not strange to
see your account value go down drastically especially during the first couple
of days due to the often much wider bid ask spread of options and time decay
should the stock move against you. So, how can anyone make money through
directional trades?
One simple tip: Watch the Price Action of the stock and not your account
value!
Price action means the change in price of your stock and whether or not
its chart formation still conforms to your initial expectation. Watching the
price action of the stock and not your account value keeps you objective when
trading options. In the example above, when your account value go down 30% or
40%, you would instantly panic if you are going by nothing but your account
value. However, if you are going by the Price Action of the stock, you might
see that this small pullback does not compromise the initial setup of the stock
and that its trend is still stable and decide to hold on. You will identify
areas of support and resistance on the stock’s price chart itself in order to
determine when to sell the stock
options. By doing so, you will be able to make more winning trades
than losing ones over time if your entry setup is reliable.
Yes, directional options trading for leverage is all about the Price
Action of the stock! If the stock moves, the options will too and you will make
money. If you allow the volatility of your options position and its impact on
your account value hit your emotional buttons, you will always find yourself
selling out of winning trades with a loss. Adhere to this one simple tip and
you will improve your options trading performance!
