For those of you who may be only a beginner in option trading and just starting out on your journey of discovery, we have a few important tips here for you. If you take heed, they could mean the difference between substantial and consistent profits and wiping out your entire trading bank.What I'm about to tell you, comes from someone who has cleaned out his trading bank when I first started - and I want to share with you the reasons why this happens, in the hope you might avoid the same mistakes.
The markets are a very powerful ally if you treat them with respect, but if you think you can outsmart them or ignore what they are telling you, they can financially destroy you. They are huge and there is plenty of room for all, but you must be aware of the risks and be prepared for them.
So ... here are the most important things a beginner in option trading needs to know.
It's All About You
You must have the right mindset to approach trading the markets. Since option trading is a highly leveraged instrument, the spectacular profits you can achieve are matched by significant losses should you choose to ignore it when things go wrong. Things will ALWAYS go wrong. You will never get every trade right. It's no different in any other kind of conventional business - some sales are profitable, others are not.
If you can see it this way, that you are in a business (not a part time hobby) and therefore all transactions you undertake conform to an overall business plan, you have a much better chance of succeeding. Most businesses fail during the first year of operation, mainly because they fail to plan carefully and know how they are going to use their resources to produce a profit. Your resources are your trading bank. You are buying and selling for profit. If you neglect your business (forget about your trades in the hope they will fix themselves) it is like forgetting your customers and hoping they will serve themselves.
Seasoned traders always tell the beginner in option trading, that 90 percent of trading success is about psychology. How you handle the decision to enter a trade and how you choose to exit are critical components for success. Do you hesitate to "pull the trigger" when you see a good setup, then regret it later as you see the spectacular results you missed out on? Do you find it difficult to accept that you've been wrong about a trade and can't come to grips with taking a small loss?