How to be a successful options day trader

How to be a successful options day trader I have been blessed in that I have worked for and had clients who were Billionaires. But there is one Billionaire I met during my hedge fund days that I will never forget, because he was one of the best options traders I have ever seen. He had a 5 Step system for trading options that I use for my all my options trading today. I am going to share this with you today and I call this ” The Billionaires 5 Rules of Options Trading” 1) Never ever buy an Option (a Put or a Call) unless there is a catalyst or event. This means you only buy an option when there is an event that will dramatically move the price of the stock up or down. These events or catalysts can be anything from: Earnings Announcements, Fed Meetings, Economic Releases, an Activist Hedge Fund buying a stock to any type of corporate change, CEO, sale of a business unit, merger or acquisition. The key is to buy the option before this event occurs, you never ever want to buy an option after the catalyst or event. So in summary only buy an option when there is catalyst or event that will dramatically alter the price of the stock. 2) This Catalyst or Event must occur before the option expires. An easy example of this is Earnings, you only want to buy an option that expires more than a week after the earnings date. Again this means when you buy an option make sure you leave yourself enough time so that your option does not expire before the catalyst or event occurs. 3) The Option must be Cheap. This can be hard to measure but I like to keep it simple, I personally don’t like paying more than a $1 for any option.

But if its a high priced stock, I will only buy the option it gives me at least 25 times leverage or more on the stock. Meaning divide the price of the stock by the actual option price. For example if the stock of XYZ is $100 do not pay more than $4 for the option on that stock, that’s the easiest way to make sure the option is cheap. 4) Only buy options in stocks that have low volatility. This means you want to buy options on stocks that have moved sideways of flat for months at a time. Look at a chart if there has not been a significant uptrend or downtrend in the last 3 to 4 months, there is a good chance that the volatility in the stock is low and the options are cheap. Also if you have options software, you can compare the stock and its options implied volatility and underlying volatility to its historical implied and underlying volatility. This may sound confusing but its the same premise value investors use, they buy stocks when they are cheap in comparison to what they historically sold for, so you want to buy options when the volatility is low or lower than what it historically has sold for. 5) Only buy options if you can make 200% or more on the option. This is very important, too many people buy options with no exit plan or profit target.

You have to set a goal or sell point when you buy an option and to make it worthwhile from a risk reward standpoint. The option should have at least a 200% or more upside. Why 200%? because there is a good chance when you buy an option, you will lose the entire value or premium of the option (or 100% of your investment in the option) therefore to be rewarded for that risk you need to be able to make 200% or more in that option. Simply stated only buy an option when you have at least a 2 to 1 reward to risk scenario. Now I will give you a real life example of an options trade I just made, where I only followed 2 of the 5 steps and it cost me dearly on my trade. About two weeks ago I purchased a large quantity of put options on Silver, (The Silver ETF, Symbol SLV), that expired on June 28th. The option was very cheap I paid .$50 cents per option. So I followed steps 3 and 4, in that I purchased a cheap put option ($.50 cents) whose volatility was low, so the options were cheap not only in price but also cheap in terms of Silver’s historical volatility as well.

My big mistake though was not having the proper catalyst, I thought Silver was going to drop in price but I just wasn’t exactly sure why? I thought initially it would drop because the Job Numbers that were released 2 weeks ago would be strong and therefore would cause Silver to sell off. Also I thought Silver had broken a huge downward consolidation pattern and therefore it would drop 10% in the next couple of weeks. Well the Job Numbers were good, and Silver sold off and I was up 100% on my Silver put options in 2 days, but instead of following the Trading Rules my Billionaire friend taught me, I took my 100% profit and went home. Because of this I did not follow the 200% or more profit rule and I did not have the right catalyst, which turned about to be the Fed Meeting I therefore missed out on one of the biggest moves in Silver’s history, its 7% decline today. By not following my Billionaire friend’s 5 Trading Rules for Options, I missed out a huge trade. I would have made 400% on my Silver Puts today instead of the 100% I made two weeks ago. So I learned first hand how much it can cost you by not following each and every one of the 5 rules above. So my lesson to you is not only are these 5 Rules for Trading Options important, but even more important is that you make sure before you buy an option that you have followed each and every one of the 5 rules I stated above. Meaning do not buy an option unless it meets each and every one of the 5 rules. To make it easy for yourself print out these rules and then before you trade an option make sure that you can check off each rule before you buy the option. If you do this I promise that not only will you greatly improve the success of your options trading but you will make a lot of money in the process as well.

14 Characteristics Of Highly Successful Option Traders. There are many lists out there of what makes people successful in life, and they always include character traits such as dedication, focus, passion, single-mindedness, determination, and confidence. Of course, this is true and these qualities, when applied correctly, can certainly help you to achieve success. But if we want to become successful option traders, that requires somewhat different character traits to succeed and to make trading your living and your passion. During my time working with Deutsche Bank and BB&T, I had the opportunity to learn from, observe, and be coached by some highly successful traders which helped me to understand the essential characteristics for success. When I started coaching people myself to become successful option traders, that experience has only reaffirmed my view on the kinds of qualities and features which marks someone out as a successful trader, from those that don’t make it. Here Are The 14 Characteristics Of Successful Option Traders: 1. Being Completely Disciplined. It is not possible to be disciplined up to a certain point . That is just a cop out. Discipline is an all or nothing character trait, particularly when it comes to being successful option traders. Either you are going to become a successful trader, or you are not. If you are, you will need to exercise discipline within your trading behavior all the time to be successful. This doesn’t mean you have to focus 100% of your day on trading alone – that would be crazy. It means that you are 100% committed to becoming better over time.

2. Learning From Losses. Every trader loses money, and you need to be able to accept this as a fact of your newly chosen life without panicking. Everyone in this field loses money, but the character trait that separates bad traders from successful options traders is the ability to keep going and to learn from the loss. Use the loss as a learning opportunity, to see where you can move your method on, or adjust it to reduce the risk. At Option Alpha we share our live trading examples so watch some of these to see how we cope with losing trades. 3. Always Be Willing To Learn. The markets change every day, and there are always new trends, strategies, and ideas springing up from across the industry. You need to make sure that you keep up and are adaptable and willing to learn new things on a daily basis. Make sure you are signed up to relevant news and blog sites so that you always have the latest details at your fingertips about the market place. Successful option traders are always learning.

Your trading will reflect your personality – don’t just follow what everyone else is doing. Take time to understand the market, look at your personal trading goals and aspirations and your willingness to take a risk and step out of your comfort zone. If you don’t match your personality to your trading style you are unlikely to be happy or to succeed. 5. Make Your Own Trading Decisions. You need to learn to think for yourself in your trading career. While it’s good to know what’s going on in the news and media, you need to make sure you are making your decisions and not being influenced too much by anything around you. You need to learn for yourself and take responsibility for your choices and actions. Learn as much as you need to be able to make personal decisions and reach your conclusions. That’s what marks out the really successful option traders. 6. Follow Your Own Trading Plan. You need to learn to think for yourself in your trading career.

While it’s good to know what’s going on in the news and media, you need to make sure you are making your decisions and not being influenced too much by anything around you. You need to learn for yourself and take responsibility for your choices and actions. Learn as much as you need to be able to make personal decisions and reach your conclusions. 7. Be Proactive, Never Just React. Successful options traders understand that their greatest enemy is their own emotional state and they understand just how dangerous it can be if they overreact and make quick decisions without thinking . A real character trait for success is never letting emotions control your activities in the market. You should always follow your trading plan and make logical decisions. Be proactive and understand the market through your learning, rather than just reacting to it. Start The FREE Course on "Options Basics" Today: Whether you are a completely new trader or an experienced trader, you'll still need to master the basics. The goal of this course is to help lay the groundwork for your education with some simple, yet important lessons surrounding options. Click here to view all 20 lessons ? 8. Broaden Your Learning Scope.

Don’t just stick to one aspect of trading, Make sure you are opening to learning about options and futures and stocks and forex as that will help you to become a better overall trader. You need to understand how the markets all work together and affect each other to help make the most appropriate trade decisions for your portfolio. Don’t dismiss any aspect as too hard, or not relevant. The more you learn the more armed you are for any trading situation. 9. Take Your Time And Be Patient. A successful options trader will be quick to take losses and slow to make profits. Beginners take profits quickly because they’ve never had them before and fear to lose them. Wealth isn’t built in a day or a week – it is slowly accumulated with consistent trading strategies. Take your time and be consistent and patient, don’t rush in and don’t panic. Just follow your trading plan. 10. Avoid The Ego Trip. This is a characteristic that applies throughout life and to any profession but the most successful people are not full of ego and a sense of self-importance. Take that dedication and discipline you are using to trade well, and remain a respectful and humble person.

11. Keeping Accurate Trading Records. Having the right records to refer to will help you avoid making wrong decisions and also making losses. Keep accurate records of your trading book to learn from and for your peace of mind to show your earninglosses if you need to for tax purposes. 12. Trade To Live, Don’t Live To Trade. The ultimate goal of any trader is to make money and be financially independent but that should never mean spending every waking hour watching the stock market movement on the screen. Get out there and enjoy life as well, after all, you only live once! 13. Develop These Character Traits For Yourself. If you’re serious about trading for a living, working to incorporate these traits is a step closer towards your goal. Starting small and determining why you want to become a trader in the first place will help drive you through the tough times as they are inevitable. Just as I mentioned in #1, the determined and disciplined trader will always make it in the end! Now it’s your turn to add your comments and let me know what YOU think makes a successful option trader.

See you in the comment section. Kirk Du Plessis. Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D. C., he’s a Full-time Options Trader and Real Estate Investor. He’s been interviewed on dozens of investing websitespodcasts and he’s been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and two daughters. Great list Kirk! I think what you missed was that successful traders are a part of a great network. They learn, grow and feed off of like-minded traders. At least that’s what I think… Yup and hopefully this blog is one of those networks of great like minded traders – I happen to like it :) I disagree to some extent with number 7. Some traders may work better being reactive.

While I agree that you should certainly balance your life with other pleasurespassions, living to trade may not be all that bad. Extreme determination and dedication are key to being an elite trader. 14. Risk Management. There are other traits I could put in here, but I really believe risk management is the most important thing for the longevity of a trader. Ideas don’t have to be sound and entries don’t have to be perfect, but with good risk management the trader will live to try again (possibly even walk away with a profit), Great ideas. The most two important things to be a succesfull trader are discipline and risk management. You can have winners trades in a row but with just one bad trade without a razonable stop loss your loss could erase all the profits you get. The discipline let you be aware of thye market and the risk management let you have small losses and big profits. The riskreward ratio must be at least 2:1. I’m on board with Jason and carlos on the extreme importance of risk management, aka money management. Always know how much you will lose if the trade goes against you, rather than dreaming of how much you will make. Always have an exit method.

Great point about “dreaming of how much you will make”! I like that phrasing! Clearly, and most importantly, is to have great mentors. We aren’t trying to reinvent the wheel here, but to use the knowledge that other SUCCESSFUL traders already employ, is worth it’s weight in gold. Great one…………. all traders needs to understand and accept the market from its own perspective rather the trader’s own view. Trade what you see..not what you think. (great post Kirk) Great list! I have nothing to add except that this information is right on based on my own trading experience. Keep up the great work. Great Read. Very helpful.

I will surely keep this in mind. @Gabriel Celebria, I don’t really have anything but i think setting a goal first is needed. i must agree with those characteristics that you’ve listed. if a person have all of these, then i’ll bet my bottom dollar that they’re on their way up in trading. although i have one more to add, my 14th. 14. DON’T EXPECT TOO MUCH. or another applicable idiom would be DON’T COUNT YOUR CHICKENS BEFORE THEY HATCH. – this industry is not predictable. you win, you lose. losing is inevitable though, winning is some sort of scarce, but it really depends. one thing’s for sure, that everyone in this industry had their fair share of losses.

but first things first, don’t expect too much. if you win, then it will be a really great news. but if you lose, because you’re not expecting anything, you’ll easily move on and get on. plus, you’ve learned another lesson, and won’t apply it the next time. equals, more chances of winning. Better to sell naked puts than write covered calls. Basically, they are one and the same. Nice job bro. Decent list. Always remember in the markets perception is reality. I think #14 is “Enjoy Trading”! If it becomes a burden or weighs heavy on you you’ll probably start to slip in some of the other 13 characteristics. The more you enjoy trading the better you’ll weather the bad times and enjoy the good ones! Most important trait is removing emotion from trading … Avoiding that 1 bad trade that wipe out profits of many successful trades .. not falling in love with a stock ..

like i did with AAPL 2 summers ago and saw it fall from 700 to 350 and lost a bunch of money on the bull spreads i had on it. Still regret those trades a lot as i always believed AAPL would bounce back and it never did …. Have a clear method that you will stick to. Keep trades small – longevity and less fear. learn to manage these emotions – fear, greed, regret, hubris. Keep a daily trading diary, where you address the above emotions as well as the method and the trades. choose safety first – know your exitpotential max. loss – chose safety over higher profit. Don’t trade if in doubt of self, the trade or your method. 10 Traits Of A Successful Options Trader. Options are one of the most versatile instruments in the financial markets. They are flexible in that they allow you to leverage your position to boost returns, manage risk by using them for hedging, or to make profit from upside, downside and sideways movement in the market. Despite its many benefits, options trading carries substantial risk of loss, and it is very speculative in nature. It's not for everyone and not everyone can become a successful options trader. Like any other business, becoming a successful options trader requires a certain skillset, personality type and attitude. This article will help you understand the 10 must-have characteristics that you need to become successful at options trading.

(From picking the right type of stock to setting stop-losses, learn how to trade wisely) If you're interested in going beyond just 10 must-have characteristics and skills, and learning tried and true options strategies used by professional, check out Investopedia Academy's Options Trading Course. With on demand video trainings and classes, you'll have access to the knowledge to put the odds in your favor with options. Numeracy - Keep Sharpening Your Quantitative Skills. Options are high-risk instruments, and it is important for traders to recognize how much risk they have at any point in time. What is the maximum downside of the trade? What is the implicit or explicit position with respect to volatility? How much of my capital is allocated to the trade? These are some of the questions that traders will always have to keep in their minds. Traders also need to take appropriate measures to control the risk. In particular, if you are a short-term options trader, you will regularly come across loss-making trades. For example, if you hold a position overnight, your bet may go bad because of adverse news.

At any time, you need to be able to minimize the risk of your positions. Some traders do so by limiting their trade size and diversifying into many different trades so that not all their eggs are in the same basket. An options trader also has to be an excellent money manager. They need to use their capital wisely. For example, it wouldn't be wise to block 90% of your capital in a single trade. Whatever the method you adopt, risk management and money management cannot be ignored. (Risk is inseparable from return. For more, see Measuring And Managing Investment Risk. ) 2. Be good with numbers: While trading in options, you are always dealing with numbers. What's the implied volatility?

Is the option in the money, or out of the money? What's the breakeven of the trade? Options traders are always answering these questions. They also refer to option Greeks, such as the delta, gamma, vega and theta of their options trades. For example, a trader would want to know if his trade is short gamma. It is important for the traders to be able to easily calculate and interpret numbers. You don't need to be a rocket scientist, but you should train as an aspiring "quant jock." (Understanding price influences on options positions requires learning delta, theta, vega and gamma. For more, see Getting To Know The "Greeks." ) Behavioral – Develop the Right Attitude. To become successful, the options traders must practice discipline. Doing extensive research, identifying opportunities, setting up the right trade, forming and sticking to a method, setting up goals, and forming an exit method are all part of the discipline. A simple example of deviating from the discipline is to go with the advice of the herd. Never trust an opinion without doing your own research.

You can't skip your homework and blame the herd for your losses. Instead, you must devise an independent trading method that works for your situation. Patience is one quality that all options traders have. Patient investors are willing to wait for the market to provide the right opportunity, rather than trying to make a big win on every market movement. You will often see traders sitting idle and just watching the market, waiting for the perfect timing to enter or exit a trade. The same is not the case with amateur traders. They are impatient, unable to control their emotions, and they will be quick to enter and exit trades. 5. Match your trading style with your personality: Each trader has a different personality therefore, each trader should adopt a trading style that suits his or her traits. Some traders may be good at day trading, where they buy and sell options several times during the day in order to make small profits. Others may be more comfortable with position trading, where they form trading strategies to take advantage of unique opportunities, such as time decay and volatility. And others may be more comfortable with swing trading, where traders make bets on price movement over periods lasting five to 30 days. (For related reading, see The Importance Of Time Value In Options Trading. ) Learning – Become an Active Learner.

6. Read and understand news: It is crucial for traders to be able to interpret the news, separate hype from reality, and make appropriate decisions based on this knowledge. You will find many traders who will be eager to put their capital in an option with promising news, and the next day they will move on to the next big news. This distracts them from identifying bigger trends in the market. Most successful traders will be honest with themselves and make sound personal decisions, rather than just going by the top stories in the news. 7. Learn from losses: The Chicago Board of Trade recently reported that 90% of options traders make losses. What separates successful traders from average ones is that successful traders are able to learn from their losses and implement what they learn in their trading strategies. (For related reading, see Options Trading Strategies: Understanding Position Delta. ) 8. Be an active learner: The financial markets are constantly changing and evolving you need to have a clear understanding of what's happening and how it all works. By becoming an active learner, you will not only become good at your current trading strategies, but you will also be able to identify newer opportunities that others might not see or that they may pass over. Administrative – Develop the Right Routine. 9. Plan your trades: An options trader who plans is more likely to succeed than one who flies on instinct and feel. If you don't have a plan, you will place random trades, and consequently, you'll be directionless. On the other hand, if you have a plan, you are more likely to stick to it. You will be clear about what your goals are and how you plan to achieve them. You will also know how to cover your losses or when to book profits.

You can see how the plan has worked (or not worked) for you. All these steps are essential to developing a strong trading method. 10. Maintain records: Most successful options traders keep diligent records of their trades. Maintaining proper trade records is an essential habit that can help you avoid making costly decisions. The history of your trade records also provides a wealth of information that can help you improve your odds of success. (For related reading, see Make Better Options Trades With The Average Monthly Range. ) Top options traders get a thrill from scouting and watching their trades. Sure, it's great to see a pick come out on top, but much like sports fans, options traders enjoy watching the whole game unfold, not just finding out the final score. These characteristics will not guarantee your success in the options trading world, but they will definitely increase your chances at it. How to be a successful options day trader Weekly options have become a stalwart among options traders. Unfortunately, but predictable, most traders use them for pure speculation. But thatЂ™s okay. As most of you know, I mostly deal with high-probability options selling strategies. So, the benefit of having a new and growing market of speculators is that we have the ability to take the other side of their trade.

I like to use the casino analogy. The speculators (buyers of options) are the gamblers and we (sellers of options) are the casino. And as well all know, over the long-term, the casino always wins. Why? Ђ¦because probabilities are overwhelmingly on our side. So far, my statistical approach to weekly options has worked well. I introduced a new portfolio (we currently have 4) for Options Advantage subscribers in late February and so far the return on capital has been slightly over 25%. IЂ™m sure some of you may be asking, what are weekly options. Well, in 2005, the Chicago Board Options Exchange introduced ЂњweeklysЂќ to the public. But as you can see from the chart above, it wasnЂ™t until 2009 that the volume of the burgeoning product took off. Now ЂњweeklysЂќ have become one the most popular trading products the market has to offer. So how do I use weekly options? I start out by defining my basket of stocks. Fortunately, the search doesnЂ™t take too long considering weeklys are limited to the more highly-liquid products like SPY, QQQ, DIA and the like.

My preference is to use the S&P 500 ETF, SPY. ItЂ™s a highly-liquid product and IЂ™m completely comfortable with the riskreturn SPY offers. More importantly, IЂ™m not exposed to volatility caused by unforeseen news events that can be detrimental to an individual stocksЂ™ price and in turn, my options position. Once IЂ™ve decided on my underlying , in my case SPY, I start to take the same steps I use when selling monthly options. I monitor on a daily basis the overboughtoversold reading of SPY using a simple indicator known as RSI. And I use it over various timeframes (2), (3) and (5). This gives me a more accurate picture as to just how overbought or oversold SPY is during the short-term. Simply stated, RSI measures how overbought or oversold a stock or ETF is on a daily basis. A reading above 80 means the asset is overbought, below 20 means the asset is oversold. Again, I watch RSI on a daily basis and patiently wait for SPY to move into an extreme overboughtoversold state. Once an extreme reading hits I make a trade. It must be pointed out that just because the options I use are called Weeklys, doesnЂ™t mean I trade them on a weekly basis.

Just like my other high-probability strategies I will only make trades that make sense. As always, I allow trades to come to me and not force a trade just for the sake of making a trade. I know this may sound obvious, but other services offer trades because they promise a specific number of trades on a weekly or monthly basis. This doesnЂ™t make sense, nor is it a sustainable and more importantly, profitable approach. Okay, so letЂ™s say SPY pushes into an overbought state like the ETF did on the 2 nd of April. Once, we see a confirmation that an extreme reading has occurred we want to fade the current short-term trend because history tells us when a short-term extreme hits a short-term reprieve is right around the corner. In our case, we would use a bear call spread. A bear call spread works best when the market moves lower, but also works in a flat to slightly higher market. And this is where the casino analogy really comes into play. Remember, most of the traders using weeklys are speculators aiming for the fences.

They want to take a small investment and make exponential returns. Take a look at the options chain below. I want to focus on the percentages in the far left column. Knowing that SPY is currently trading for roughly $182 I can sell options with a probability of success in excess of 85% and bring in a return of 6.9%. If I lower my probability of success I can bring in even more premium, thereby increasing my return. It truly depends on how much risk you are willing to take. I prefer 80% or above. Take the Apr14 187 strike. It has a probability of success (Prob. OTM) of 85.97%. Those are incredible odds when you consider the speculator (the gambler) has less than a 15% chance of success. ItЂ™s a simple concept that for some reason, not many investors are aware of. One Simple System to Win Nearly 9-out-of 10 Trades. Regular investors dream about these kinds of opportunities Ђ“ but few ever believe theyЂ™re real.

Like dragons, the idea of making money on nearly 9-out-10 trades seems the stuff of legendЂ¦ or if real, reserved exclusively for the marketЂ™s slickest traders. Yet, itЂ™s very real. And easily within the reach of regular investors. You can learn all about this safe, simple method Ђ“ and the next three trades shaping up right now Ђ“ by clicking this link here. Slay your own dragon Ђ“ Go here now. . An Option Traders Memoir: how I failed my way to success as an options trader. You're about to learn  3 secrets of successful option traders . And when I say secret I don't mean something that others don't know about. It's actually something people know about, but have yet to discover just how powerful it is. I've had the honor of mentoring hundreds of option traders and every single successful trader I know follows this approach. But first let me quickly share how I discovered this secret as you may be making the same mistake I made.

When I was 20 I was introduced to real estate investing, but I wasn't savvy with money management. Fast forward a few years and I had overextended myself on credit and had absolutely no backup plan. My exact thoughts were, " I don't need an emergency fund or 401K. I'm going to be rich! " I dreamed of nothing but mountain tops (success). I didn't factor any valleys (problems) into my plan. I was so focused on real estate that I forgot one of the cardinal rules of investing, diversify your income streams . I took every bit of savings I had and poured it all into real estate. Things were going great for the first three years until I encountered my first major problem. This is when I realized how flawed my plan was.

It started with one problem, one unit, and it slowly escalated into several back to back problems. It took me three years to build up my real estate business. It took less than six months for me to lose everything. 3 Secrets of Option Traders Revealed. I needed money and so my friend introduced me to a multi-millionaire who was a stock option trader. It took him all of 10 minutes to point out what I was doing wrong: I was  putting too much focus on making money . He then shared Secret #1 with me: he advised me that as an options trader I should risk roughly 1-2% of my total account value on any one trade. And Secret #2 was to never have more than 50% of my account out in the stock market at any one time. I've since reduced this down to 10% based on my experience as an options trader. And this 210 formula is what I share in my options coaching program.

Some people trust my wisdom and just follow what I teach. Others have problems with this approach and say things like. " But Travis, if I invest 1-2% of my account on a trade, I'll never get rich following that plan. And leaving 90% of my money in cash. that's just wasteful. Having all that money sitting in cash is not productive. I'd rather be earning something on that cash instead of letting it sit there being eaten up my inflation. " Valid questions and the 210 formula does seem counter-intuitive, but here is the mistake they are making. "W hat puts option traders out of business, making money or losing money ?" Have you ever heard an option trader say, " hey I quit trading because they made too much money? " No you haven't! It's losing money that causes option traders to give up on their dream of becoming rich and financially independent. And this leads to Secret #3 of all successful option traders: you always, always, always, trade to protect yourself from a loss.

When you protect yourself from losing money you avoid the #1 reason why people fail (losing money). Most new traders only think about how much money they can make. They see the 210 formula and they only think of how much more money they can make if they invested more. But let me show you a real life example of how this worksЂ¦.what I'm about to share with you is our secret sauce . It's why my students have a 63.83% success rate in an industry that has a 90% failure rate. For example: $10,000 to trade with and only $1,000 out in the stock market at any one time. Worst case scenario : lose all $1,000. Cool, you're good to go and still have $9,000 left. Avg. Case Scenario (most likely to happen): five $200 trades.

Each trade represents 2% of your total account and no one trade can take you out so to speak. One trade is a 50% loss One trade breaks even One trade has a 30% return on investment One trade has a 50% return on investment And one trade has a 100% return on investment. Total profit: $260 (or 2.6% of $10,000). Multiply that 2.6% by 12 months out the year and that equals 31.2% on your total account for the year and you only had 10% of your account invested at any one time. AND at the same time you were protected from losing all your money which is what happens to most amateurs and greedy people. So what do you do with the 90% not invested? Whatever the heck you want to do with it. Again, all successful option traders follow the 210 formula  (or some variation of it) because it protects you from losing a ton of money. ਋ut don't believe me, believe your experience. Trade my way and your way side by side and see which approach works best for you (smile). To Your Success, Trader Travis. Products Created by Trader Travis. Copyright © 2009 - Present. The Options Trading Group, Inc.

All rights reserved. DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to BuySell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY.

SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. The new Firefox. Download Firefox — English (US) Your system may not meet the requirements for Firefox, but you can try one of these versions: Download Firefox — English (US) Your system doesn't meet the requirements to run Firefox. Your system doesn't meet the requirements to run Firefox. Please follow these instructions to install Firefox. Please follow these instructions to install Firefox. The best Firefox ever. Uses 30% less memory than Chrome. Truly Private Browsing with Tracking Protection. all things Firefox. If you haven’t previously confirmed a subscription to a Mozilla-related newsletter you may have to do so. Please check your inbox or your spam filter for an email from us. Advanced Install Options & Other Platforms.

Download Firefox for Windows. Download Firefox for macOS. Download Firefox for Linux. Download Firefox — English (US) Your system may not meet the requirements for Firefox, but you can try one of these versions: Download Firefox — English (US) Your system doesn't meet the requirements to run Firefox. Your system doesn't meet the requirements to run Firefox. Please follow these instructions to install Firefox. How to be a successful options day trader What It Takes to be A Successful Day Trader. The grim reality is short-term trading and especially day trading can be hazardous to your wealth. Ninety-two percent of day traders trying to scalp loose money. Only eight percent are successful.

Out of the eight percent, only two percent of the day trading public make money on a consistent basis. Why do 92 percent of day traders fail and what makes eight percent successful? Let's take an honest look at day trading without the hype and emotion that surrounds the subject and find out what it takes to be a successful day trader. We go to school, gain an education, become employed, or start our own business. We learn what we need to know to be successful, but nothing in our education or work experience provides the comprehensive knowledge or psychological control necessary for success as a trader. Unfortunately, it's human nature to assume that if we succeed in one area we will automatically succeed in another. Most people who enter the market with the idea of becoming traders have a feeling of invincibility, superiority, and no clue of what they are about to experience. The dream of quick money and financial success can very quickly become a living nightmare. The first step in becoming a successful trader is to understand why so many day traders fail. Answer the following questions: Would you buy a business if you had no idea what the cash flow would be? Would you buy a business if you had little actual experience or training compared to your competition? Would you go into a business where your competition was well capitalized and you had limited capital? Would you buy a business without a business plan? If you're saying, "Not a chance," guess again. That is exactly what you are doing when you start trading for the first time.

You must prepare yourself and realize that you are going to be up against the best traders in the world. Training, experience, psychological control, and a realization that your are not invincible or smarter than the market will lead you to success. Wall Street is paved with the bones of those who did not learn this lesson until it was too late. Most new traders have the wrong focus. If money is your focus, you have little chance of success. Many new traders look at trading as a way to escape a job they hate. They know they have to make a certain amount of money to pay the bills and this becomes a psychological guillotine. When the trader fails to meet the goal, he begins to push trading beyond his true ability and skill. The result is a series of losing trades that could have been avoided if the trader had the correct focus. Your focus and the measure of your success should be based on following the trading plan, not money. If you follow the plan each day, you are a winner. If the focus is money, it leads to emotional decisions and emotional decisions lead to uncontrolled losses.

Successful traders make decisions based on fact and analysis. Do this and money will follow if your methodology is a sound one. The Mathematics Of Trading. Almost everyone has heard the term "cut your losses." Nowhere is this lesson more evident than in day trading. Statistics tell us that most new day traders lose over $21,000 dollars in their first three months of trading. If they use leverage the average loss rises to more than $45,000. Nothing supports the reasoning for not overtrading and cutting a loss more than an understanding of the mathematics of what it takes to recover from a previous losing trade. If you were down 15 percent, you would need to make 17.6 percent in the next trade to breakeven. This does not cover slippage or commissions so in reality you would have to do far better than 17.6 percent. Now, imagine making 30 trades a day and most of them losses. It has been my experience that it is extremely difficult to recover from any loss of capital above 25 percent for most traders.

This is because it takes 33.33 percent to recover in the next trade. If a trader has allowed the trade to lose 25 percent they simply are not managing the risk. I have known traders to have 10 winning trades and lose it all by not managing the risk on two trades. The successful trader is ruthless about cutting a loss because they understand the mathematical relationship of trading. I have been in this business for a very long time and if I have learned one lesson it is this-once you enter a trade you are no longer a trader you are a risk manager. Never forget this. One of the interesting observations I have made over the years about day traders is that they have great difficulty not trading. Who ever said every day was a trading day was wrong. Only make trades that have a high probability of working out. This means that successful day traders make fewer trades and do not trade everyday. Look for strong trending market days and trade stocks that trend with that market. Many day traders are addicted to the action and making money has little to do with their true reason for trading. These individuals are not traders, they are gamblers.

Action addicts will lose as many times as necessary just for the adrenaline rush to win once. Most successful day traders make no more than three to five high probability trades per day. It has been my experience that if a trader makes over 18 trades a day, they are in all probability gamblers not traders. Successful day traders know that not everyday is a high probability trading day and overtrading can be hazardous to your wealth. High Probability Screening. Most day trading cowboys will shoot at anything that moves. In most cases they walk into their trading room with no game plan other than to listen to the news and trade the momentary euphoric hype in the room. If this is your preparation for battle, your days are numbered and the following might appear on your head stone: "Here lies the bones of a day trading master. He was fast on the mouse but somebody was faster." Screening for high probability profitability trades is of the utmost importance. We teach our students to quantify and select the three highest probability trades that have a reward-to-risk ratio of 2.5 or greater. The screening process looks for and selects the maximum momentum acceleration points on a given security. Out of a database of 500 stocks, our traders select the three highest probability profitability trades for the following day. Ninety-eight percent of a traders success is due to the work done the night or day before the trade occurs.

Success in day trading means a lot of work and very few people will do the work necessary. Losers are always looking for the easy way out. Success is directly proportional to the amount of work you will do that no one else will. What Kind Of Day Trader Are You? One of the keys to successful trading is to understand that you are an individual and as an individual you have strengths and weaknesses. One reason that day traders have such a high percentage of losses is that they are trained to use a standard one-size-fits-all approach. Unfortunately this approach is a day trading style known as scalping. A scalper trades for small fractions of a point-from 116 to 18. This style of trading has a 92 percent failure rate. Most people do not have the psychological control or ability to successfully trade with this method. Another method known as intraday trend trading has a much better success rate. The intraday trend trader will stay in a trade until the trend reverses. This could take a few minutes or several hours. This style of day trading makes time your friend and enables you to trade for points instead of fractions.

The trend trader is far less likely to be whipsawed out of a trade because the focus is on staying with the trend. Notice that I did not say momentum. Momentum is usually associated with scalping too close to the axis of volatility. This volatility is usually displayed on a NASDAQ Level II screen. Years ago this information was very useful for traders. Today it is not as important as it once was and in fact, professional traders use the day traders own out-of-date information about the Level II screen to lure scalpers to their doom. If you are trend trading intraday, Level II has less importance and your chance for success is far greater. Traders trading this style tend to trade much less and statistically have a more successful outcome. Successful traders identify what type of trader they are and do not try to trade a methodology that does not fit their personality. What It Takes To Be A Successful Day Trader. A consistently successful day trader knows his or her success in not found in the box (computer software or hardware). Many times traders look for the answers in technology and it is not there. They blame technology for failure so their answer is to buy more technology.

The answer is understanding and controlling your own emotion and taking responsibility for your own actions and making decisions based on analysis. If you are wrong, you do not personalize the loss, you just say "next." Successful traders know that losing is part of the cost of doing business. Great day traders know that you will never learn how to win until you first learn how to lose. How a trader psychologically handles loss many times determines success or failure. Success in day trading is most of all a mastery of one's self. This is not the get rich quick easy road to riches that some people think it is. It requires a commitment of time, money, and a willingness to work very hard. Desire and working hard is not enough. You are going to need working capital. This is like any other business it takes money to make money.

I suggest you have a minimum of $50,000 to $100,000. Many novice traders attempt to trade without being properly capitalized. Once you have the capital and begin to trade, never forget once you enter a trade you are no longer a day trader. Instead you are a risk manager. Trade only high probability trades and remember, every day is not a high probability trading day. Robert Deel is a trading strategist and author of Trading The Plan and The Strategic Electronic Day Trader to be released in February 2000. He is the president of TradingSchool. com an independent educational company. Tradingschool. com trains the day trader, short-term trader, and aggressive investors. Duarte, CA 91010. CRB TRADER is published bi-monthly by Commodity Research Bureau, 209 West Jackson Boulevard, 2nd Floor, Chicago, IL 60606. Copyright © 1934 - 2002 CRB . All rights reserved.

Reproduction in any manner, without consent is prohibited. CRB believes the information contained in articles appearing in CRB TRADER is reliable and every effort is made to assure accuracy. Publisher disclaims responsibility for facts and opinions contained herein. 209 W. Jackson Blvd. • Suite 200 • Chicago, Illinois 60606-6940 • USA. TOP 10 TRAITS OF SUCCESSFUL OPTION TRADERS. Read This Free Report. Volatility Trading Made Easy - Effective Strategies For Surviving Severe Market Swings. Have you ever wondered what sets the best options traders apart from the amateurs? Why is it that certain traders can consistently outperform no matter what the market cycle? Below is a list of the Top 10 Traits Of Successful Option Traders. They Are Properly Capitalized – A very common mistake for beginner traders is not being properly capitalized. Beginners see the power of leverage option trading offers and think they can turn $2,000 into $20,000 in a matter of weeks. Before they know it, a couple of losing trades have completely wiped out their capital.

I must admit I was also guilty of this. I was living in Grand Cayman and had just started options trading. I think in my first 6 months I broke just about every trading rule possible. I had a couple of small positions in the Australian stock market, one a utilities company and the other a REIT (real estate investment trust). Both of these positions had a low beta, meaning that the stocks did not move as much as the general market. So, through lack of knowledge and understanding I thought I would sell some call options on the main ASX index to hedge and protect my long positions. I obviously didn’t understand my net exposure was now hugely short as the short calls easily outweighed my stock holdings. Sure enough the market rallied, I refused to admit my mistake and take my losses and hoped and prayed that the position would come back my way. Next thing you know my capital has been completely wiped out and I had to send money via Western Union and have my brother deposit the money in my account the next day. Not a great experience for me, but one that I certainly learnt from!

They Have A Low Tolerance For Risk – Another important aspect of successful options trading is having a low tolerance for risk. The best options traders will only trade when there is a low risk high reward scenario. They want to have the odds skewed in their favor as far as possible. The best option traders will not try to hit home runs with every trade. They Trade Only When The Market Provides An Opportunity – One quality all great traders have is patience. Successful investors will only enter into trades when the odds are stacked in their favor. They would much rather be the house rather than the average guy on the street trying to win big. They are focused on the bigger picture and are willing to wait and have the patience to only trade when the right opportunity presents itself. Some of the best traders often talk about sitting idle and just watching the markets, waiting for the perfect time to make a trade. Amateur investors find it very hard to not trade and are captivated by all the red and green numbers on their screen and feel like they are missing out on the action. Can you think of times in your trading when you have experienced this? Are you able to sit on the sidelines and just watch the market without jumping in? Knowing what cycle the market is in, is key to knowing when to trade and which trades to make.

The best resource if have found for knowing what cycle the market is in is Investor’s Business Daily. Each day they publish a Big Picture article which states whether the market is in a confirmed uptrend, the uptrend is under pressure or if he market is in correction. I have found them to be incredibly insightful and you would do well to follow their advice. Their advice is to only buy strong stocks when the market is in a confirmed uptrend and this has been a time tested method for market outperformance. While it’s still possible to make money on the long side while the market is in correction, the odds are stacked against you and you would only want to be buying leading stocks such as those in the IBD 100. They Have A Trading Plan – Before opening an account, everyone should have a trading plan. This shouldn’t just be something in your head either, you need to write it down! By writing it down, it is clearly defined and you can refer back to it at any time. It will also be more real if you write it down and you’ll be much more likely to stick to it. Like anything in life, in order to be successful you need to have a plan and think things through rather than just flying by the seat of your pants. When I first started trading I would just place random trades based on how I was feeling at the time.

I’d put on a bull call spread, then I’d try shorting stocks I thought were over valued and then I’d be making volatility trades. Needless to say I was not very successful during this time. While some of my trades were winners it was like I was taking 1 step forward and 2 steps back. All the great traders have a clearly defined trading plan. This is crucial to your success as a beginner options trader. They Have A Risk Management Plan – Only trade what you can afford, don’t risk money you can’t afford to lose. Trade defensively, rather than think of what you can make, every time you make a trade you should be thinking about the worst case scenario. What could you lose and how you are going to handle the position if things go badly? Beginner traders have trouble getting a handle on how much to risk on each trade. When starting out you do not want to have 90% of your capital tied up in one trade. One thing for beginner traders to consider is to split your trading capital in half, place half in an interest bearing account and use the rest to trade. This way, no matter what happens, you will never lose all of your capital. Another good risk management rule is to set a fixed percentage of you capital as your risk per trade. A common method would be to set 5% as the maximum capital to risk per trade, but for beginners you could even make that lower.

Once a trade is placed you need to continue to monitor risk levels, you can’t just have a set and forget policy, you have to stay on top of your positions and your total portfolio risk. Having a risk management plan is crucial to success as a trader and something that should be done before you start trading. Everyone wants to make a great trade and make lots of money, but you should never take risk management too lightly. What risk management rules fo you have in your trading plan? They Can Control Emotions – Options trading is an incredibly emotional journey and one that you cannot fully appreciate until you have your own hard earned money on the line. The best traders are able to control their emotions not just when times are bad, but probably even more importantly when times are good. In my experience, and I’m sure this is the same for most traders starting out, some of my biggest losses have come when my confidence has been high. The best traders can keep their ego out of the equation and are able to stay grounded even in the midst of tremendous winning streaks. Also, when one of their trades turns out to be a loser, they are able to admit they were wrong and close out the trade. Great traders never get attached to a trade or a particular stock. A bad trade could turn out to be ok, but sticking to your pre-defined trading rules is crucial. You can be 100% right on a particular trade, but you also need to have the right timing.

If your timing is off and your trade breaks your stop-loss you should always stick to your trading rules and keep your emotions out of it. They Are Incredibly Disciplined – Successful option trading takes a great deal of discipline. Beginner option traders may find it incredibly difficult to just sit and wait for a good opportunity to trade. Waiting for the right opportunities may mean you don’t trade for a while, but trading out of boredom or excitement is one of the worst things you can do. Having a money management and a risk management plan is one thing, but in order to be a successful trader, you need to have the discipline to stick to it. You also need discipline to stick to the types of trades you are successful with and not start trading strategies that you are not an expert in. They Are Focused – For beginner options traders it is very easy to get carried away and get excited by all the green P&L numbers on their account statement. Keeping a level head is essential. Staying focused can also be hard when there is so much news on the markets and so many experts, each with a different opinion. The most important thing is to stay focused on your goals, your trading method and your rules. Don’t try to copy someone else’s trades or go against your trading rules just because of something Jim Cramer said. Get to know yourself as a trader as well, I have had a few periods when I wasn’t focused and that led to some big losses. I now can recognize those periods and I know those are the times when I really need to refocus my energies and review my trading plan. If you find yourself losing focus, or getting too distracted and stressed with everything going on, it can be a wise move to close out all of your positions and take break for a while.

Sometimes that is the best medicine and will allow you to come back with a clear head, more relaxed and more focused. They Are Committed – Options trading takes a great deal of commitment. Any time you have your hard earned money at risk, you should be trying to get the most out of your investment strategies and controlling your risk. You need to be on top of your game all the time. Any time you stop paying attention to the market, you will get burned. Not only do you need to keep an eye on your trading performance, you need to be staying abreast of the current news, market cycles and investment outlook. Some of the great resources I use, that allow me to keep up to date on the markets and take up the least amount of my time include: Alpha Trends – Brain Shannon from Alphatrends. net is a market guru and author of one of the top 10 trading books ever written – “Technical Analysis using Multiple Timeframes”. Brian does a free video analysis of the markets a couple of times a week. In the first 5-10 minutes he goes through the current state of the general stock market and the various market indices. Watching this video only takes a few minutes each week, but you will receive expert analysis on the market from a trader with 17 years experience. Later in the video Brian goes through examples of specific stocks of interest which can be a great source of trading ideas. IBD – Investor’s Business Daily is the news service the market pros use.

It only takes a minute each day to read their Big Picture article to see what cycle the market is in as well as how the some of the market leading stocks have been performing lately. IBD is listed as the 4 th most visited site by Charles Kirk of The Kirk Report. If you’re a beginner options trader and find you’re struggling with the commitment required to keep up to date with the market, or find you are suffering from information overload, try these 3 sites out. You will be able to get opinions from multiple experts and it will take you less than 10 minutes a day! They Have Back Tested Their method – Backtesting is a key part of developing your trading plan. This involves evaluating your trading method against the historical performance of the market to check the past performance. Of course past performance does not guarantee future performance, but it will at least give you an idea of how your method has performed in different time periods and market conditions. The average investor may not have the capabilities to run these calculations on their own but there are a number of software providers out there that will be able to perform backtesting. In addition, most brokers such as TD Ameritrade have backtesting software that is free to account holders. Backtesting allows you to evaluate the pros and cons of your method and also provides scope for improvement or tweaking of the method. However, a few things to consider are: Make sure you are using an appropriate time period – If you are testing a long only method between 1995 and 2000, you are likely to get some very favorable results.

The same method may not have performed so well between 2007 and 2009. It’s a good idea to test a method over a long time period. Take into account sectors – If your trading method is solely focused on a particular sector, your backtest sample should be taken from that sector. However, in all other cases it is best to use a large sample size from all sectors. Take into account commissions – commissions can seriously erode your returns, so you need to adjust for this expense, especially if your method involves frequent trading. Past performance may not be a good guide to the future – While your chosen method may have worked in the past, there is no guarantee it will work in the future. A good idea is to paper trade for a month or two, just to make sure your method still works in the current environment. Some great resources for backtesting can be found at tradecision. com and amibroker. com. While I have not used these resources personally, they come highly recommended from other industry professionals. So, those are my Top 10 Traits For Successful Options Trading, what do you think?

Can you think of any other important traits required for successful investing? 24 Comments. no comments huh…ive read everything i can ould ever get my hands on about becoming a successful options trader and this article right here is priceless. Top ten traits….might as well be the ten commandments. haha, fantastic comment Dustingedney! Thanks for the positive feedback. Great advice. Thank you. Thankyou, good info for first timers. Great article! Thank you .

Thanks Alan, glad you liked it. great post, I learned a lot from this one. WOW! just what I needed (as a beginner and for some confidence) Fantastic! Glad it helped you! You mentioned a risk management plan, can you provide an example? As a real beginner, every new insight brings new questions. For example what does it mean to be properly capitalized? How do you evaluate risk? How do you know when the market provides opportunity? As you see I have a lot to learn. Thanks for the good beginning. every trader must follow this rules. You should also have mentioned that successful options traders are net sellers of options. Very true G Guy.

Good comment. thats not true at all.. i trade credit (& debit depending on what im looking at) verticals, naked isnt such a good idea but selling credit spreads is very lucrative. but i was going to comment and say these 10 traits apply to trading anything, not just options. Solid round up of the attributes. Written by someone who has observed success but never experienced it. Right? Or experienced it marginally? This is almost exactly like the list I wrote for myself when I was analyzing why I was not doing as well as I wanted to. It makes logical sense, but parts of it are not possible to follow without massive changes in the trader’s beliefs. For example, patience follows belief. Patience cannot be pulled out of the arse or willed into existence. But, as the writer accurately says, patience is essential to success.

To be a successful trader long term I knew I had to be disciplined (like it says above). But discipline didn’t start to happen consistently until “I believed I must be disciplined.” When I saw it as the only path to success I started doing it. The better question for someone just starting out is “How can I come to believe (in my heart) that I must be disciplined?” “What do I need to believe in order to have patience?” “What do I need to believe in order for my tolerance for risk to become low?” Where do emotions come from and how do I need to think in order to limit their impact on my decisions?” Etc… Then reinforce those beliefs so that you become like the successful trader characterized above…not through discipline or intention, but through nature. Sir, I am from India, I want to learn Option-Trading and trading in Indian Market, can you guide me? Thanks for the article. Really informative and with extra info on top of your No B******* books. The Fast Money Review site doesn’t seem to work anymore. all points are very relevant. Leave a Reply Cancel reply. 10 Part Iron Condor Course. Access My Complete Trading Blueprint.

Closed my Oct BB (a few moments ago) for 34% profit…that is the best of the 3 BBs I traded since Gav taught us the method…so, the next coffee or beer on me, Gav 🙂