You cannot wake up one morning, decide to become a trader, open an account, and begin trading. That is you cannot expect to earn money by taking that route. Trading requires skills and knowledge. These are not learned overnight. And the truth is that some people can never develop the necessary skills. They may be successful investors, but trading is different. By the definitions used in this post, an investor buys an asset and plans to hold for an unspecified time.
On the other hand, a trader buys or sells short an asset with no long-term plans. Traders tend to hold positions for as little as a few seconds to as long as a day, and seldom own positions overnight.
The same expectation is in play: An option trader is a mixed breed. I have no statistics, but when I talk about an option trader, I am referring to someone who opens a position with the intention of earning a profit when the market moves option owner , or time passes option seller.
Thus, the holding period is not known in advance except for those who always hold until expiration arrives. To me an option trader has a position that takes several days to a few months to bear fruit. In fact, not so many years ago s , brokers were advertising how easy it was to open a trading account and become wealthy. Even though most of those day trader wannabes faded into the sunset, people believe that being a winning trader is not too difficult.
For that reason, new traders tend to be overconfident. With that overconfidence comes a sense of bravado, risk management is ignored, and traders blow up their accounts before they learn whether they have what it takes. Traders do not have to be the best, however they must be substantially better than average. If you want to learn about options with the intention of using them to make money — or to reduce the risk of holding other investments — I can help with the education portion of becoming an option trader.
I can help guide you toward understanding what is needed, such as patience, discipline, controlling your emotions — and especially fear and greed. Options are unlike anything you ever traded previously. They can be used to hedge reduce the risk of owning other assets.
They can be bought or sold as a bet on market movement or lack thereof. If you are unfamiliar with options, there are two major differences between options and other assets:. Regarding using options as a hedge: The truth is that options were designed as risk-reducing tools, and option buyers own insurance policies.
Risk is transferred to the option sellers. Too few do that, and suffer when the market undergoes one of its periodic tumbles. Character traits that make you a better option trader. This is very difficult for some personality types. It is not just something that helps a little. You cannot succeed for long without recognizing the importance of risk management. Do not allow losses to grow to an unacceptable level. Recognize that every trade cannot be a winning trade.
Your ego is not involved with the trade, but your financial future is. You can succeed, but there are no guarantees.
Trading is not for everyone. That depends on the size on your bankroll and your trading skills. One of my favorite quotes by Dr. Brett Steenbarger trader, trading coach, psychologist, former blogger was in response to my question:.
Trading is all about making good decisions. We look at potential risk maximum loss , potential profits, probabilities of success and make our trade decisions. Sometimes the markets behave move as you hope and at other time they don't. Just how badly they misbehave determines your financial results. Winning traders do not idly stand by and watch their money disappear when things don't go their way. Traders are active in the trading arena.
They frequently exit losing trades, waiting for a better set of circumstances. They also protect their assets by hedging, adjusting, and reducing position size. Please I mean it: Sure those appear to be good-sized moves and they will affect the probability that your current portfolio is or isn't going to be profitable.
But, there are times to adjust. Just as waiting too long is not a good way to manage risk, so too, adjusting too quickly in ineffective. That's one reason for making a trading plan. You will know, in advance when the position reaches, or approaches, the danger zone for you and your risk tolerance. At or near that zone is the time to make an adjustment. Over-adjusting is not going to work. It's expensive, it's overkill. If you cannot tolerate any risk — then option trading is not for you.
If your risk tolerance is very low, that's okay. Find a strategy that offers that very low risk and the low-profit potential that goes with it. But if you adjust out of fear every time the market makes a small move, you will have a lot of trouble. Open that paper-trading account, open some positions, believe it's real money and see just how frightened you get. Adjust when you believe it's necessary.
Keep careful records and determine whether you can be consistently profitable. When you understand the principles behind trading, you have the ability to think clearly and make good trade decisions. In turn, that increases your chances of having a long and successful trading career. There are people whoI can help you make better trade decisions. Many serious-minded traders in training learn to do whatever is necessary to succeed.
A larger number are anxious to begin, skip both the education and practice sessions, and expect to make money. It's not going to happen. I can teach you many things. However, you must know who you are. Can you control your emotions, or do you panic easily?
Can you make difficult decisions in stressful situations?. Do you refuse to take a loss and plan to hold all trades until they turn profitable? If that is your mindset, trading is going to be a very difficult undertaking. If you get greedy or become easily frightened, you must learn to overcome those habits to become a successful trader. Trading is similar to any other job or hobby You cannot wake up one morning, decide to become a trader, open an account, and begin trading.
An option with a longer lifetime. It requires a certain skill-set, knowledge and the ability to avoid panic. Trading is a serious business, and not a game. Options Education If you want to learn about options with the intention of using them to make money — or to reduce the risk of holding other investments — I can help with the education portion of becoming an option trader.
Developing skills often requires a good trade coach or mentor Options are unlike anything you ever traded previously. If you are unfamiliar with options, there are two major differences between options and other assets: Options have a limited lifetime, and at some point they expire and cease to exist.
Options are known as wasting assets. Options are used to measure and manage risk. Too few people understand that aspect of options Regarding using options as a hedge: That depends on the size on your bankroll and your trading skills One of my favorite quotes by Dr. Brett Steenbarger trader, trading coach, psychologist, former blogger was in response to my question: Bottom Line When you understand the principles behind trading, you have the ability to think clearly and make good trade decisions.
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