A word of caution
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As per TNSN2345-.. the first step in trading is first be a conventional trader(use TA/mm/stoploss)...from a successful conventional trader then try to reach out for mastery in financial product like OPTION trading.
It trains then your mind Risk/reward - reason behind potential trade,if trade behaves NOT correct -how to take RECTIFICATION . Then mathematical analysis with scenario preparation will be EASIER to implement , as well as then u will be trained to quicker action , based on time sensitive product - also with leverage product ,U MUST derisk better.
It helps-How to convert your losing trades into winners
- Capital guaranteed trading.
Yes in OPTION ,ur outlook has to be changed.
So for simplicity ,when we start from stock trade,we have only two views to profit, bullish or bearish . It is just a plain view of the Underlyings reaching a particular price up in case of bullish view and a particular price down in case of bearish view and by a 'specific time'. For every system of ours, this is important that the view has to be till a specific time, either 10 mins, 30 mins, till EOD, for 3 days, a week, a month etc.
But since we are no God, we can't exactly define the end of the 'specific time' nor can we define that our entry is just the right time and move will happen exactly after we have taken a position.So we need a confirmation too that we have indeed caught the best entry position and that too WITHOUT incurring loss..so the question is how do we do it.
When we arrive at a decision point (and say our view is bullish) we generally enter long, we generally enter at a point where the bears have just thrown out but are the bulls ready to charge ?generally no. Though ideally we should have entered after a pause to let the exhausted bears, breathe easy and cool down and just as the bulls show signs of charging.
But most of the traders are not so paitent to do so, and since we want to be in the market, we take long position just when the bears have climaxed and then hold on our position till the bulls start charging....this waiting period of waiting and hoping that our position will flourish is the culprit and lot of things keep running in our minds during this time.......hence even when there is small up move, we tend to exit as we are restless, particularly we were kept waiting for so long for the bulls to charge.
Alternatively if the bears decide to march further down south, there are high chances that the position is held on using hope, since you are married to the position as you have been holding it and pray- the holding strategy does not allow you to exit even you know that the movement is not in your desired direction.
Best thing(theoretical plan) is to enter just when the bulls are ready to charge (in case of bullish view) or just when bears are ready to attack (in case of bearish view), in actual we can succumb to our urge to enter the market and 'Get into the Action' and 'Get the first hand feel'
This can be controlled /modified by ENTERING NEUTRAL POSITIONS. Yes ENTER NEUTRAL.
So by a 2way trade( like writing AT THE MONEY -call & put) I initiate the trades in Neutral Gear that means that the ignition of my car is ON and I am standby in a Netural Gear. I may have a view, but since I did not for sure knew when that would likely be triggered, I entered Neutral - so I am in the market and already in the action.....till the time the market is moving in a limited range,(small range bound market) my setups were not in much loss nor in much profit.
As the time passes, and conviction as per my system, charts and price action suggest that the desired directional movement has started,crossing an initiation period , I CLOSE THE LOSS MAKING POSITION And than now I have a directional position, as per the trend in the market.
So I do not spend my time and energy to keep analysing, which side is right and then move to that side, BUT I AM IN THERE sitting on the fence all the times with one leg on each side, and swings my legs merrying in the air. The moment one side shows action, I pull out my leg from the other side Quickly.
this Netural position help you to be in the market, but without bearing any loss as you are market Neutral,As you exit your loss making position Quickly. you develop habit of exiting trades in early loss - another requirement to be a successful trader.
- It helps to hold your positions for long time, since after an move in your direction, if there is a pause, you can reinitiate the opposite position and then again get back to the market neutral position, keeping the original position in profit.
Most important: when you are having a market Netural position, and the movement subsequently happens in the OPPOSITE direction of your anticipation, you can exit your loss making position (the position which you originally wanted to hold ) and continue with you NOW profit making position (originally which you did not anticipate to be in profit). This is how due to Flexibility ,original loss making directional bias,can turn into profits. This is despite the movement happening in the opposited direction to your anticipation.Thus the original set up was exited midway and loss making trades where shun out, holding just the directional profit making position and profiting from the momemtum of the fall or in some other cases would be a bull run.
So flexibility ,thinking out of box is key theme for option trader.The above techinques given large room to accomodate, right decision making errors and hence would advise it to starters, till they have developed a good strike rate sytem which gives high probablity of right signals on entry. Even today, I am stuck on lot of occasion when my system though it me some indications and I do not have conviction on that indication, I enter a Netural Trade first only to then release the loss making trade out and continue holding the profit making trade till the end of holding period.
.....................................................
With a comment from Xray27, i am concluding views as option learner. Enough hints on how to trade option given-(personally i trade directional bias)
TOP 10 TRAITS OF SUCCESSFUL OPTION TRADERS
1.They Are Properly Capitalized
2.They Have A Low Tolerance For Risk:The best options traders will only trade when there is a low risk high reward scenario.
3.They Trade Only When The Market Provides An Opportunity
4.They Have A Trading Plan
5.They Have A Risk Management Plan
6.They Can Control Emotions.
7.They Are Incredibly Disciplined
8.They Are Focused
9.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
10.They Have Back Tested Their Strategy
.........................
...........................
As per TNSN2345-.. the first step in trading is first be a conventional trader(use TA/mm/stoploss)...from a successful conventional trader then try to reach out for mastery in financial product like OPTION trading.
It trains then your mind Risk/reward - reason behind potential trade,if trade behaves NOT correct -how to take RECTIFICATION . Then mathematical analysis with scenario preparation will be EASIER to implement , as well as then u will be trained to quicker action , based on time sensitive product - also with leverage product ,U MUST derisk better.
It helps-How to convert your losing trades into winners
- Capital guaranteed trading.
Yes in OPTION ,ur outlook has to be changed.
So for simplicity ,when we start from stock trade,we have only two views to profit, bullish or bearish . It is just a plain view of the Underlyings reaching a particular price up in case of bullish view and a particular price down in case of bearish view and by a 'specific time'. For every system of ours, this is important that the view has to be till a specific time, either 10 mins, 30 mins, till EOD, for 3 days, a week, a month etc.
But since we are no God, we can't exactly define the end of the 'specific time' nor can we define that our entry is just the right time and move will happen exactly after we have taken a position.So we need a confirmation too that we have indeed caught the best entry position and that too WITHOUT incurring loss..so the question is how do we do it.
When we arrive at a decision point (and say our view is bullish) we generally enter long, we generally enter at a point where the bears have just thrown out but are the bulls ready to charge ?generally no. Though ideally we should have entered after a pause to let the exhausted bears, breathe easy and cool down and just as the bulls show signs of charging.
But most of the traders are not so paitent to do so, and since we want to be in the market, we take long position just when the bears have climaxed and then hold on our position till the bulls start charging....this waiting period of waiting and hoping that our position will flourish is the culprit and lot of things keep running in our minds during this time.......hence even when there is small up move, we tend to exit as we are restless, particularly we were kept waiting for so long for the bulls to charge.
Alternatively if the bears decide to march further down south, there are high chances that the position is held on using hope, since you are married to the position as you have been holding it and pray- the holding strategy does not allow you to exit even you know that the movement is not in your desired direction.
Best thing(theoretical plan) is to enter just when the bulls are ready to charge (in case of bullish view) or just when bears are ready to attack (in case of bearish view), in actual we can succumb to our urge to enter the market and 'Get into the Action' and 'Get the first hand feel'
This can be controlled /modified by ENTERING NEUTRAL POSITIONS. Yes ENTER NEUTRAL.
So by a 2way trade( like writing AT THE MONEY -call & put) I initiate the trades in Neutral Gear that means that the ignition of my car is ON and I am standby in a Netural Gear. I may have a view, but since I did not for sure knew when that would likely be triggered, I entered Neutral - so I am in the market and already in the action.....till the time the market is moving in a limited range,(small range bound market) my setups were not in much loss nor in much profit.
As the time passes, and conviction as per my system, charts and price action suggest that the desired directional movement has started,crossing an initiation period , I CLOSE THE LOSS MAKING POSITION And than now I have a directional position, as per the trend in the market.
So I do not spend my time and energy to keep analysing, which side is right and then move to that side, BUT I AM IN THERE sitting on the fence all the times with one leg on each side, and swings my legs merrying in the air. The moment one side shows action, I pull out my leg from the other side Quickly.
this Netural position help you to be in the market, but without bearing any loss as you are market Neutral,As you exit your loss making position Quickly. you develop habit of exiting trades in early loss - another requirement to be a successful trader.
- It helps to hold your positions for long time, since after an move in your direction, if there is a pause, you can reinitiate the opposite position and then again get back to the market neutral position, keeping the original position in profit.
Most important: when you are having a market Netural position, and the movement subsequently happens in the OPPOSITE direction of your anticipation, you can exit your loss making position (the position which you originally wanted to hold ) and continue with you NOW profit making position (originally which you did not anticipate to be in profit). This is how due to Flexibility ,original loss making directional bias,can turn into profits. This is despite the movement happening in the opposited direction to your anticipation.Thus the original set up was exited midway and loss making trades where shun out, holding just the directional profit making position and profiting from the momemtum of the fall or in some other cases would be a bull run.
So flexibility ,thinking out of box is key theme for option trader.The above techinques given large room to accomodate, right decision making errors and hence would advise it to starters, till they have developed a good strike rate sytem which gives high probablity of right signals on entry. Even today, I am stuck on lot of occasion when my system though it me some indications and I do not have conviction on that indication, I enter a Netural Trade first only to then release the loss making trade out and continue holding the profit making trade till the end of holding period.
.....................................................
With a comment from Xray27, i am concluding views as option learner. Enough hints on how to trade option given-(personally i trade directional bias)
TOP 10 TRAITS OF SUCCESSFUL OPTION TRADERS
1.They Are Properly Capitalized
2.They Have A Low Tolerance For Risk:The best options traders will only trade when there is a low risk high reward scenario.
3.They Trade Only When The Market Provides An Opportunity
4.They Have A Trading Plan
5.They Have A Risk Management Plan
6.They Can Control Emotions.
7.They Are Incredibly Disciplined
8.They Are Focused
9.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
10.They Have Back Tested Their Strategy
.........................