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Option Trading For A Living: 7 Tips For Success! - Part 1
from: James ThomasIs it really possible to trade options for a living?
This is a question that I get asked quite frequently and the
answer is...YES it certainly is possible!
I know this because I've been option trading for a living
successfully for the past 3 years.
However, to be able to remain in the option trading game long
enough to experience success, there are certain things every
option trader should do.
What are they, you might ask?
Well, I've met many successful options and futures traders over
the years and interestingly enough when I've asked them how they
came to be successful, the answers they gave were uncannily
similar to each other.
Here are the top 7 tips 'proven' to help you achieve success at
option trading for a living based on the experience of many
successful traders, including myself.
1) Learn A Proven Option Trading System (Or Develop Your
Own) & Back-Test It
Trading is a business and in order to be successful we need to
treat it as such by following a system that has a proven track
record of providing exceptional results long-term.
The way we find out if a system is successful and right for our
objectives is by back-testing it on specific stocks over several
years using historical prices to test the performance of the
system over time.
Here's a useful post I found on Google Answers on how to find
Historical Option Price Data:
target="_blank">http://answers.google.com/answers/threadview?id=3
07742
2) Get To Know A Small Number Of Stocks Very Well
When I first started trading options, I had a huge watchlist of
more than 100 stocks. These days I can't imagine trying to watch
that many stocks.
Now I have 10, highly liquid stocks on my radar that I have
gotten to know very well over the last couple of years.
Just like people have different personalities, so do stocks and
this is why I don't like using scanning tools to apply my option
trading system over thousands of stocks.
It's simple really. Some trading systems work well on some
stocks but perform poorly on others. This is why back-testing is
so valuable, as it allows us to see which stocks perform best
with the trading system we're using.
It's also important to note that although past performance is
not a foolproof indicator of future performance, a stock's
trading 'behavior' can be very repetitive - even predictable.
If you back-test and 'live trade' a stock long enough you will
get to know it's little 'quirks' in relation to your trading
system, allowing you to adjust your trading system rules
slightly to fit the personality of each individual stock in your
watchlist.
I have found that this improves the overall performance of my
trading system greatly, particularly over the longer-term.
3) Start With As Much Capital Behind You As Possible
This is important. Far too many traders make an attempt at
option trading for a living but are soon wiped out because they
lack sufficient capital.
If you trade options you WILL experience losses and sometimes
several losses in a row. That is why you need to have enough
capital to be able to ride out these times.
In my opinion, if you think you can 'realistically' make a go at
option trading for a living with anything less than $30,000 -
$50,000+ in capital, you're probably in for an unpleasant
reality check.
Don't get me wrong, I've heard of a few traders building a
fortune out of a starting bank of just $10,000, however the road
to option trading success is littered with many a broken trading
bank and bruised egos to match.
In my opinion if you have less than $30,000 available for
trading, then I suggest that you trade part-time and keep your
day job. In fact, this is probably the best way for everyone to
start.
This will keep the 'pressure to perform' off you while you build
up your experience, confidence and of course, your capital.
4) Follow Your Rules Like Your Life Depends On it
Once you have a solid trading system that you're confident in
and comfortable with, follow it consistently and to the letter.
This will allow you to relax into your trading and remain
objective in your decisions. If you have a clear entry signal,
pull the trigger without question and place that order.
Likewise if a clear exit signal presents itself whether it
results in a profit or a loss, again pull the trigger and close
out that trade.
Do not for a moment think about the money. Simply focus on
trading well and the money will flow as an afterthought.
Successful traders follow their rules like their lives depend on
it, because when it comes to option trading for a living, it
does!
About the author:
James Thomas is a successful private option trader and mentor.
To read the full version of this popular article on
trading for a living and access loads of free option
trading tips, including online video tutorials, go to:
option-trading-tips.blogspot.com
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