If you have been following my series of articles about options spread trading, you should be ready to join the ranks of options spread traders and start trading on your own.
You have easy tools to identify simple market trends. You also now know basic strategies for different types of markets. Plus, you are aware of potential spread trading risks and how to minimize your risk exposure by using various risk control strategies.
In addition to what you have already learned, I want to leave you with a few bits of advice to help you on your journey.
1) There will be times when you will be tempted to make a high-risk trade. You might get away with it. Even worse, you might make a lot of money on that trade. The reason I say “worse” is because there is nothing more dangerous than doing something stupid and profiting from it. It builds bad habits.
2) There is an enormous difference between wanting to do something and being committed to it. If you want to be an effective option trader, you will have to commit to becoming a success.
If you just kind of want to be an option trader, then chances are, you won’t.
However, once you truly commit to something, you will find that true commitment has a power and boldness that other people rarely experience. Go for it and commit to being the best trader you can be.
3) The worst emotion that can carry over into your trading is euphoria.
People think fear and greed are the worst emotions for traders. They are not. Euphoria makes you feel like you are as good-looking as George Clooney when you really look like Danny Devito. You make a big trade. You manage to gain some serious profits. Suddenly, you begin to think that you are a Wall Street icon like Warren Buffett or George Soros.
You start believing that you are smarter than you are. Consequently, you convince yourself that you have unique insights into the market – insights that mere mortals do not possess.
You trade bigger and riskier until the gods of Wall Street smack you down and leave you bloody and broke.
4) Do not counter-trend trade the market when you are starting out as an options spread trader. Save yourself a lot of sleepless nights and make life easier on yourself by trading in the direction of the trend.
Trying to catch a falling knife or time the top of the market is a futile exercise even for the pros.
You know the advertisements that say “This expert called the housing crisis… the dot-com bubble… the financial crisis…”?
However, those experts have most likely called those events a hundred times if they called it once. If they call it enough times, at some point it is highly likely that it will come true. Even a stopped clock tells the correct time twice per day.
Trade with the trend and you’ll make more money than the clowns who try to predict the future.
This brings me to…
5) Be an interpreter, not a predictor.
You cannot, nor should you try, to predict the future of markets. Do you know how much money you will make as a predictor in the stock market or in trading in general? None. None at all. However, you should not worry about it because your job is not to predict the market.
All you have to do is interpret the direction of the markets based on recent short term trends and use simple trading strategies to increase the odds of a profitable trade in your favor.
Do not worry about what the market is going to do in the future. People who try to outsmart themselves by making wild predictions about future price action are overcomplicating things for themselves. Worse, they are sabotaging their own efforts.
Billy Williams is an author and a 25-year veteran trader. For a free strategy guide, “Fundamentals for the Aspiring Trader”, and to learn more about profitable trading, go to www.stockoptionsystem.com.