When you’re in the trenches, completely focused on trading, it’s easy to forget the options trading best practices that helped you become successful. These are the rules you must abide by – unless you want to be separated from your capital.
And believe me, I’ve learned the hard way. I have made every mistake in the book during my trading career. The errors have resulted in some enormous losses at times. Follow these principles, and you’ll save yourself a bundle (financially, mentally and emotionally) over the long run.
3 options trading best practices I always follow
Take profits
The first best practice is take profits when you have them. While this seems like an obvious no-brainer, you’d be surprised at how many traders forget that this is their number one job. No one ever went broke taking a profit – but they did grow their portfolio.
Could the profit have been bigger if you had held on another day? Maybe, but maybe not. You have no idea what the markets will do, yet far too many traders believe they must hold on and wait for even bigger profits. You could easily end up in the poor house with this strategy.
Remember: We’re in the moving business, not the storage business.
Properly size your positions
The second best practice is proper position sizing. I’ve seen some truly smart traders with bullet-proof systems get totally wiped out when they went all in on a single trade. It’s almost comical if it weren’t so tragic.
Properly sizing your trades will help you sleep better at night. I’ve actually had nightmares when my positions put too much risk (capital) on the table, and I have suffered losses as a result.
Never put more money on the table than you can afford to lose.
Commit to getting better
Finally, read more about trading strategies, technicals, oscillators, anything you don’t currently understand. The internet contains a vast library of resources that can improve your options trading knowledge and skills.
Take your newfound wisdom, and practice on paper. Once you feel comfortable paper trading, move on to the real thing.
Keep a journal to record your successes, losses and lessons learned. Review your notes on a regular basis.
I’ve learned that improving as a trader comes down to continual learning, experimentation and execution. Follow these options trading best practices, and you’ll be on your way to achieving great success.
