Now that everyone is back from vacation, let’s talk about how to have a successful trading year. I put together a list of my top 10 options trading tips for 2020 – and any year, really. This is evergreen advice that will never go out of style.
10 options trading tips for 2020
This is not an exhaustive list, of course. Follow this advice, and your portfolio will thank you.
Ignore the media
Last year turned out to be a really strong year of gains for the markets. Not many analysts or traders expected it – especially when we were still trying to recover from one of the worst December’s in memory. If you had followed the advice of the media in January, you probably performed poorly.
Remember: the media does not have your best interests at heart. They only care about ratings.
Leave your opinion at the door
Opinions can easily open the door to your emotions and bias, which will get you in trouble. Focus on what the markets are telling you, not what you “think” they should say. Once you remove emotions from trading, it’s easier to spot and take advantage of great trading opportunities.
Review your trades
Take notes on your trades (specifically what worked and what didn’t). Review your notes on a regular basis to ensure you keep doing what works and change what doesn’t. Trading markets is a perpetual learning exercise, no matter how long you’ve been at it.
Play the best odds
In option trading, it is thrilling to risk a little to win a lot. Big winners happen but not on a daily basis. Instead, look for high-probability bets that will benefit your portfolio, even if by a few percentage points.
Follow the technicals
Technical data is unbiased; it’s a reflection of what is actually happening. Learn to read technical and sentiment indicators to find buy and sell opportunities.
Use the best tools available
It is absolutely worthwhile to invest money in charting tool subscriptions. The two I rely on are TrendSpider and Chaikin Analytics.
I also suggest using Twitter to find great advice and ideas. Just follow the hashtag #fintwits (financial Twitter).
Practice good risk management
Trading is a game of survival, and your weapon is good risk management. Having a disciplined approach to trading is the only way to stay in the game.
Respect the markets
Don’t try to force a trade. The markets are always in charge. If you try to make the markets bend to your needs, it won’t end well – for you.
Cut losses while they’re still small
Trading is not a game of perfect. You will have losses, but they don’t need to ruin you. If a trade starts going south, cut your loss quickly. There’s no need to go down with a sinking ship.
Take winners when you have them
A big mistake many options traders make is to let winners run. Successful options traders take profits when they have them. In other words, don’t get greedy. It doesn’t matter how big or small the gain is – take the money.
