OEX OPTION TRADING PRACTICE! - # No.2 :Posting

Thursday, October 29, 2009
OPTION TRADERS NEED NERVES OF STEEL!


NUMBER #2

OEX OPTION TRADING WITH $1500 to start!

What kills amateur option traders is the practiced skill lacking in being able to sit through a SERIES of whipsaws, during a movement. Fear and Panic overwhelm them in the gyrations of the prices when their limited cash is disappearing fast in a whipsaw. Which happens all the time! You have to have conviction in your system and indicators and obey the RULES you designed to trade.
What kills amateur traders in options is they spend a lot of time devising a system, or methodology and then violate that system by disregarding their own rules when FEAR and PANIC come in whipsaws.
CAN YOU START TRADING WITH $1500? The answer is YES! The probability of your succeeding is very LOW. The reason is that you are not able to practise MONEY MANAGEMENT. You cannot take a LOSS, not any loss, as you are trading with 100% of your capital. $5000 is a better starting point and you start with just one option. That way if you lose, you have enough money left to win it back. Even at $5000 you are high risk, because you can only swallow ONE LOSS and come back, so the ratio is roughly 25% of your capital is tied up in one TRADE, or BET on market direction. Futures traders like to gamble only with 2% of their capital. A minimal bet in OPTION trading on the OEX is around $1500 or a little less. Just for one option.
The second thing that hurts amateurs is taking profits too soon. Instead of riding a trend for maximum gains. They tend to take a loss on the first whipsaw, or cash out at the first consolidation instead of riding it through. It is partly emotional and partly inadequate experience that causes would be amateur traders to lose. Taking small profits, instead of triple the amount what you won, is another killer for amateur traders in options. Small profit taking, pushes the odds against you, for the inevitable loss you must endure. You need larger profits to offset the inevitable unexpected loss. Ideally you want to devise a trading system that is 100% a winner, all the time. No losses at all. When you do that, you GOT IT!

Trading from my retirement home in Western Belize in the foothills of the Belize Alps. See "Western Belize Happenings" blog for over 600 articles and photos on life in this laid back part of the world. ( author of half a dozen books on OEX Option Trading. )
Posted by Western Belize Happenings! at 4:14 PM 0 comments