If you ask me what is the major difference between a novice and a professional trader, the difference is whether he or she set the trading rules and follow the rules. There are thousands set of trading rules that you can create or follow, what I recommend is that you do not need to create a certain of trading rules, you can just follow them which came from the famous investor and traders.
One of the famous investor that I admire and respect a lot is Warren Buffet. In his world, rules are more important than anything. His famous quote is as follow:
Rule 1: never lose money
Rule 2: never forget rule no 1
Funny enough? But the fact is, many people understand the importance of setting rules but never learn to follow the rules.
For part 1, I would like to share the rules that I follow before I enter the market.
Rule 1 - Always do market research before market open:
Open your CNBC or any finance website to get the latest update, understand what's happening in the market right now. Either is it oil price drop, or some where having a war, focus on news that may be making any impact to the US market and the stock you are trading. After learning the news, try to figure out the market sentiment, for example, is oil inventory going lower a good thing to the market? Certainly not! With the latest news in hand, it will help you to make a better decision when entering the trade.
Rule 2 - Limit your trading size:
Do not over trade, always make sure you have enough money to play for the next game. Thumb of rule is always using 1/20 of your total money for each trade. If you have $5000, each trade is $250, in that case you can have 20 games to play.
Rule 3 - Give your trade a reason:
Before entering the position, make a note and jot down what makes you buy or sell certain options, as well as what strategy you use, and why? Put all this down in your trading journal, so that you can revise it back. If you end up a loss, make sure you understand where the problem is. If you earn a profit, remember what you did right.
Rule 4 - Set exit level:
When you see a potential trade, holds your trigger, make sure you set your exit level before clicking the button. Many people are good traders, they know when to enter the trade, but do not know when to get out. You need to set two exits, one for your stop loss, one for your profit limit. Especially for stop loss, set at the level that you are comfortable with your risk level, from the technical point of view, you can set your stop loss at certain support level, when the stock break through the next support level, cut the loss and run.
To learn more about options trading, please find out from TraderWork.com Always trade with your passion!
I love options trading and I am here to share my humble experiences so that you can be benefited from it. You can find out more from http://traderwork.com Always trade with your passion! Cheers! Article Source: http://EzineArticles.com/?expert=Paul_Liew |
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