By Owen Trimball – You could have heard the expression “do one thing, do it well”. This was never so true as it is in relation to the matter of trading the markets. There are many option trading systems available and the developers of those systems will always tell you that theirs is the one that will solve your financial problems and give you the freedom you’ve dreamed about.
And some of them might be right.
Some systems will show you that all you require is the RSI and volume indicators only, together with a couple of moving averages and bollinger bands. Others will concentrate on the ADX or the CCH indicators and their systems will focus around that.
Other option trading systems might be basic and involve only going long, or ‘buying to open’ with the objective of selling to close at a profit within a very short timeframe. They will give you each of the indicators and chart setups to accomplish this. Others will emphasise longer term approaches that depend on option time decay. Some systems will involve directional trading, in other words, predicting future market direction for the short term, while others will teach you about ‘delta neutral trading’ and preach strategies such as straddles and strangles which will make you a good profit as long as the market makes a substantial move one way or the other.
Many of the above option trading systems may be great in themselves, but here’s the best tip you’ll ever get from someone who’s done it all. The most important thing is, find one or more strategies which you understand well and that you’ve had regular success with and just keep doing it. Don’t allow yourself to get distracted by trying new strategies using real money, because you’ve seen the latest DVD or read some book that claims how someone made a million with it.
It’s really as simple as that.
I remember a time in my trading life when I was using an option trading system that really worked for me. I started with about $5,000 and within a short time, transformed it into a bank account of over $20,000. I did this running a simple ‘buy to open’ and ‘sell to close’ technique that i had learned from a guy named Nik Halik, combined with a selection of straddle trades. I was doing really well.
But then I became impatient. The market I was trading in didn’t have the kind of liquidity that allowed me to always take a trade when I saw an opportunity. So I decided to change from trading options to doing CFDs. At that time, I was learning about ‘ABC swing trading’ as outlined by W.D. Gann and changed how I analyzed chart patterns and picked opportunities without fully comprehending the context in which this system works. Now whilst CFDs are far more liquid than options, they also involve much greater associated risk due to the amount of leverage involved. Unlike option trading, you can lose more than your outlay, so the psychology wasn’t good for me either. So many times, I found myself stopped out, only to have the stock take off in the direction I had anticipated in the first place. I lost most of the money I had made from my previously successful option trading system.
The point is, you must stay focussed on a system which you feel confident with and that has proven itself to work for you. Don’t allow yourself to be distracted by other systems that look fantastic on the surface, but may not be compatible with your trading style or available concentration time – or that you simply may not yet understand well enough to apply effectively.
Over 90 percent of trading success is all about your own psychology. It’s the crucial thing that causes you to make all your trading choices. This is why you have to enter the market with confidence, knowing that no matter what trading system you have followed, you know it well, have proven to yourself thatit works, know the risks and believe that with patience and self-discipline, it will make you a reliable income for the rest of your life.
If you don’t have all this, there are three little words I have for you, right here, right now. DON’T DO IT!
About the Author
Owen has traded options for many years and writes for “Options Trading Mastery” – a popular site about the best option trading strategies and the option trading systems other successful traders use.
