As volatility returns to the market, our options traders build their portfolios on the solid foundation of my strategic approach, organized into three separate components — mind, method, and money management — that are the cornerstones of your complete game plan for trading success:
Let’s begin with what I call your “Twin Tolerances For Risk.” Being in the right mindset from the very beginning is a critical step to your ongoing options trading success.
Financial Tolerance for Risk: Your financial tolerance for risk is based on the amount of money you can afford to lose. Option buying is only appropriate for risk capital – money you can afford to lose – money that, if lost, would not change your lifestyle or long-term financial situation. If anyone tells you that you can make a high return with low risk, be sure to zip your wallet.
Psychological Tolerance for Risk: To determine your psychological tolerance for risk, ask yourself: Will I be constantly thinking and worried about my positions? Will I be able to sleep at night? Will it affect my work? Will it impact my home life? If you answer ‘yes’ to any of these questions, you likely have a very low psychological tolerance for risk and your trades are going to negatively impact other areas of your life. If, on the other hand, you know you won’t worry and are fully aware of and able to deal with the high risk of loss, and trading is an activity you pursue for fun and profit, then you are endowed with the necessary psychological tolerance for risk that goes with sensible and successful speculation.
Method: Method relates to how you decide which trades to make. Markets are extremely competitive. Buyers and sellers struggle for control each day. If you are looking for valuable information regarding analysis and outlook for stocks and commodities to stay a step ahead of the crowd, that’s where we come in. Two aspects of successful options trading are how you pick ‘em and how you play ‘em. First is our method of analyzing trends in price movement, identifying which side has the advantage (buyers or sellers), along with when and where the balance of power is likely to shift. Over the years, we’ve developed a judgment based on experience and apply that information to making informed stock picks. Second is the method of actually buying and selling once you have determined which stocks to play.
System: The only certainty in markets is that prices fluctuate. Changing prices is the name of the game and being able to have an early warning system that provides specific actionable market intelligence gives you an edge over others vying for profit. Our proprietary method of combining ancient Japanese Charting Techniques with the best of western technical analysis powers our strategic picks for the Options Hotline.
Tools: The tools we use are exchange-traded put and call options. Options buyers are the only ones who possess the Superleverage power of an unlimited profit potential with an always known and strictly limited risk at all times. Understanding options and the risks and rewards of options trading, combined with top-notch market intelligence has you well on your way to sensible speculation, sustained success and ongoing fun.
The third, and perhaps most important, cornerstone of your Complete Game Plan for Trading Success is money management. Successful speculation is as much a matter of honing your survival skills as it is finding winning trades. While a good money management plan is different for each individual, every money management plan includes these elements:
- Amount of risk capital (separated from all other funds)
- Evaluation of risk and reward for every trade
- Use a fixed dollar amount for each trade
- Determine what type of broker
- Every now and then take profits out
- Efficient use of capital
- Seeking consistency, with willingness to accept smaller returns/smaller drawdowns
- Detailed goals for the risk capital and plans for the capital once it is achieved
- Risking a small percentage of total account capital to each trade
- A designated person who will monitor positions
- An entry and exit strategy for each trade