ATTRIBUTES OF SUCCESSFUL OPTIONS TRADERS
Options are one of the most flexible yet riskiest investment instruments in the financial market. Traders can leverage their position in order to optimize returns, minimize risks by using the options for hedging, or make profit from market movements. But it is very speculative in nature. The following are the characteristics a successful options trader.
Trading Technique = Trader’s Personality Different people. Different personalities. Certain investors are good at day trading. Others choose position trading, and some are comfortable with swing trading. Whatever trading style you choose, it should be suitable for your personality and financial goals.
Befriending the Numbers Any kind of trading has numbers. Yes, investors always deal with numbers - and they have no choice. Options traders always take into consideration the implied volatility, whether the option is in the money or out of the money, and the trade’s breakeven, among others. Then, there is also option Greeks like delta, gamma, vega, and theta of options trades. An investor does not need to be expert in figures, they just have to learn to deal with those.
Capacity to Manage Risk Like what is said earlier, options are high-risk investment vehicles. So traders must be able to acknowledge the amount of risk they have and can take. Here are some of the questions a trader must bear in mind: What is the implicit or explicit position relative to volatility? How much capital should I allocate to the trade? They also need to employ certain measure to control the risk. For a short-term options trader, one will come across loss-making traders in order to reduce the risk of the positions. Some traders do it by limiting their trade size and diversifying into several different traders. A trader must also use their capital wisely. Money management and risk management are interconnected.
Having Discipline In whatever we do, everyone must practice discipline to become successful. Same thing with options trading. Thorough research, finding opportunities, putting up the right trade, setting up goals, creating and sticking to a technique, and establishing an exit strategy are all part of the discipline. Discipline in options trading is about making an independent trading strategy with basis, not just basing on herds.
Being Patient Same thing with discipline, an investor should also possess this trait to become successful. Patient traders are willing to wait a bit longer to optimize returns and provide the right opportunity. Oftentimes, traders sit and wait for the perfect timing to enter or exit a trade. Impatient ones literally strike the iron while it is hot. They cannot control their emotions and are quick with entering and exiting trades.
Learning from Losings About 90% of option traders make losses, according to the Chicago Board of Trade (CBOT). Losses are part of trading. One must embrace these losings to become a successful options trader. How? Learn from these losses, analyze the trades, and apply the winning trading strategies.
Being an Active Learner Through time, financial markets change and evolve constantly. One must keep up with these changes. An options trader must clearly understand what is going on and how it works. By being an active learner, you will not refine your current trading strategies, but you will also obtain the capacity to find newer and better trading opportunities that others may not notice or pass over.
Understanding the News It is good to be updated with the latest news that affect our trading, but that is not enough. A trader must interpret the news, segregate hype from reality, and make rightful decisions according to this information. Many traders place their capital in an opinion with promising news right away, which distracts them from identifying bigger trades in the market. Rather just chasing all the latest news, most successful traders make sound personal decisions.
Planning Trades Most successful investors plan their trades based on rational decision making, not on following the herds, or their instinct and feel. If a trader has no plan, he tends to place random and directionless trades. Traders plan their trades based on their goals and the manner of attaining those goals. It also encompasses covering the losses and booking the profits, and whether the plan is effective or not. Doing so is a vital element to developing a strong trading strategy.
Maintaining Records When we plan our trades, we also record all of our transactions. A successful option trader keeps a precise record of all their trades, an essential habit to avoid making costly trading decisions. These records also provide various details in order to increase their success rate.