After reading the book “Rich Dad Poor Dad” by Robert Kiyosaki, I came to realize that not only is there a rich and poor path in life but also a rich and poor path in options trading as well. Many options traders experience defeat in their options trading career, especially during the first few months, because they are unknowingly walking down the poor path in options trading. There are many differences in the approach winners take in options trading versus the losers and we shall outline and explore some of these in this article.
Rich Options Trading :
1. Speculative directional options trading using direct call or put options buying only with a small percentage of their fund and only on the stocks with the best chances.
2. Extensive use of Option Greeks in order to dynamically hedge a position when conditions change.
3. Always doubt one’s own conclusions and make provisions for losses.
4. Always have a stop loss policy already in place or in mind. Stop loss points can be in the form of contingent orders or trailing stop orders.
5. Understands the exact options trading style that suits them. Emotional options traders should stay out of day trading.
6. Know that there is no one best way to trade every single situation.
7. Do not chase after profitable trades that have been missed earlier on.
8. Satisfied with a steady, consistent gain.
9. Into options trading for the long run.
10. Think options trading education for a start.
11. “Trades” the market.
12. Keeps a trading log.
13. Learn from mistakes.
14. Understands technical and fundamental analysis.
Poor Options Trading :
1. Speculative directional options trading using direct call or put options buying with all their money hoping to hit a “big one” on stock picks taken from the TV or non-professional friends.
2. Has no idea what option greeks are at all.
3. 100% confidence! Full steam ahead!
4. Realize it’s too late only when it’s too late.
5. Follow whatever options trading style that is supposed to produce extra-ordinary gains only to completely break the rules and your pocket.
6. Stick to only one way of options trading for all market conditions and situations.
7. Missed a trade, watched the price go up and then enters it at that new high price only to see prices tumbling like a rock thereafter.
8. Always looking for ways to make more explosive gains from stock options only to have the dynamite eventually exploding in their face.
9. Start options trading with the purpose of quitting after hitting a big profit.
10. Think money making for a start.
11. “Plays” the market.
12. Forgets the last trade made.
13. Hates mistakes and tries to forget mistakes.
14. Mystifies and follows technical analysis superstitiously.
Well, as you can see from the list of differences above, the difference between rich options trading and poor options trading is not only a matter of technique or method but also a matter of attitude and mental approach. Only when the right mind meets the right technique does rich options trading happen. Are you making any of the mistakes that poor options trading makes?
Jason Ng is the Founder and Chief Option Strategist of Masters ‘O’ Equity Asset Management ( MastersoEquity.com ) and author of Options Trading education site, Optiontradingpedia.com. He is a fund manager specializing in options trading and his revolutionary Star Trading System has helped thousands.
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