Over the past several weeks, the market has been extremely volatile and moved lower over several sessions recently. Not only have the closes been sporadic due to the coronavirus outbreak, some intraday sessions have been like a roller coaster too. I have repeatedly said during my Group Coaching sessions that to me this a day trader’s paradise and not as favorable for a swing trader. There have been plenty of bullish and bearish potential setups, but sometimes the market has a different idea the next day. If you are a swing trader, as many option traders tend to be, you have probably found this market to be a tad more difficult (I have too).

Knowing the market you are trading in is crucial for an option trader. Not only is it important to understand the different option strategies and the option greeks, you have to know or have a feeling about your current trading environment. This of course addresses the most important part of trading in my eyes: management.

I like to tell traders, “You would rather be on the side of the market, right? So figure out if you are bullish or bearish on the market or somewhere in between.” The same thought process should apply to a volatile market as well. If you are accustomed to taking profits over a certain length of time or a certain percentage, consider altering that especially when market conditions change. For example, consider lowering your profit potential percentage or time in the trade.

You need to be in the frame of mind that removing risk is the most important part of your management plan always but especially in volatile conditions. I like to say when taking profit that you are removing risk and putting money in your pocket. Consider practicing this yourself. I promise that it will make you think about how you manage your positions differently.

Understanding the market environment is just one of many things an option trader needs to know when he or she is active in the market. What it really boils down to is smart and active management, and to me that is where money is made or lost more often than not.

John Kmiecik, Market Taker Mentoring