Your Option Trading Mantras

Rinse and repeat. You have probably heard this many times in your life. The saying probably was derived from the directions for shampoo, but people often use the phrase for everyday activities as well. In fact, as option traders, repeating positive steps can lead to your potential success as a trader. Below are some sayings I like to use often with my students, and many of you have heard me use them before. But because I think they are so important for your success, I am repeating them here and hope you will repeat them too.

Money Lying in a Corner…

The first saying I like to use is taken from Jack Schwager, who was quoting James Rodgers. It is part of a longer quote, but I have narrowed it down to trigger a response from traders. When I say “money lying in a corner,” it means that I want to take a trade that I deem to be overwhelmingly in my favor.  Let’s face it, as traders we try to put the odds on our side to extract money from the market. Easy money is money that is lying in the corner. So, what I am trying to elicit is the fact that you feel confident putting this trade on because you deem the odds to be on your side, and you are taking the trade for no other reason. It is a reminder to think about the trade before execution.

Think of Yourself as a Risk Manager First

Many of you have probably heard the saying, the first rule in trading is to protect your capital. And most likely you thought, no, the first rule is to increase your capital. Who could blame you as a new trader? But once you realize how trading works, it starts to make sense. Essentially when you think about removing risk first, profits are sure to follow if you are managing things properly. I try to ingrain that notion in my students’ heads because it needs to come instinctively. You need to properly manage your trades and know when to remove risk and then trading can become a whole lot easier.

When the Stock Comes Into a Target Area You Need to Do Something

This last saying for today is pretty simple and should be pretty straightforward too. What I mean is, when stocks trade into support and resistance areas they need to take action. When I am looking at a chart, I see several potential areas for the stock to move in the intended direction. For me, these areas are usually support for bearish trades and resistance for bullish trades. Since support and resistance have a better chance to hold than not, the stock might have trouble moving in the same direction and could possibly reverse too. I want traders to consider taking some profit at those levels, if applicable, or at least moving their mental or hard stops up.

I am sure you can add to this list, but this will give you a good start. Remember, not only is it important to repeat these phrases, it is also important to believe and follow them too.

John Kmiecik, Market Taker Mentoring

Trader Education