Options traders have the potential for substantial profits, the versatility of trading in up, down and sideways markets, and the ability to insure potential losses in an existing position. However, it’s fair to say that this form of trading is not for everyone. For starters, while the potential benefits can be great, the financial instrument can be very high risk. An options trader has to have the right education and skill set and attitude to master this highly speculative instrument.
So what are the qualities that make someone a good options trader? Here are five qualities you will find in successful option investors.
Disciplined in Their Approach
Being a disciplined investor means that you have thoroughly researched the market, have a good understanding of your goals and are capable of forming and religiously following your strategy. A disciplined investor prefers his research to believing the hype created by others. This approach also ensures that the results of the strategy can be linked to a personal thought process and not just to a trend in the market.
Being disciplined also means two be systematic in your approach. If you lack the knowledge to invest properly, then the first step for you should be to learn about the market and to get your feet wet before you go all in. It’s also important to not underestimate the market or overestimate your own abilities. If the training is too basic to provide you the tools to be successful, then consider going for more professional options training.
Understand the Risk to Reward Balance
Option traders have a deep understanding of the risks involved with various strategies. They understand how volatility can work in their favor and also go against them in a bad way at times. Based on their knowledge of market behavior and of risk, they choose which strategy will be able to give them the best return on investment.
Some traders control risk by using multiple trading strategies at the same time. The risk for options traders also depends on the time frame of the contract. For example, an option with an expiry date of one day can be riskier than one with an expiry of one week. This brings us to the are our next point – which trading strategy is best for you.
Find the Right Trading Strategy
As you learn about the concepts of risk, volatility, covered and uncovered calls, also work on your investment strategies. There is plenty of room to specialize. Depending on your style and preferences, you may be comfortable with short term trading, where you make several trades every day. Or, throw your practice, you may develop a preference for contracts with longer expiration dates. Similarly, you should experiment with alternative strategies, such as time decay.
During the development of your strategy, you will incur several losses. Take those losses as learning experiences and modify your trading strategy based on what you learn from those experiences. Top traders follow the philosophy of practice makes perfect.
Keeping Emotions in Control
Nowhere is the age-old cliché of not mixing business with emotions truer than the options trading market. The speculative nature of the instrument demands that you keep your emotions in control and wait for opportunities.
Elite options traders know when to enter and exit a trade. Instead of relying on instinct, they to plan their moves. They are good at differentiating between reality and hype, which helps them to avoid distractions and identify potentially profitable trends.
Keep a Record
Top traders also like to document what they do. This practice helps them avoid bad decisions and review their performance in detail when required.
Options trading is a high-risk business, but if you have the personality and passion required for the job, then it’s definitely something worth exploring — good traders’ posses the discipline, knowledge, and patience to profit from trading options.
Option traders get off on building their bank account and generating income by making smart investment decisions. They often have coaches that teach them how to develop their game much like an athlete. With the right mindset and training, options traders can continue to gain wealth within the market.