If you want to be successful in stock options --which some investment professionals insist is the greatest wealth-building tool ever devised--your options picks must follow a sound core of knowledge. There are certain basic, elemental things that you need to do as an options investor to ensure overall success. Or, another way to put it is, there are certain things that you simply must not do.
First, your options picks must always be made based on solid planning. You know what you are going to do and why you are going to do it before you enter into a position. The unexpected may happen, but the unanticipated cannot happen for the good trader. If you follow this mode of trading, you will probably not fall into the trap of turning into the dreaded "day trader".
Next, your options picks have to be backed by sufficient capital. Now, why wouldn't they be? For one thing, you might be taking undue risks. Then again, you might not have your finances planned out very well. You have to realize that you are going to take some losses. You have to have your investment money separate from your necessary living money. You do not ever effectively bet your house to make options picks. You have to be prepared financially as well as strategically. This also means taking costs, such as broker's commissions, into your financial considerations.
Now, only novices and idiots make things needlessly complex. As a novice you may be tempted to make options picks according to some grandiose strategy or technique. But all successful, masterful traders know that the simpler things can possibly be kept, the better. The fewer links in the chain, the fewer links that can be weak and make things go awry. It's also easier to keep track of what you're doing when things are as simple as possible. Do not waste your time with any options newsletter where everything seems complex, either. All that matters is what is honest and makes money. If it is complex or seems "cool" but doesn't make money, it's useless. You are not trying to be "right", you are trying to make money.
In line with what we just talked about, do not rely on computer models for your options picks--that is, not unless you fully understand where the data come from and why they have been input into the model. If you fully understand the program, then a computer model can be highly useful. But otherwise, don't think that you are getting some advantage just because you are using a computer program.
One thing that may seem strange to those who are new to making options picks is that successful options traders don't focus on maximizing winning choices. They focus on minimizing their losses. Losses are inevitable. If they are kept to a minimum, that just means you have that many more winning trades. It also means that you greatly lower the chances of one big loss destroying several small to moderate gains.
Finally, options picks cannot be made on emotions. Neither can moves you might make once you enter into a position. You cannot help feeling emotions, but you must avoid trading based on them. Follow your plan through. Follow the winning strategies that you have studied. Us a high-quality options newsletter that is written by successful traders who put their mouth where their money is as one of your major options picks tools.
