As a longtime teacher of options, I’ve developed a few favorite sayings related to trading, and I repeat them often in my group and individual coaching sessions. I love to hear my students say they hear my voice in their head repeating these sayings. Today, I will share a few and briefly explain what I mean by each of them. If one helps you even a little bit, I have done my job so to speak.
What Has a Better Chance of Happening?
This really comes down to technical analysis. I tell traders to look at a chart and tell me what has a better chance of happening. It comes down to trends, support and resistance, and whether stocks are extended for the most part. If you can say you definitely think a stock will move higher because it has come down to a support level, for example, you have better odds of profiting from a bullish position. If you cannot determine what has a better chance of happening you would not take a directional trade, but a neutral option might be warranted.
If You Get a Big Move in Your Direction…
If you get a big move in your direction, you need to do something. What I mean by this saying is not always obvious. If you get a big directional move that favors your trade, you need to do one of two things or both in my opinion. The first is to take some profit off the table. The second is to move your hard or mental stops up to either lock in some gains or remove risk by bringing the stop up to breakeven (mental or hard stop). Usually when I get a big move or a bigger move than I expected, I do both: take some profit and move my stop loss.
If You Are Down More Than Expected…
If you are down more than expected and you get back to breakeven, always close out the position. This may not make sense at first; but the more you trade, the more it probably will. This is a saying I derived from having been in this situation too many times as a new options trader as well as an experienced one. Essentially, I am saying that when your position is down more than you had accounted for and you are fortunate enough to get back to breakeven or close, exit the position. Don’t push your luck and don’t look a gift horse in the mouth. This saying has served me well in the past and still does.
These are just a few of the sayings I like to use myself and in my teaching. Feel free to use them and claim them as your own. I am here to make you a better option trader. Happy holidays!
Senior Options Instructor