All of us want to make money in the markets, and options give us tremendous leverage to achieve our goals. Of course, many factors go into success, and plenty of people have different ideas on exactly how to achieve this. These are the eight common traits that pro options traders have in common.
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1. Be good with numbers
When trading in options, you’re generally dealing with numbers all the time. What’s the implied volatility? Is the option in-the-money or out-of-the-money? Options traders regularly answer these questions. They also use option Greeks, such as the delta, gamma, vega, and theta of their options trades. For instance, a trader would want to know if his trade is short gamma.
Successful investors and traders are consistent in their approach. Whether you’re trading or investing, you have a set of rules to follow that aren’t influenced by your emotions. The markets can be scary at times, but successful people know how to react during those periods – they stay calm and stick to their trading plan.
Successful people genuinely enjoy what they do, which is one of the reasons they can stay consistent in times of adversity. If you don’t like what you’re doing, it’s challenging to put in the hours necessary to achieve your goals, but successful traders love the challenge presented by the markets. Although it can be challenging at times, this is what brings them success.
4. Develop a trading style
Every trader has a personality, and each should use a strategy that reflects their characteristics. Some traders may excel at day trading, in which they buy and sell options several times during the day to earn little gains. Some traders may be more at ease with position trading, in which they develop trading strategies based on unique possibilities such as time decay and volatility. On the other hand, others may prefer swing trading, in which traders wager on price movement over five to 30-day periods.
5. Willingness to accept responsibility
Successful traders know they are in charge of their trading accounts, which means they are willing to accept responsibility when the account moves against them. While there may be factors they cannot control, they know that their job is to make the best decision possible based on all the available information.
Whether trading stocks, commodities, or options, successful people understand that the markets move in cycles and are willing to wait for a trade setup. Stocks making big moves don’t sway them because everyone else is excited about it. Instead, they follow the crowd only if the trading opportunity makes sense on a risk-reward basis.
Another trait of successful traders is that they are committed to doing what it takes to reach their long-term goals. They don’t let one or two bad trades derail them from their strategy, but instead, they see it as an opportunity to improve. Even successful traders have losing trades; the difference is that winners follow losers, and they don’t let their losses turn into long-term issues.
8. Plan your trades
A trader who has planned is more likely to succeed than one who follows their gut. If you don’t have a plan, you’ll make random trades, which will leave you aimless. On the other hand, you are more likely to follow through if you have a strategy in place. You’ll be clear on what your objectives are and how you intend to achieve them. You’ll also understand how to cover your losses or when it’s time to book profits. You may also monitor how your strategy is working (or not). All of these procedures are necessary to create a successful trading strategy.
Scouring and observing their trades is a favourite pastime for options traders. Sure, it’s nice to see a winner emerge, but like sports fans, options traders enjoy watching the entire game unfold rather than just learning the final score. These traits will not guarantee your success in the options trading market, but they will improve it considerably.