I would like to own the job title of day trader. To be a successful day trader, you must focus on keeping your losses small and letting your winners run. Unfortunately I have failed to accomplish this. I have allowed myself to be impulsive in a number of ways including:
- Buying options too close to open when the direction is not clear.
- Buying call options on green candles and puts on red candles.
- Buying in the opposite direction with the first inclination of change.
- Being greedy and expecting to sell where I can get ahead for the day.
- Expecting continuation of a sharp movement when the there are signs of a reversal.
Buy low and sell high is the goal when investing in the market. It is near impossible to do that when you buy calls at the top of an upward movement just as it is near impossible to be profitable when buying puts at the bottom of red candles. Most large green candles are followed by red candles and vice versa. It is important to wait for confirmation when buying options. When there is a sharp upward movement after a large movement downward, you must wait to make sure it is not done going down. That might have been your opportunity to buy put options expecting more downward movement. The opposite is true when there is a large upward movement that there might be some downward movement on the way up to a higher point which might present an opportunity to buy calls instead of hoping a put option makes sense.
FACT: If is it the right opportunity, you will be given the opportunity to take advantage of it or it was not the right opportunity. Break even is always better than a loss.
This fact is especially important when buying options near open. At open, there is the most uncertainty for the day and therefore the price of options are the highest. Fear of missing out is very high when trading options but patience is what makes profits by finding the right entry point. Without the right entry point, you are setting yourself up for a loss or break even at best.
Change of direction of a stock might happen once a day or not at all. If a stock opens low, it most likely will not go lower without a test higher. And if a stock opens up, it most likely will go down some before going back up. That first movement might be sharp or it might happen over an hour. Just because a stock acted a certain way, does not imply that another stock will react the same way with similar movement.
Taking Profits
Being profitable is the key when doing anything. With the stock market and trading options that go to zero, profitability is a must. Many times we set a limit order after entering a position and that limit may be too low or too high. When you have incurred losses, you have a tendency of setting the limit higher than the stock will move in the day. The top of a movement in a day is typically very clear as is the bottom. The top or the bottom of the movement rounds out and the indicators look like it is changing direction. Don't rely only on the indicators only as many times the MACD may show a change before the rounding out occurs.
I believe I covered all of my points. This might not be a good read for someone who is not an stock option trader. I have been depressed and frustrated for so long trading incorrectly. Discipline is the key to being profitable. Typically there is a trade a day that will double or even triple your money. You just must be patient and allow it to present itself. It may not be in the movement that the day starts, but don't expect to see a change of direction because some days it doesn't change for the whole day.
This might be more of a message for myself, but I am done being depressed and working out of fear. I am angry at myself and determined to do what is right before it is too late. Focus is key along with patience. If it is to be, it will present itself.
CARPE DIEM!!!
