Put And Call Options Trading

The reason you decided to trade put and call options is to earn more money. This is the most important rule.  I don’t exactly remember but Warren Buffet #1 rule is” No matter what you do, don’t lose money.”

Of course if you don’t lose money, you will get more money.  Then what you need to know how you keep your account constantly grow. One big newbie mistake is to invest too much money in one trade. This is something you should not do.

I understand you want to grow your money as quickly as possible, but if you invest too much money on each trade, you will lose all the money very soon.

Suppose you have $500 in your account and decide to invest 50% of your balance on one trade. If you win, your account probably grows about 35%. Now you have $675.

But if you lose your money becomes half the size, $250.

Most people just think about when you win. In reality, you sometimes lose as much as you win. Trading is not 100% win race. You wish it would be, but it is not. Even experienced traders sometimes win and lose other time.  If you are not experienced trader, or you don’t know what you are doing, don’t invest too much on each trade.

put options

Money management

This is the first rule you need to learn by heart.  If you don’t, you will surely blow your account before you know it.  So money management is very very important. What is money management?  Basically about how much you should invest on each trade.

For regular trade, you should place 1-2 % of your balance. You have $500 accounts then your each trade should be about $5 or $10.  Keep this amount unless you have the special occasion such as when you expect big news release. In this kind of situation, many people invest a lot of money. But you are a newbie please keep calm and just try about 5% of your balance.

This is a very important rule.  If you are patient enough to do this, you will see your account grow steadily.  Many traders say that patience is the key to success in this trading business.  You may not understand till you have some experience.

Until then, keep calm and try not to take back what you lose in trading. Otherwise, you end up in a sink hole where you can’t possibly get out.

Being Cool

You set up a rule. You decide you invest 1-2% of your balance on each trade. Then you think you money will gradually grow.  As long as you stick to your rule, it is true. But in trading business, many people lose their coolness sometimes.  When you lose three consecutive trades, what would you feel.  When you see you balance shrink, you inevitably start losing yourself.  Then you start doing something you wouldn’t do when you are cool.  You start investing, 5-10% or more on each trade. In this kind of situation, it is almost impossible to win.  You may blow your account eventually.

So once you make your rule, you have to stick to it no matter what. If you want to see your fund grow continuously, you must follow your rule.