Option Trading For A Living: 7 Tips For Success! - Part 1

Is it really possible to trade options for a living? This is a question that I get asked quite frequently and the answer is...YES it certainly is possible! I know this because I've been option trading for a living successfully for the past 3 years. However, to be able to remain in the option trading game long enough to experience success, there are certain things every option trader should do. What are they, you might ask? Well, I've met many successful options and futures traders over the years and interestingly enough when I've asked them how they came to be successful, the answers they gave were uncannily similar to each other. Here are the top 7 tips 'proven' to help you achieve success at option trading for a living based on the experience of many successful traders, including myself. 1) Learn A Proven Option Trading System (Or Develop Your Own) & Back-Test It Trading is a business and in order to be successful we need to treat it as such by following a system that has a proven track record of providing exceptional results long-term. The way we find out if a system is successful and right for our objectives is by back-testing it on specific stocks over several years using historical prices to test the performance of the system over time. Here's a useful post I found on Google Answers on how to find Historical Option Price Data: http://answers.google.com/answers/threadview?id=3 07742 2) Get To Know A Small Number Of Stocks Very Well When I first started trading options, I had a huge watchlist of more than 100 stocks. These days I can't imagine trying to watch that many stocks. Now I have 10, highly liquid stocks on my radar that I have gotten to know very well over the last couple of years. Just like people have different personalities, so do stocks and this is why I don't like using scanning tools to apply my option trading system over thousands of stocks. It's simple really. Some trading systems work well on some stocks but perform poorly on others. This is why back-testing is so valuable, as it allows us to see which stocks perform best with the trading system we're using. It's also important to note that although past performance is not a foolproof indicator of future performance, a stock's trading 'behavior' can be very repetitive - even predictable. If you back-test and 'live trade' a stock long enough you will get to know it's little 'quirks' in relation to your trading system, allowing you to adjust your trading system rules slightly to fit the personality of each individual stock in your watchlist. I have found that this improves the overall performance of my trading system greatly, particularly over the longer-term. 3) Start With As Much Capital Behind You As Possible This is important. Far too many traders make an attempt at option trading for a living but are soon wiped out because they lack sufficient capital. If you trade options you WILL experience losses and sometimes several losses in a row. That is why you need to have enough capital to be able to ride out these times. In my opinion, if you think you can 'realistically' make a go at option trading for a living with anything less than $30,000 - $50,000+ in capital, you're probably in for an unpleasant reality check. Don't get me wrong, I've heard of a few traders building a fortune out of a starting bank of just $10,000, however the road to option trading success is littered with many a broken trading bank and bruised egos to match. In my opinion if you have less than $30,000 available for trading, then I suggest that you trade part-time and keep your day job. In fact, this is probably the best way for everyone to start. This will keep the 'pressure to perform' off you while you build up your experience, confidence and of course, your capital. 4) Follow Your Rules Like Your Life Depends On it Once you have a solid trading system that you're confident in and comfortable with, follow it consistently and to the letter. This will allow you to relax into your trading and remain objective in your decisions. If you have a clear entry signal, pull the trigger without question and place that order. Likewise if a clear exit signal presents itself whether it results in a profit or a loss, again pull the trigger and close out that trade. Do not for a moment think about the money. Simply focus on trading well and the money will flow as an afterthought. Successful traders follow their rules like their lives depend on it, because when it comes to option trading for a living, it does!