Day trading options can be very attractive for people given the potential for significant wealth gain for relatively low effort. While this may be true, there are a number of things you need to consider before you begin trading to avoid making expensive mistakes. This article discusses some of the major considerations prior to entering the field of day trading options.
1. Get educated
To become a master in day trading options you need to first and foremost get a education in options trading and market strategies. Even if you’re planning on using automated trading software, it is vital that you understand what it is doing and the terminology and strategies used in the market. Do you know, for example:
– What candle charts are and what they tell you?
– Can you explain the difference between a call option and a put option?
– Do you understand the different trading strategies and their risk profiles?
– Do you understand the lingo? Do you know your PIPS from your Puts?
– Do you understand trading psychology so you can put mechanisms in place to “protect you from yourself”?
In my experience good advice is worth paying for – as a friend of mine often says in such situations, “you pay now or you pay later” – and in this case paying later means losing money in the market. Be smart and get educated before you begin.
2. Start small
It is easy to become over-enthusiastic and commence day trading options with you life savings. Don’t do it! The best way to start is with a really small amount – like zero. Many brokers offer practice accounts to test out your trading strategies – using real data and virtual money. It is a great and safe way to enter the field.
Once you’re making money you can move on to micro-trades. Some platforms have “starter modes” which remove a lot of the complexity when you’re starting out. Even better one of my favorite platforms lets you see what positions the “big boys” are taking so you can follow along.
3. Find a good trading platform
As I hinted above, some options trading platforms are better than others – and some are better for when you start versus when you’re a seasoned pro. It is worth spending some time evaluating the different options before you commit as there can be significant differences in:
– the charting capabilities
– usability and support
– value-adds such as coaching, educations, forums and so forth
So, there you have it. Now that you’ve been given three considerations to master day trading options. Many people have become wealthy by trading options but the next step is up to you. Take this information and make use of it.