Remember the basics when trading


I had a great time presenting at the StreetMONSTER conference in New York recently, and I was reminded of some of the things that it takes to be successful in this business. So I thought I'd go over some basic points here.

Find your niche. It may be one strategy or simply an approach, but look at what trading appeals to you and what suits your temperament. I was going to tell a joke to start my presentation, but the person before me was truly funny, so I passed. Instead, I told the crowd that I am not the funny guy--I am the VIX guy. In a sense I was always a VIX guy, but it took me awhile to really figure that out. I traded stocks, day-traded futures, and tried every option strategy. But it was by really examining what was working that I realized that trading the index options in specific ways was best for me.

Have passion.
If you aren't passionate about what you're doing, forget it. This takes too much work and is too hard to just fool around with. I have stayed up many nights working on data and strategy. I don't do it because I think that it will make me rich; I do it because I love it (though I won't complain if it made me rich too). Trading is a business. It can certainly be a part-time business, but if you need a hobby do something that reduces stress, not creates it.

Pay attention. I would assume that the people who spend the time and good money to attend an event like StreetMONSTER would pay attention. They were going to a conference that specializes in option trading, after all, so I assume that this was a very self-selecting group. But there were plenty of people who were less than attentive, and that was really a disservice to themselves. (Some snores during my presentation them away.) Pay attention to the markets, to your returns, to those that have something valuable to say. Ignore the noise.

Work hard. I guess I should have been offended by those who chose to nap during my session, but there is an argument to be made that I should actually be glad. I hate to be so blunt, but the option world is all about the transfer of risk and wealth. So if these people are on the other side of my trades, it works to my advantage. As for me, I work hard out of the assumption that the other side comes from a hedge fund filled with Ph.Ds and enormous resources. And I continue to refine and re-define my trading all the time. As I have said many times, a trading journal is invaluable in that introspection.

Be realistic. Don't expect any strategy to win all the time. Beginners often assume that they should profit from 80 or 90 percent of their trades, and they are disappointed when the fall well short of that success rate. It's important to remember that some of the best traders win only 40 percent of the time, but they make money nonetheless.

(A version of this article appeared in optionMONSTER's Advantage Point newsletter of June 12.)

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