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We stock option trading journal important questions this statistic all the stock option trading journal important questions. Financial speculation is a stock option trading journal important questions way to build wealth If you follow these 9 tips then you will end up on the winning side of trading and investing.
Keep A Trade Journal This is the first and most important thing you can do. It's also the most difficult for people to do. It can be stock option trading journal important questions work, and if you are a losing trader it can be painful to see your performance over time. The Stock and Strategy. When you get enough data, you'll find specific stocks you should completely avoid, and perhaps a sector you should specialize in. What was the volatility of the stock at the time?
How far was it from all time highs? Was the 50 day moving average up or down? By tracking key technical indicators, you can see if you are a better trend or counter trend trader, and whether you should look at high volatility or low volatility stocks. This is how much reward you pulled out relative to the risk you took. We'll look into that in just a little while. What Option Strategy You Chose.
There is no best option trading strategy, but there is probably a best for you. Maybe you are better when you are buying calls and have a limited risk, or you have a smoother risk curve if you only sell spreads. If you subscribe to trading services, you should track how well those trade alerts are working out for you. If they consistently underperform then you should consider leaving the service The goal of this exercise is to get enough data to figure out what needs to be cut out of your trading.
What I've found with working with traders is that most people can be profitable With option traders, it tends to be one of two kinds of losers:. Trying To Fade A Catalyst. Either you are trying to short a momentum stock that just had amazing earnings, or you are shorting volatility into an event like earnings. In an attempt to make returns fast, you focus on the short term and use a fantastic amount of leverage with a very high time decay risk.
Daytrading weeklies can be profitable, but you end up overtrading and looking for large moves in a stock that doesn't go anywhere. Normally if you can get rid of these two kinds of setups, you'll go from a losing trader to a breakeven trader. This isn't always true for everyone-- that's why it's so important to get your trading journal setup.
If you already have a lot of trades completed and are feeling overwhelmed with going back through a ton of trades, then I would highly recommend TraderVue. He's built out a great tool that allows you to import brokerage statements so you don't have to build out a trade journal by hand.
You can then sort trades based off of setup, and can even have a trading coach come in and review your trades for you. If you trade a lot of complex option spreads then it can become a little more difficult to manage, but if you are an active trader in stocks, futures, and forex, then you should give it a tray. If you want to just start with a simple spreadsheet, then click here to download a sample Options Swing Trading Journal. You can then see if one category is significantly outperforming the others, maybe it's a good idea to focus on those trades over the others.
Since I've categorized my setups, I can go back and see how each category performs over time. I know that retracement patterns work better in high-reversion markets, and breakout patterns work better in trending markets. He's found a pattern that makes him money consistently and named it so he knows stock option trading journal important questions well that particular strategy is working.
If you're more into the quantitative side of trading, it's still important to name your setups. By naming things, you give them power, and you have a stronger ability to track the kinds of setups in your trading journal. If you don't have a name for a setup yet, that's OK. I like to label these "impulse trades," because normally it's a stock I found that I just felt was going to move.
I don't always know why but sometimes there are patterns that I recognize but don't have much stock option trading journal important questions in. Sometimes these impulse trades work out, sometimes they don't.
As I get enough data I can start to categorize them with a new name so I can track them better. If you trade with an institution or at a prop firm, there is someone who acts as " risk manager. Back in the stock option trading journal important questions there was just a risk administrator who might come over if he felt you were down too much. This can cause all sorts of problems as a successful trader does not want the risk guy to manage his trading. What does the risk manager know about his present positions?
A trader knows best how to determine his risk with the positions he is trading generally. Today our intraday loss limits are preset. These are agreed to by the trader and our floor manager.
If an experienced trader hits their loss limit they can ask to stock option trading journal important questions reset but this is very rare. These risk limits can be daily, weekly, or monthly, and the level stock option trading journal important questions as you become more successful and put on size.
This may seem unfair, especially when you see all your positions closed and then the stocks start to work in your favor.
But it's to protect you against one of the biggest mistakes traders can make: If you are a retail trader you aren't afforded automatic loss stock option trading journal important questions. For some stock option trading journal important questions, brokerages don't have this built stock option trading journal important questions their software so you will have to do it on your own.
If you are a futures and forex trader, you end up trading the same instruments over and over. As time goes on you get a feel for how fast a market can run and where you need to place stops. These markets have incredible amounts of liquidity and trade overnight so automatic stops are relatively straight forward. With software like NinjaTraderyou can pre-define how you want to place your stops:.
Above is an example of setting up an ATM strategy in Ninjatrader. You can define how many ticks to use for a stop loss, and where to take profits. Stock trading can get a little more complex. Examples include using a moving average breakdown, PSAR stop, or a violation of a price pivot. These are much better than an arbitrary percentage. Once you find your stop, you can work backwards to find your position sizing. It makes sense to be consistent in your risk per trade, but you can't figure that out until you figure out your stop.
The stock has the potential to breakout if it clears Perhaps you want to trade a breakout, and will use the lower end of the range at This means that your "per share" risk is the difference between your entry from your stop. With our example, that gives you a per share risk of 2. To find the maximum number of shares you're allowed to have in this trade, simply divide the max risk by the per share risk.
That puts your max size right around This is just a basic overview of simple position sizing with stocks. Once you develop more consistency, then you can change position size as a function of different setups, and change size according to how well you are doing-- don't discount the ability to go on hot streaks and cold streaks.
Automating stops is more difficult to do with options, because the liquidity is lower and the slippage you could incur from a market order could be significant relative to the price of the option. One solution is to structure your option trade to have a fixed risk, like a vertical spread. By limiting your risk, you effectively "bake in" a stop.
The other solution is to take what we learned about the per-share risk with stocks and convert it into "per contract risk" with options. Therefore my Per Contract Risk is As time goes on, the risk in an option changes. You probably know about theta which is the change in the value of an option over time. Simply stock option trading journal important questions, with options you can't just have stops based on price -- you must have stops based on time. If you are long calls and a stock isn't moving then you have to consider either rolling the trade out in time or closing the trade for a loss.
The biggest risk in an income trade is the total directional exposure you have on When you put an income trade on, it's best to figure out what maximum delta you are willing to have, and figure out at what prices that the delta will come into play. Once you find these levels, you can then plan adjustment strategies to manage your trade. There are other ways to take the guesswork out of when to adjust your trade.
If you are an income trader, it's a good idea to have a maximum level of directional exposure in each trade, and when your risk gets too high, you adjust your trade.
It can be incredibly difficult to focus on your best setups when you have stocks trading all at once. Yet focus is one of the most crucial characteristics you must have if you want to be a consistent trader. There are a million ways to make money trading. You could trade market events, play the fundamentals, scalp biotechs, short penny stocks, swing trade options, or pair trade futures Make stock option trading journal important questions that you have the right stock screeners in place so you are only looking at stocks that are showing signal and not noise.
There's a great quote from Trading Psychologist Brett Steenbarger: If you had a professional NFL player that didn't watch tape, or train in the offseason, or run drills with his team, he wouldn't be around for very long. What makes trading any different? Financial speculation is the most competitive profession that's available to anyone.