Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
A Trader's Credo
06/27/2014 8:00 am EST
Mark D. Wolfinger at OptionsforRookies.com offers some solid ideas from his trading strategy that he believes can be useful for every trader.
When a trader has a winning mindset, when a trader understands that trading does not provide guaranteed riches, when a trader understands reality, he or she has a much better chance of becoming a winner in the trading/investing game.
I've been trading options since 1975 (since 1977 as a professional), and I've leaned many lessons. Today's post represents solid ideas that I believe can be useful for every trader. I offer them with the hope that they will help you make more money over the longer-term and more importantly-save you from self-destruction during the earlier phases of your career.
- Always know how much of your money is at risk. Consider the worst possible scenario and be certain that your exposure to loss is never more than you can afford to lose.
- Hope is not a strategy. Prayer will not help.
When a trade goes bad, adjust or exit.
- Establish a profit target for each trade. Be
certain that seeking the reward is worth the risk.
- Allow someone else collect the last few pennies of
profit (i.e., cover short positions at a low price).
- Define your own comfort zone. Don't adopt that of
- Trade within your comfort zone-especially as a
new trader. Later you can consider expanding that zone.
- Greed is not good.
- Confidence is necessary for success. Overconfidence may result in blowing up your
- Always know how much money is at risk. (Worth
- Unlikely events do occur. Do not seek tiny rewards,
despite the high probability of success, unless the worst case scenario
results in a small loss.
- Examine positions every day and decide whether they
are worth owning at current market value.
- All trades involve risk. Any profit that you already earned represents your money. It is not "house money," and you should
be as careful with that money as with any other money. Translation: Do not
take extra risk just because you currently have an unrealized profit on
any given trade.
By Mark D. Wolfinger at OptionsforRookies.com
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