Wait for proper timing
You should not only wait for proper timing but also keep your
expectations within limits. In the game of trading options, there will
be a few large gains but, unfortunately, a significant number of losses
can also be expected. Since losses are unavoidable, it is essential to
keep them as small as possible.
Don't buy or sell too early
One of the difficulties with buying options is knowing when to enter a
position. Buying early at the lowest premium possible is important,
but if you buy early the chance of a losing trade is necessarily greater.
Skills in selling are also very important. Do not try to sell at the very
top. Wait until the top is reached. Set stops and follow your positions
with the OptionExpert tracking windows. Do not sell early but only
after a reaction to a new high.
It is also important to remember not to chase a bad position after the
price drops. If you have taken a position and the price decreases
beyond your preset limit, let it go. It is never too late to sell. If you
are taking losses, take your lumps. Get out when your stops tell you
to and don't wait for the position to go even lower and possibly expire
worthless.
Use fear and greed to your advantage
The emotions of fear and greed are well known to any stock or option
trader. These emotions are normal and need only be harnessed in the
right direction to benefit the trader and increase returns. Your strategy
should be to let your profits run and to cut your losses.
The emotion of greed should be used when a position is advancing.
Greed should generate a hope that the advance will continue, and
should be used to keep you from selling the position prematurely. Use
greed to strengthen your patience in order to let your profits run, and
to wait for your stops to indicate a sell. Consider selling if a reaction
to a new high or low fails to result in further gains.
The emotion of fear should be used to cut your losses. The fear
should be that of losing additional principal. Instead of allowing
losses to continue, it's far better to take your losses and save the
remaining principal for another day.
Always track your positions with with a position tracking tool,
and heed any sell signals to help keep your losses small.
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