Many people believe trading the markets is akin to gambling. This comparison is certainly true a lot of the time, especially when a person throws all caution to the wind.
But it is unfair to make such a broad generalization. Many people treat their option trading very seriously. The best of them treat it like a business.
Business owners are most interested in three things: reducing risk, limiting losses, and maximizing profits. Believe it or not, the same is true in option trading.
Limiting Risk
A business owner is not going to try to sell a product or service that the market doesn't want. That's too risky. He's going to sell things that people want.
In the same way, a smart option trader will only trade stocks that are "trade-able." That means he will avoid stocks where there is no clear pattern, or are fundamentally unstable.
Maximizing Profit
If a business owner discovers that a promotion is working well, he will continue to run it until it starts to fatigue. This way he sells as much of a hot product as possible.
Similarly, an option trader will stay in a winning trade until it stops moving in his favor. He'll set trailing stops to lock-in profits if and when the price moves against him.
Limiting Losses
Every once in a while, a business owner will be saddled with product that won't sell. Instead of keeping it, he'll cut the price to unload it, even if it means taking a loss. That's because it's better to free up the cash for reinvestment elsewhere.
An option trader will do the same thing if he enters a trade that moves against him. He'll liquidate his position quickly, take the loss, and use the cash to reinvest on another trade.
As you can see, being reckless is a sin both in business and in trading. But with the proper attitude and approach, option trading can be serious business. - 16003
But it is unfair to make such a broad generalization. Many people treat their option trading very seriously. The best of them treat it like a business.
Business owners are most interested in three things: reducing risk, limiting losses, and maximizing profits. Believe it or not, the same is true in option trading.
Limiting Risk
A business owner is not going to try to sell a product or service that the market doesn't want. That's too risky. He's going to sell things that people want.
In the same way, a smart option trader will only trade stocks that are "trade-able." That means he will avoid stocks where there is no clear pattern, or are fundamentally unstable.
Maximizing Profit
If a business owner discovers that a promotion is working well, he will continue to run it until it starts to fatigue. This way he sells as much of a hot product as possible.
Similarly, an option trader will stay in a winning trade until it stops moving in his favor. He'll set trailing stops to lock-in profits if and when the price moves against him.
Limiting Losses
Every once in a while, a business owner will be saddled with product that won't sell. Instead of keeping it, he'll cut the price to unload it, even if it means taking a loss. That's because it's better to free up the cash for reinvestment elsewhere.
An option trader will do the same thing if he enters a trade that moves against him. He'll liquidate his position quickly, take the loss, and use the cash to reinvest on another trade.
As you can see, being reckless is a sin both in business and in trading. But with the proper attitude and approach, option trading can be serious business. - 16003
About the Author:
Before you risk another penny in this volatile market, visit A.J. Brown's option trading blog for free articles and strategies. Better yet, sign up for his option trading learning program to discover the art and business of trading.
