Knowing and using winning trading strategies is essential if the beginning investor and newbie trader is to make money in the stock markets. To learn how to trade stock and stock options successfully is not easy. To confuse matters, trading stock options is very different from trading common stock, and most beginning investors and traders do not recognize these differences until they have lost money in the markets. Read on to discover what to read and where to go to learn more.
Typical History of the Beginning Investor and Newbie Trader’s Entry introduction to Mr. Market
Most beginning investors and newbie traders initially enter the stock market lured by the possibility of immense wealth, and begin by buying shares of well-known companies that make the news or shares of little-known companies that a well-meaning friend, neighbor or colleague gives them a ‘hot tip’ about, and they ‘know’ it’s going to become really BIG. Unfortunately, most beginning investors do not know one of the basic tenets of winning trading strategies (never ‘fall in love’ with your investments), and make the mistake of getting ‘emotionally attached’ to their investment and hold on to them for far too long. If the stock is doing well and rising in price, they are reluctant to sell it; if it is doing poorly and the stock price is falling, they are also reluctant to sell it – almost ‘willing it to go higher’, and promising themselves that ‘if it would only rise enough for them to get their money back’ they would never make such a mistake again. Unfortunately, while such habits are bad for investors who buy commonly traded stocks, these habits are catastrophic for the stock options trader. Also, most beginning investors do not employ any (less so winning) trading strategies, and ‘Mr. Market’ is most willing to separate such beginning investors and traders from their money.
Once most beginning investors and newbie traders have experienced the stock market for a while, and especially if they have been even moderately successful, they soon discover that stock options offer great leverage, and the possibility of making investment returns that are ten to hundred times more than what one could make by buying and selling stock itself. Such investors and traders often attempt to trade stock options the same way they traded common stock – and, unless they learn or discover winning trading strategies, they inevitably lose money.
The ‘Awakening’ that Options Trading is different from Stock Trading
After losing varying amounts of money, most newbie traders will give up on trading stock options assuming that the markets are somehow ‘rigged’, and hence, they can never make money. Traders who persevere and decide to take the effort to learn how to trade stock options, discover that they HAVE to learn a new way of trading, and either discover or are taught the key elements of winning trading strategies, and, hence, they are amply rewarded for their perseverance. However, their path to success can be easy or difficult depending on the course such beginning investors and traders take. Traders who are fortunate to have a mentor or guide will learn quickly, and pay the least of ‘tuition fees’ in the University of Hard Knocks. Traders who insist on learning by themselves by ‘trial and error’ will often spend much money (often more than they would have spent had they enrolled or signed on with a mentor). Most money spent will be on losses that might have been avoided by not entering into trades that have a poor chance of success, staying in trades longer than advisable and missing opportunities to make money in high-probability trades.
A Primer on How to Trade Stock Options
Here is a formula on how to trade stock options successfully – the key elements of winning trading strategies. As alluded to above, it is impossible to cover all the nuances of successful options trading in a few paragraphs; however, paying attention to the following will set most beginning investors and traders on the right path. Below you will also find links to other sites with more information, some of which is FREE, and some which one will have to pay for. Do not be afraid to spend some money to learn how to make money – just be cautious about how and where you choose to spend your money to learn. The recommendations and links on this site are ones that I consider worthy of your consideration, undoubtedly there will be others I have not reviewed.
Here is the essence of successful stock options trading … reduced to a simple 1, 2, 3 strategy!
- Create and Monitor a Stock Watchlist
- Wait for a High-Probability Trade setup
- Initiate a High-Probability Trade with an Automatic Exit plan
In closing, learning how to trade successfully is not easy, but ironically in actuality it is not the ‘learning’ that is difficult – the difficult part is putting the theory into practice. One way to learn how to trade successfully is to imitate other successful people: if you learn to do what they do, you will inevitably get the results that they get.
As highly successful investor Warren Buffet said “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.”