Below are some tips to keep in mind, while trading OPTIONS:
1) 20 - 100 rule: Make sure that you will not tolerate the Loss of more than 20 % of premium money you are invested per trade (say 3 out of 10 trades=30%), and lock in 100 % profits of premium money per trade (say 7 out of 10 trades=70%)
So in the long run for every 3 losing trades you will be having the 7 winning trades.
Get out when you see a drop in 20 % of the premium money.
2) Make a simpler strategy and trade with the above rule.(You might be reading books and have arrived upon many strategies, but trade one strategy at a time. That too it should be plain simple one.)
3) Don't use more than 10 % of your account money in one trade. (As a general rule, if you have 1 lakh with for trading per trade you should not be putting more than 10K, and the rule no. 1 stands at 2K stop loss.)
4) Do a paper trade and gain experience and then starts with the real money trading.
5) Don't switch strategy often.
6) Use conservative strategies in the beginning, then once you are experienced you can take the more rewarding ones.
7) Remember the Premiums that you will be paying will get eroded with time decay. Be prepared for that.
8) Before you enter the trade make sure that you have plan like
- What is the stop loss for the trade?
- What is the target you set for the trade. (In general, you should set 100% but for starters they can set 50%)
- What is the probability of reaching the target ?
9) Always remember to exit once the profit reached.
10) Always monitor your positions.
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