Professional airline pilots use flight simulators. Professional athletes spend countless hours practicing drills and memorizing moves. Professional musicians practice until everyone around them gets sick of hearing them play. And yet somehow, most beginning traders don’t realize the value of practicing. Don’t make that mistake. 

Use a trading simulator, or simply track hypothetical trades manually as best you can.

When you do this, here are a few ideas for getting the most out of your practicing. First, you’ll want to be as realistic as possible when you record the prices you capture for simulated trades. If you can, use live quotes and record your entries and exits. You’ll want to carefully follow these six steps to ensure you are practicing properly.

Step 1: Plan where you are going to get out of your trade, even BEFORE you ENTER the trade. 

This is a big mistake most uninformed traders make. Initiating an option trade without planning how to close the trade can lead to unpleasant endings. Identify your plan for what price you’ll exit the trade in both a BEST-case and WORST-case scenario. 

Step 2: Identify whether you will get into the trade using a LIMIT order or a MARKET order. 

Most of the time a professional trader will use a LIMIT order to enter a trade.  

Step 3: Identify the NUMBER of option contracts you will apply to the trade. 

A good rule of thumb is that you shouldn’t use and risk more than one to two percent of your capital in any one option trade–especially if you are using OUT-of-the-money options to trade with. 

Step 4: Identify a REAL-time-quote and watch to see that your trade would have been entered at the price you specified.

Step 5: Monitor the trade until it hits either of the conditions you specified in step 1, THEN record the results. Make notes of anything you learned. Also keep a running tally of any hypothetical gains or losses that might have occurred in the simulation. 

Step 6: Repeat steps 1 through 5 for 30 simulated trades and check your results. If your simulated trading results do not sum up to a positive gain, then you probably need to keep learning and refine your technique. Practicing option trading this way can go a long way to avoiding mistakes. 

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We hope that you have enjoyed this 10-part Beginner’s Guide to Option Trading presented by Raging Bull’s Options Academy. Take a minute to give us some feedback about what aspects of the education you liked or would like to see improved. We wish you the best in your trading.

-The Options Academy Team.

Professional airline pilots use flight simulators. Professional athletes spend countless hours practicing drills and memorizing moves. Professional musicians practice until everyone around them gets sick of hearing them play. And yet somehow, most beginning traders don’t realize the value of practicing. Don’t make that mistake. 

Use a trading simulator, or simply track hypothetical trades manually as best you can.

When you do this, here are a few ideas for getting the most out of your practicing. First, you’ll want to be as realistic as possible when you record the prices you capture for simulated trades. If you can, use live quotes and record your entries and exits. You’ll want to carefully follow these six steps to ensure you are practicing properly.

Step 1: Plan where you are going to get out of your trade, even BEFORE you ENTER the trade. 

This is a big mistake most uninformed traders make. Initiating an option trade without planning how to close the trade can lead to unpleasant endings. Identify your plan for what price you’ll exit the trade in both a BEST-case and WORST-case scenario. 

Step 2: Identify whether you will get into the trade using a LIMIT order or a MARKET order. 

Most of the time a professional trader will use a LIMIT order to enter a trade.  

Step 3: Identify the NUMBER of option contracts you will apply to the trade. 

A good rule of thumb is that you shouldn’t use and risk more than one to two percent of your capital in any one option trade–especially if you are using OUT-of-the-money options to trade with. 

Step 4: Identify a REAL-time-quote and watch to see that your trade would have been entered at the price you specified.

Step 5: Monitor the trade until it hits either of the conditions you specified in step 1, THEN record the results. Make notes of anything you learned. Also keep a running tally of any hypothetical gains or losses that might have occurred in the simulation. 

Step 6: Repeat steps 1 through 5 for 30 simulated trades and check your results. If your simulated trading results do not sum up to a positive gain, then you probably need to keep learning and refine your technique. Practicing option trading this way can go a long way to avoiding mistakes. 

—————————–

We hope that you have enjoyed this 10-part Beginner’s Guide to Option Trading presented by Raging Bull’s Options Academy. Take a minute to give us some feedback about what aspects of the education you liked or would like to see improved. We wish you the best in your trading.

-The Options Academy Team.