New Option TraderLearning how to be a successful option trader and blogging about it

It can be tempting in a bull market to let it all ride on a single trade.  This may work out once of twice but eventually you will end up giving it all back.  Especially with the volatility swings we’ve been seeing lately, what looks like a no-brainer high probability trade can very easily turn against you in the last two weeks before expiration leaving few options but to take a loss.

More than anything else smart money management is what determines trading success.  Remember, it’s not about making the big wins on every single trade but minimizing the losses and living to trade another day.  Look at it this way, if you have a spectacular month and make 300% on every trade — and each time you’re putting 80% or more into each trade — all it takes is one bad trade to take away all your gains and maybe even your whole account!

The goal here is not only to preserve what you have but grow that capital at a steady pace.  There will be losses along the way.  But, if you’re only risking a small percentage of your account then that’s the most you can lose on any one trade.

I was going to post money management rules in this post but then realized this is actually a bigger topic that deserves more than, “dont’ risk more than 2% on any trade..”

So, consider this an introduction to money management and stay tuned.  I’ll be back in the next post with a more information on what money management rules to consider when placing a single trade and for your overall trading strategy — yes, it is that deep.