Avoid these Mistakes in Option trading
Option trading is unpredictable. When trading, the possible of the stock going in any direction. You can use option strategies to protect your gains, cut losses,
Buying out of the money
This is one of the most difficult way to create money continuously in options trading. The out of money strategy is very attractive to new option traders. This is because it is cheap and is a great place to begin from. When you purchase the call option, you have a high chance of emerging the winner, at least that’s what other traders say. It may seem face because it is similar to the pattern you used as a trader. Buying low and selling high seems like the ultimate trading strategy. If you restrict yourself to this kind of strategy, your potential to losing money due to inconsistency is pretty high. Instead of buying out your money, consider the cover call strategy. The risk in this strategy is not associated with buying or selling your option when it is under the stock position.
This is a common mistake among beginners. Most of them will misuse leverage option not realizing how risky it could be. Contracts draw beginners by selling them short terms calls first. One of the best ways to reduce the risks is to master leverage use. One general rule that most beginners use it to trade less shares until they master the whole concept. Sticking too one option and minimal contracts reduces the losses until you can master the whole concept of option trading.
Working without an exit plan
When you are trading options, there is always some impact on your emotions and how you thin. This means that some people allow their emotions to control their moves and strategies during binary option trading. Chose an upside and downside exit plan that will help you keep your finances intact. It does not matter if you plan on selling or buying the trading options, you must have an exit plan. This will help you establish more successful patterns during trading. Avoid getting greedy or overspending in the hopes of earning more profits during trading.
Ignoring new trading strategies
Many option traders avoid new trading strategies as much as they can, in fact, most will not sell in or buy out their money under any circumstances. These strategies may not seem like a catch until the odds start moving against you. This is when most people will break the rules and misuse the strategies trying t save the last of their finances. Staying open to learning new strategies will help you win more trades.
People fail to factor in upcoming events
To be fair, not all events in the trading market are foreseeable. However, there are two very important events to keep in mind while trading options. These include the earnings and dividends for your stock. Be sure to factor in the upcoming events when trading, for instance, knowing the ex dividend date will help you steer clear of some trading contracts that may put your finances at risk.