Position Sizing for Effective Money Management

Position Sizing for Effective Money Management

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Most option traders FAIL because
1)They buy too often, and
2)They don't set stop loss rules.
3)They ineffectively manage their position sizing.
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It's not just when you ENTER the market, but when you EXIT.
What happens normally?

When you trade options you begin with a lot of capital to invest. Typically traders buy several options - their position- and REDUCE their capital immediately, by the option decreasing in value. They then BUY MORE in hopes of recouping their losses and soon have little money left.

It's not how much you make that is important, but how much you RISK. You learn risk management guidelines through position strategy, and options risk management techniques.
Using the techniques the trader learns how to evaluate position sizing. Position sizing analysis can help the trader manage risk when trading options.

Stop Loss Guidelines are how you MAKE money trading options.

Setting smart profit goals help the trader achieve profits, not watch the option 'run up" and by the time the trader is ready to profit, already be falling. Most traders don't know WHEN to sell.


Learn the parameters for both effective profit taking, and when to minimize your losses by reducing your position size. You must have clear buy/sell guidelines and detailed rules for when to exit.
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Effective Stop Loss and Profit Guidelines:

1)Use the Average True Range (ATR) to find a target spot to set stop loss. We teach you how.
2)Support and Resistance Lines help define a strategy for sale, at profit or loss. But, other astute traders all use support and resistance. know the variables that help you use support and resistance as guidelines for sale.

The Three Thirds:
Sell 1/3 at a defined profit. Sell 1/3 at the next higher profit goal, and let the final 1/3 run.
The 75/25 Rule:
Set two profit objectives when you purchase the option. Sell 75% at the first goal, a conservative profit, and let the final 25% run.

Almost NEVER buy above the prior day closing price. *Use a formula of number of days to hold, and stop loss by no of days
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from "REMINISCENCES OF A STOCK OPERATOR":
"It takes a man a long time to learn all the lessons of all of his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation"