Thread by @option_snipper

#OptionSniperRules

# FOCUS on few names others hiking none of ur biz
# learn CHART to know key pattern/level
# PROGRESSIVELY lock gains / take loss
# CASH OUT gains to bank acct often
# do NOT keep growing acct
# set BASE for trading & rest acct untouched
# DROP $-making mindset

FOCUS on only few names all yr long so other names hiking none of your biz. should have two list - watchlist and trading list. watchlist can change a few times/yr based on mkt conditions or trend of sector. tradelist is way smaller - based on particular chart patterns.

chart learning is a MUST for options trading. many formations/patterns out there but you don't need know them all. start from basics - e.g. rising/falling wedge, bullish/bearish flag, (inverted) H&S, ascending/descending/symmetrical triangle. also look at charts at ALL time frame

progressively lock gains or take loss will prevent you from holding overly long so you would turn a gain/loss into unacceptable condition (i.e., out of control). make this trading decision based on CHARTS - so must know key resistance/support levels. also depends on play size.

one big mistake many ppl make again and again is to let things run. win may turn smaller or loss become bigger - then psychologically ppl can't accept it and expect things turn better. most of time that WON'T happen - result is things out of control. so do it progressively.

what could be hard for ppl, especially small acct owners, is play size not big so how to progressively lock gains or take loss? that's very true. and if u play, say, 2-3 contracts, that's really hard to do it progressively. but if u have 5-20 or more contracts, VERY doable.

so i guess there's NO best solution for everyone - just have to realize AND accept the limitation of having small acct. but u can make it right. small acct can trade more conservatively - make sure loss is acceptable or lock win when fail to break resist or win already big enough

another BIG/COMMON mistake for small acct owner is they wanna grow acct fast AND big enough to trade w/ more flexibility. sadly, that's a top killer for small acct... keep growing acct means if lose a trade, absolute value of loss will be bigger. and it's HARDER to make it back.

in options trading, every day is new day. every morning is new start. u just have to SLOW DOWN and realize u CAN'T hurry making $$. the faster u wanna make $$, the more likely u will get urself killed no matter u r newbie or experienced trader. this is proven true all the time...

so how to do it? cash out to bank acct regularly is a GREAT way to mitigate potential risk AND control ur very own greedy mindset for going "out of routine" to trade aggressively. if u cash out gains often, end of yr bank acct will be MUCH BIGGER. that's ur INSURANCE for options

if u have, say, 10k acct. made 1k in 1-2 days. cash out ALL 1k to bank acct so trading acct still 10k. then if u r lucky to win more, cash out more. if u lose some, do NOT transfer $$ from bank acct back to trading acct. just patiently trade things to make it right.

many ppl had experience like winning 10k then lost, say, 5k as they keep growing acct. then they are upset and regret they took it more aggressively. but instead of taking the rest 5k GAINS, they trade in a WISH to make it back. then most of time, rest 5k gains gone & more loss.

i am saying this coz i used to make this kind of mistake often... it's ok to make that kind of mistake... it's ok if you are one of those "many ppl"... but what's important is to start making CHANGE... if u never change, no one could save u from losing $. not me, not anyone else.

ironically -and i've said this before- those who actually don't need $$ but instead just trade for fun (so they are not in a hurry to make $$) always make relatively better trading decisions, whereas those who need $ the most always fail to trade rationally & lose more long term.

anyway coming back to the topic of cashing out gains to bank acct regularly, there are many twitter friends telling me how big change that brings to their trading after they follow that rule... ur trading acct may not grow BUT u have extra $ pay bills, family travel, kids gifts..

related to cash out to bank acct, one must NOT keep growing acct. doing so will expose u to greater risk of trading. most ppl don't have either the skill or discipline (or both) to manage a bigger acct. that's when never-able-to-recover kind of mistake happens the most...

as u keep learning/improving, one day u will get to the point where u can start transferring some (say, 10-30% depending on situations) gains back from bank acct to trading acct so u can start growing ur trading acct. but do NOT hurry or transfer heavy gains. key is risk control.

it's pretty normal that u have good days and bad days depending on your trading AND also mkt conditions.. if keep growing acct and mkt turns turbulent or bad, u may very easily get killed and never be able to really recover.... options trading is about survival first, then growth

to help mitigate risk of options trading, another every effective technique is to set up a base for your trading. this base is ALL the $$ you should ALLOW urself to use with all the rest of ur acct sitting tight un-touched. this can be viewed secondary insurance...

how to set up this base depends on LOTS of factors... for example, if your acct is 50k and mkt is in uptrend, u may set 30% of initial level as trading base, meaning no matter how big ur acct grows into, u only use 15k for trading no matter what (even if ur acct grows to 80k)

especially if you do NOT keep growing acct and cash out gains to bank acct regularly, your trading acct size should never be way bigger than initial acct size... meaning ur trading base stay at 15k UNTIL one day u feel it's time to transfer some of gains back to trading acct.

also, when mkt conditions change, say from good to bad/turbulent, u may still use 30% of trading acct as base but in real actions u put in way less $$... remember, KEY is to leave all the rest of acct $ untouched - meaning no matter what happens, u do NOT touch those $$.

I've seen people getting more positive/confident trading when mkt turns really good so they believe (ASSUME) they would definitely make $$ so they forget about trading base and use heavy $$ trading. then all in a sudden, they may start losing way more than what they could afford.

so, basically rationale for setting up trading base is to put a HARD mental regulation on yourself so u won't get crazy and blow ur acct. also it helps u to "recover" (remember i also said do NOT have this recovery mindset as every trading is NEW) using rest $ when u do have loss

all in all, drop this $-making mindset is truly everything at the end of day in options trading... u win some, u lose some. that's reality. no one is god. no one never makes mistakes. no one can be perfectly rationale. humans have emotions, naturally. it's not a sin. BUT,

BUT if u have this $-making mindset, u always hurry making $$. u always eyes on NEXT trading opportunity to make $. u always wanting more after wins. u always play whatever others are playing that u believe are making them $. then, u lose rhythm, discipline, & eventually ur own $

so to me, the ULTIMATE goal for every options trader in terms of trading psychology is to DROP this $-making mindset.... it's VERY hard to realize how important this is as it's counter-intuitive (most ppl would say if not for the $$, why trading options). BUT this is so TRUE...

Repeat the following every single day to remind yourself:

“progressively lock gains & cash out to bank acct otherwise it’s NOT your $. do NOT keep growing acct. know where to start locking gains or taking loss before entering a position. Use 20% max of acct playing ALL weeklies”

also a few things to add here - do NOT set up a specific % to start locking gains or taking loss. u may set up a really really HARD stop line for taking loss, that's probably helpful and much needed. but end of day it's about read of charts - lose key support or b/o key resist..

so it's possible that u set up, say, 25% as stop for loss. BUT based on chart, this particular name drops only 20-30 cents to hit where you should have put a stop (stop would have been, say, 16%) so really no need keep waiting... end of day it's about chart....

also remember mkt can change fast based on news. so chart helps u better plan ur trading and u know in advance all the key resist/support levels. but when mkt starts to change based on news, do NOT stick with your plan and need to re-evaluate status quo. BA news perfect example.