What Are The Mistakes To Be Avoided In The Options Market
If you are aware of the mistakes in the options market you will try to avoid those mistakes when you are trading. You will make informed decisions if you are aware of the mistakes in the options market. A naïve options trader may struggle to make profits but it is not unusual. You may even feel overwhelmed when you are trading for the first time. The greatest benefit of the options market is that you can gain countless advantages. Although there are countless advantages you may struggle with risks and mistakes. You may lose opportunities due to making mistakes. Our aim is to spread awareness among naïve traders regarding the mistakes in the options market. The options mistakes that we mention are avoidable through hard work and effort. Singaporean traders have made profits by trading the options market, so why can’t you? You too can make profits but you should avoid these silly mistakes in trading. Shall we dive in?
Table of Contents
The novice traders always think by taking a big risk they can become rich people. But they don’t understand the simple fact that this market is all about probability. Even if you take a 2% risk in each trade you can easily make a huge amount of money within a short period of time. Almost 95% of the traders are losing money due to their lack of patience. They don’t have enough time to wait for the best trade setups. Overtrading is often considered the most dangerous enemy of the professional forex trader. You can’t overtrade the market to earn a huge amount of money. Learn the perfect way to stay on the sideline so that you don’t have to lose a huge amount of money. Follow the simple rule of money management and you will do fine.
The strategies don’t match
If you are trading the market you should have an outlook of what will happen or what you think will happen. You should analyze the market perfectly to understand the market situation and without understanding the market you cannot use the strategy. You can use both fundamental and technical analyses if you prefer but make sure to check whether it matches with outlook. You should understand that technical analysis helps the trader to study the market action especially price and volume. By using this strategy you can decide whether to buy or sell. On the other hand, the fundamental analysis will help the trader to decide the other factors. If you have the perfect outlook you can decide the timeframe of the trades. If you want to get the maximum from options trading you should choose the strategy that will match the outlook of your expectation. Most of the naïve traders do not follow the above advice, so they tend to lose easily and they label the options market as “HARD” although fault is on their side.
Selecting the incorrect expiration
The next mistake is with the incorrect expiration. You would have to face different choices when dealing with the expiration date. If you have the proper idea of what you are going to do all the pieces of the puzzle will fit in. Even finding the accurate expiration date will not be a big deal. You can use this checklist to decide the correct date of expiration;
-How long does it take for the trade to do its duty?
-How long should you hold?
-Is there proper liquidity to the trade?
Once you are through with this checklist, you can make the right decision.
Not considering volatility
The traders should have a proper understanding of the implied volatility. If the trader considers the volatility the decision will be correct and if the trader ignores the volatility it is a mistake. You should study whether the implied volatility is low or high as it helps to find the price of the premium.