I have been trading stocks online since the early 90s and in 2005 moved into options. At that time I was mostly a swing to intermediate trader and have since moved more into day to swing trading. Most of my trades consist of buying Calls, Puts, Bull-Put spreads, and Bear-Call spreads and occasionally I will buy a stock or two. During this period I have probably made every mistake that can be made and in most cases lost money as a result. Maybe you can learn something from the mistakes that I have already made.
Entry Mistakes
o Buying the wrong option (or stock)
o Buying Calls when I meant to buy Puts
o When buying spreads, reversing the options
o When filling out the order, entering an incorrect option symbol
o Looking at the wrong chart and then basing my trade decision on it
o Looking at the wrong time frame within the right chart
o Accidentally buying against the trend
o On out-of-the-money trades, buying too far (too low of delta)
o Buying a stock or option with too low of volume
o Trying to second guess the market. The market is headed down and you think it is going to go up so you buy long.
o Buying a stock and not being aware of when earnings are being released
o Not checking the order type. Placing market order when wanted a limit order, etc.
o Trading without a stop loss, either a physical or a mental one. (I prefer physical.)
Exit Mistakes
o Not paying attention to charts when exiting unless using a limit for exit
o Not timing the exit. A lot of times exiting within the first 30 minutes of the day is very profitable but you have to watch the charts closely
o Holding a trade too long (greed)
o Not following your own exit rules (discipline)
o Getting out of a trade too soon (fear), unless your exit rules have been meant
Spread Mistakes
o Not watching the stock price in relation to the nearest strike price. On Bull-Call spreads, if the stock price falls below the call bought. On Bear-Call spreads, if the stock price rises above the call bought. On Bull-Put spreads, if the stock price falls below the put sold. (If any of these conditions happen, you will need to take a recovery action.)
Covered Call Mistakes
o Not watching the option price in relation to the original purchase price. If stock price falls, you can buy back the call and make the difference between bought and sold.
o Not watching the stock price in relation to the strike price of the call. If the stock is climbing, you may get called out and lose the difference between the price of call sold and the current price. If the price of the stock has moved enough, this is not always a bad thing.
Not Paper Trading
o Paper trading is where you will learn if a proposed strategy will work or not. In the past I would test out my new strategies in the live account. Just about always lost money as a result. Then would paper trade the strategy until I got it right. Wrong order!
When it comes to making mistakes in trading options online or stocks or just about anything, I am sure that everyone has their own story. These are most of the ones that I have made in the past and occasionally still make, usually when I get distracted or in a hurry. Happy trading and keep your mistakes to a minimum and learn from them.
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