Stock Option Trading Millionaire Principles

Over the years I have spent professionally trading stocks and options on the capital markets, I have witnessed many ups and downs.

I have witnessed paupers overnight become millionaires…

And

I have seen sudden billionaires become paupers…

One tale imparted to me by my tutor remains ingrained in my memory:

Once upon a time, there were two Wall Street millionaires. Both were incredibly successful and chose to share their knowledge with others by selling newsletters containing their stock market projections. Each expert charged $10,000 for his or her opinion. One trader was so interested in their perspectives that he used his entire $20,000 in savings to get their comments. His buddies were understandably interested in what the two gurus had to say regarding the direction of the stock market. When asked, their acquaintance was steaming with rage. They were perplexed and asked their acquaintance about his fury. “One said BULLISH and the other said BEARISH,” he said.

The implication of this example is that the trader was in error. On today’s stock and option markets, it is possible to benefit regardless of one’s assessment on the market’s future path. The distinctions lie in the stock-selection or options-trading strategy, as well as the mental attitude and discipline used to apply such strategy.

The following are the fundamental stock and option trading principles I adhere to. By keeping these guiding concepts in mind, you will constantly achieve profitability. These concepts can help you reduce risk and examine what you are doing correctly and what you may be doing incorrectly.

You may have read similar thoughts already. Others and I utilize them because they are effective. And if you memorize and dwell on these ideas, your mind will use them as a guide when trading stocks and options.

PRINCIPLE 1

SIMPLICITY IS MASTERY

If you believe that the stock and options trading approach you are using is too complicated for basic comprehension, it is likely not the finest.

In all facets of effective stock and options trading, the simplest strategies typically prevail. It is simple for our brains to become emotionally overloaded during intense negotiations. If our plan is complex, we cannot keep up with the activity. Simpler is better.

PRINCIPLE 2

NOBODY IS REASONABLY OBJECTIVE

If you believe you have complete control over your emotions and can remain objective during a volatile stock or options deal, you are either a dangerous species or a novice trader.

No trader can be utterly objective, particularly when market activity is extraordinary or highly irregular. Just as the ideal storm may nevertheless unsettle and sink even the most experienced sailors, the perfect stock market storm can nonetheless quickly unsettle and sink a trader. Therefore, it is essential to automate as many crucial components of your trading strategy as possible, including profit-taking and stop-loss points.

PRINCIPLE 3

KEEP YOUR PROFITS AND CUT YOUR LOSSES

This is the most essential tenet.

Contrary to what most stock and options traders do…

They hold on to their losses for too long, causing their equity to continue to decline, or they sell their gains too fast, causing the price to continue to rise. Their benefits never equal their losses over time.

This principle requires time to grasp. Consider this principle and examine your past stock and options transactions. If you lack discipline, you will recognize its validity.

PRINCIPLE 4

BE FEARFUL OF LOSSING MONEY

Are you eager to enter the stock and options markets with your money as quickly as possible, like the majority of novices?

I have discovered that the majority of unethical traders are more terrified of missing out on “the next great trade” than they are of losing money! The important thing is to STICK TO YOUR STRATEGY! Trade stocks and options only when your method indicates to do so, and avoid trading when the circumstances are not met. Exit trades when your strategy instructs you to and leave them alone if the requirements for exit are not met.

The idea is that you should be terrified of losing money because you traded without following your stock and options plan.

PRINCIPLE 5

YOUR NEXT TRADE MAY BE LOSS-MAKING.

Do you have 100% faith that your next stock or options trade will be such a huge victory that you will violate your own money management guidelines and invest your entire portfolio? Do you recall what often occurs next? It’s not attractive, is it?

Regardless of how confident you may be when launching a deal, the stock and options markets have a propensity for doing the unexpected. Consistently adhere to your portfolio management system. You may end up compounding your actual losses by compounding your projected wins.

PRINCIPLE 6

BEFORE INCREASING CAPITAL EXPENSE, EVALUATE YOUR EMOTIONAL CAPACITY.

You are aware of the distinction between paper trading and actual stock and options trading, aren’t you?

Similarly, once you become accustomed to trading with real money on a regular basis, a tenfold growth in your capital is notably different, do you not agree?

What is the difference then? The distinction lies in the psychological stress associated with the potential of losing more and more real money. This occurs when a trader transitions from paper trading to real trading and when capital is increased following success.

After a period, the majority of traders reach their financial and emotional limits. Are you comfortable trading a few thousand, tens of thousands, or hundreds of thousands of dollars? Before committing the finances, you should evaluate your financial capacity.

PRINCIPLE 7

YOU ARE A Novice in All Fields.

Have you ever felt like an expert after a few successful stock or options trades, only to suffer a significant loss on the next transaction?

A prescription for disaster is overconfidence and a false sense of invincibility based on prior victories. Before entering a deal involving stocks or options, each and every professional follows all of the necessary procedures of their stock or options trading technique. Consider every transaction as if it were the first one you have ever made. Never stray from your stock or option trading approach. Never.

PRINCIPLE 8

YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE

Have you ever pursued a profitable stock or options strategy, only to fail miserably?

You are responsible for determining the success or failure of a strategy. Not vice versa, your personality and discipline determine the success or failure of your strategy. According to Robert Kiyosaki, “the investor, not the investment, is the asset or liability.”

Understanding oneself first will eventually lead to success.

PRINCIPLE 9

CONSISTENCY

Have you ever altered your strategy implementation strategy? When you consistently make adjustments, you end up catching nothing but wind.

There are more variables than can be mathematically modeled in stock market volatility. By adhering to a tried-and-true method, we are certain that a successful individual has stacked the odds in our favor. Before making any adjustments, you must evaluate, when reviewing both winning and losing trades, whether the entry, management, and exit matched every criterion in the strategy and whether you followed it precisely.

Conclusion…

I hope that these basic rules, which have guided my ship over the roughest seas and to the richest harvests of my life, will also guide you. Best of luck.