Hedging is what made me Successful at Trading...

I first started by thinking I could beat the market day in and day out. Doesn't every trader start with this kind of cocky mindset? I was determined to show the world I was made of something. I remember my first trade which was $600 into GM call options the day before earnings. Keep in mind that at this point I only had $2400 to my name and was still in college. The next day that trade went way south and I figured out the concept of time decay. There is almost no way to win buying options on earnings unless the move exceeds the expected move along with time decay. Or the other way is to hedge with debit spreads.

After this period, I quit trading for about a month then decided to go back in. I day traded Apple for a little while gaining and losing small amounts. Then, one day after being in Sociology class my account was up $2000 at the market open. Once again, during this period I thought I had some sort of magical powers with the market that nobody else had.

The Finale...

I kept trading for a period of time and went into trades essentially with all or nothing. This was what killed me during this period of my trading career. I then quit trading for a year and remember the look on my parents faces when they heard me say I lost that much money.

My third and final period as a trader came when I discovered the site Tastytrade. I didn't have much money at the time so I just studied their videos. Over a few days, I was addicted to the site and studied atleast 5 videos a day wanting to learn everything. After the summer that year, I decided to open a TDAmeritrade account. Here is where the fun part comes. My strategy was to put on 2 call spreads and 2 put spreads a month. My account was $3000 at the time so it made sense to risk a small amount. Over the course of 8 months I only had 1 losing trade and was up 15% on the year.

Hedging was a significant portion to the success because I would play both sides of the market. I would also give myself an 84% probability of winning which helped provide a buffer for losing trades. Many traders lose because they think they will get rich quick. But once you can put those emotions aside and trade smart you will be successful.

Submitted September 19, 2016 at 09:19AM by gentlemansjack82 http://ift.tt/2cYrxS4