Risk management for options trades

 Risk management for options trades

Risk management starts with goals. Ask yourself what are your goals and ask yourself that question first of all and if your goal as many options income traders is to trade for a living then you have to go through a process that will get you to the point of your goal and so we like to talk today about the right way to get to that goal and the wrong way to get to that goal and

 I'd like to start out actually by going through what the wrong way is. 

1. A lot of options traders find a strategy that they experience some success on
2. let's say for three or four months and they look back and they say you know what i/ve had so much success with this strategy on every small amount of capital.
3. If I had only traded 20 times that amount of capital I wouldn't have a need to work this month I could have quit my job and just trade this strategy and I much rather be doing that than the job both at I'm trying to know leaves, therefore, they quit their job and they then put 20 times the amount of capital into the trade
4. In that next month, they were very foolish of course because once you do that you are going to experience something you ve never experienced before because instead of being down a normal drawdown on the trade of 200 rupees now you are going to be down 4000 rupees 
5. at that very normal part of the trade and suddenly you are going to panic and most likely start to trade very very badly and almost invariably
6.  when you do something like that. That month you will get stopped out at the maximum loss allowable on that trade its uncanny
7.  how often that happens when people irresponsibly ramp up their capital what after that you blow up your account because now you traded much larger than you should have what happens after that you go back to your boss and you say sorry I quit that was very foolish
8. well give me my job back and suddenly you are back exactly where you started no closer to your goals but much less in your bank account because you didn't go about this process wisely. 

A wise way to go about this process. 

1. First of all, you've got to be realistic and you have to accept that if you want to transition out of your job into a full-time trading career 
2. It is not going to take you a month it's not going to take you three moth it's not going to take you six month
3. If you are lucky by the end of six months you will have begun to find yourself as a trader and find what are the strategies that are working consistently
4.  For you, if you are lucky enough to have that happen to you within six months and some people it takes several years
5.  To get get to that point but let's say you are one of the quick ones and you get to the six-month point where you have developed strategies that are working for you on a fairly consistent basis then and only then can you start trading
6.  Those strategies on slightly more capital I'd suggest no more than 5%increase in capital per month why such a small percentage increase
7. Because you don't know how you are going to react to larger dollar drawdowns in the midst of an otherwise successful trade until you experience that with live capital
8. On the table so if you go let's say 5% a month increase every month as you are continuing to trade successfully you start to build a risk muscle a muscle of your ability to tolerate risk and as that increases slowly you will find that as you incrementally and very judiciously increase your capital level
9. You will do so in a way that's going to give you the opportunity to experience increasing drawdowns but nothing that's going to be very very scary for you now you may get to the point as you keep increasing your capital
10. Where you start trading more erratically because the dollar amounts are now getting larger if that's the case don't increase your capital ay further until you start to return to your previous successful trading habits
11. Prior to your program of increasing your capital so if you do instead start from a small base to of capital begin to slowly increase your capital level watching that your trading consistently as you had previously 
12. Eventually, you will get to the point where you are trading enough capital so that you could transition away from your job that could take four years that could take two years that could take five years.
13. It's not going to take six months it's not going to take a year if you are an incredibly astute trader maybe it could take 18 months the earliest two years would wold even be a very quick period of time for you to get to that point
14. The big mistake that so many people make is they experience a small amount of success they then ramp up capital outrageously they panic 
15. When they have a reasonable drawdown and then they blow their account up and they never get the opportunity to find out whether they could successfully trade options for living the great thing about option income trading is that you can stay in your job and I strongly recommend that you that stay in your career
16. Even if you are trying o really transition away from it because you only need to have in most cases the access to your trade says three to five times a day 
17. If you have the kind of job that allows you to do that and many people do then you can stay on your job continue to build your risk muscle continue to build your options trading competence and then ultimately you'll be in a position where you could transition away from your job
18. Eventually after gaining gradually very very gradually increased your capital level so in summary don't be foolish and think you can transition away from your job
19. In three to six months because  you re-experienced a small amount of success on a simple options trading strategy it's going to take longer than that you need to accept that you need to get into the mindset that this is going to be a two to the five-year transition process
20. If you do that you won't blow up your account you will build your confidence you will build your risk trading muscle and then you have a shot you've given yourself a really good opportunity to trade for a living 
21. So please listen to the spice it is the most important advice that I can give any beginning options trader you are got a trade small in the beginning as you experience success very very slowly ramp up your capital level until the point that you can really afford to trade full time for a living so thanks to you very much if you have any questions write it back in the comment section

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