General advice for rookies

Short blog post today as I'm heading out of town for one week. Don't know if I'll be able to post during that time.

Here's what I believe to be true and is the basis for my writings:

  • Don't trade with real money until you understand how options work.  Too many rookies trade before being ready.
  • Risk management is the essential skill required for long-term success.  Why? Because it's easy to make money with certain types of option spreads, and you can earn those profits most of the time.  But, it's inevitable that you lose money on some trades.  If you keep those losses under control (by being willing to close some positions at a loss) and don't allow losses to overwhelm profits, your chances of succeeding are excellent.
  • Strategy selection is important, but secondary.
  • As an investor, you want to trade within your comfort zone.  Thus, if you feel a position is too risky, or does not provide a sufficient reward, or if makes you feel as if you are gambling, then you are not within your zone.

Have a good Labor Day Weekend!

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