Always allocating a predetermined and fixed amount
(principal) of your trading capital to
is a key strategy
to protect your profits. There is no
trading system in the world
that can guarantee a 100% success rate. Sooner or later, you will likely
experience a negative trade, i.e., a trade where you lose all the money
Following a winning options trade, reinvest only the
original trade principal, never the principal plus the profit! For
instance, if your trade allocation for options is $1000 and a previous
trade provided you with a $500 profit, we strongly advise against
reinvesting the full $1500 into your next options trade. Rather, we
suggest applying only the original $1000. In this way, should you have a
(total) loss due to an option expiring worthless, you would still
have the $500, your profit from the previous trade.
Periodically, particularly tempting market situations
can arise, which may entice you to commit more of your trading capital
to options than originally allocated. A few such situations that might
persuade you to abandon discipline are:
- your indicators show an extremely strong market;
- you have just had 5 successful trades in a row
and are highly confident that the next one next one will be yet
- the price of the option you are considering is
- you are considering buying additional contracts
for the purpose of averaging down on an already established
Don't be tempted to break the rules under these or
similar circumstances! Never exceed the
predetermined amount you allocated to options trading.
Here's one tip to help you succeed: immediately
transfer any profits from your options trades to another account, where
you will not be tempted to reinvest them into your next trade.
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