Why I Swing Trade Options
By Mike Lamothe @ SwingTraderInc.com
All jobs require the right tools to be successful. Swing Trading is no exception. It can be a daunting task trying to find a good stock to trade options when there are over 9,000 stocks to choose from. Do you have a good strategy with a high success rate?
Is the risk /reward favorable?
It takes many years to find a strategy that is reliable and has a good win rate. If you find a strategy that works, you can make lots of money. You also need to tweak it several times to keep up with ever changing market conditions. A reliable strategy does not work 100% of the time. There are no HOLY GRAIL strategies. If there were, everyone would be wealthy.
Most traders fail because they don’t have a trading plan. The saying is “fail to plan, plan to fail” . You may have a winning strategy, but you need to manage it in order to be successful. Back testing is a great way to put your ideas together and find out if it works. I back test all of my strategies and only use ones with a risk/reward ratio of 1:2 or 1:3 or better. Back testing also gives you a win percentage, and I only use ones that generate 75% or better. I want to find a low risk, high reward trade, which can potentially yield explosive gains in a very short period of time, making Swing Trading very lucrative.
The back testing results can be manipulated by changing the time frame and tweaking the filter phrases. In my strategies, I prefer to only trade US stocks that are above a certain price and have a minimum amount of trading volume. When trading options, not all stocks have tradable options. Stocks with low price and low volume tend to have Call/Put options that have a large bid/ask spread and very low volume and/or open interest. This is not desirable for trading options as they have low liquidity.
Most of my strategies work best in a trending market. Currently we are in a Bull market, so we want to find stocks that are in strong uptrends. You never want to go against the trend. Shorting or buying Puts in a Bull market is a recipe for disaster. My strategy is to go long and buy stocks , or buy Call options when we are in a Bull market. I would short, or buy Put options in a Bear market. During a correction phase of a Bull market, it is safer to stay 100% cash, and wait for a bottom before entering the market again. Staying with the overall market trend and waiting on the sidelines during a correction, will give you an edge over all of the other novice traders. You can be part of the 5% of traders who do make money trading options.
See my trading strategy back test results below:
Want to Learn How to Trade Options like Mike?
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EACH OPTION TRADER PORTFOLIO MEMBER WILL RECEIVE
- FREE Access to our home study course ($97 value)
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- Timely ideas with technical analysis annotations
- Members only Q&A area so you can ask questions about stocks you like and help reading charts, or any other options questions.
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