Trading is a serious business, so traders have to follow some day options trading rules with discipline to become profitable options trader.
If traders do not follow rules then trading is very risky. Trading is a great business if a trader does it as a business, not as a gambling. Options day trading rules are the most useful thing while doing options trading.
People love options trading very much because in options big money-making possibilities are high and options trading gives a thrilling experience to traders.
In options, prices move very fast and they are extremely volatile. So traders have to be more alert while doing options trading and follow rules strictly. One most important thing beginner traders always keep in mind is that they have to follow for day trading, “One index, One setup, One trade and one lot” rule till net profitable at least three month, it is very useful.
What is Day Options Trading?
Day options trading involve buying and selling options contracts within the same trading day. This means that traders have a limited timeframe in which to make trades and generate profits. Traders need to be able to make quick decisions and act fast to take advantage of short-term market fluctuations.
Day option trading strategies involve buying and selling options contracts within a single trading day to profit from short-term price movements in the underlying asset, which can include futures, stocks, or other preferred assets.
The amount of money that can be earned from options trading in one day varies greatly and depends on factors such as market conditions, trading strategies, risk tolerance, and capital investment. Some traders may make significant profits in a single day, while others may experience losses.
Options are contracts that allow you to buy or sell a certain number of shares at a specific price. This is known as the strike price. You must also make the trade within a predetermined date, which is the expiration date.
Here are beginners 21 day options trading rules to become a profitable trader as given below,
1. No Setup No Trade
It is a primary thing or first step traders have to follow in their trading journey.
It is extremely important options day trading rule because with only proper setup one can be a profitable trader with out it, profitability is next to impossible.
A predefined setup with a good risk-reward ratio and best win rate is needed for better results in trading. Traders can make their won setups with good chart reading skill easily. But they have to do minimum three months of back testing and three months of front testing compulsory with only one lot. After that if setup shows good results, they can use this setup on regular basis and increase quantity step by step.
This rule also solves trader’s over-trading problem easily. With the help of this rule, traders can develop passion in their trading psychology. Market transfer money from impatient to patient trader. So it is most important for traders to wait for the perfect setup before taking trade.
2. No Over Position Sizing
Position sizing is a crucial factor in trading. Because over-position sizing creates fear in the trader’s mind, which is not good for trading psychology.
Over-position sizing destroys traders’ trading accounts and throws them out of this game. So trade only with one lot till the net profitable for at least three months.
After that traders can increase their position sizing gradually and step by step. Many traders unable to follow this options day trading rule due to greed. After starting small profits traders make big position size and due to it trader lose their maximum capital. So strictly follow this no over position sizing rule.
3. No Overnight Positions
Overnight positions are very risky so avoid those strictly, especially in the beginning stage. In a running market, traders can easily manage their risk but in overnight positions, they can’t. Mostly traders break this options day trading rule because of lack of experience.
After a lot of experience and a deep understanding of chart and technical analysis, traders can trade overnight positions.
4. No Over Trading
This is a common mistake made by the majority of traders and it is a big reason for losses and unnecessary broking charges. By following one trade per day rule and taking trade only on setup can help them in reducing over-trading. For beginners this is a golden day options trading rule. Which is help them survive for long time in market and save their capital from big losses.
5. No Unrealistic Expectations
Many new traders enter the market with unrealistic expectations, they try to get rich overnight and lose everything in the market. One of the reasons behind unrealistic expectations is the profit screenshots shown by social media. But new traders completely forgot that this profit comes with a lot of experience, wisdom, hard work, and discipline.
6. No FOMO Trading
FOMO means Fear Of Missing Out. Many traders miss trading opportunities or setups due to different reasons, so they try to take positions in between and make big stop losses and small profits. Which is not good for overall trading. So leave that trade or setup and patiently wait for the next opportunity.
7. No Desperate Trading
Most of the time situations happen like, traders sitting in front of a screen but they can’t get trading opportunities for a long time so they become restless and choose the wrong setup, which leads to losses. So avoid desperate trading and wait for the right opportunity patiently.
8. No Hope Trading
Successful trading is based on analysis, a strong mindset, and proven strategy and does not depend on luck, hope, or wishful thinking.
So traders have to follow this options day trading rule with discipline to become a successful options trader. When traders depend on luck or hope then the only thing they have faced is loss. So traders have to avoid hope trading and exit their position compulsory when the price goes against them.
Traders have to never play with their stop-loss order. Before taking a position decide their stop loss and stick with it, whatever may happen.
9. No Trade Without Stop Loss
Stop loss is the most important phenomenon of trading. Markets are extremely volatile and it is very hard to predict how much the market is going against traders.
So if trader trade in overconfidence and do not place a stop loss order then their account is one step away from going to zero. Always trade with stop loss, which is extremely important. Stop Loss always says to traders,
“Go Ahead and Take Risk I am Here to Support You.”
Sometimes market hits traders stop loss and then give target, after this type of situations traders think like stop loss is their enemy but its not truth.
Actually stop loss is traders friend because he save traders capital from big loss. So traders have to remember this always and place their stop loss as per setup, market structure, logic and chart nature.
10. No Revenge Trading
Traders often forget that the market is supreme and no one can beat the market, so never fight with the market. If the market hits stop-loss then accept it and move on, calmly wait for the next opportunity, and don’t try to take revenge from the market, it is one of the biggest reasons for big losses in the market.
To learn options trading in-depth visit – Option Trading Only.
11. No Trade Is Also A Good Trade
When the market or chart is beyond the understanding then don’t trade because no trade is also a good trade, in a state of confusion traders majorly take wrong positions so strictly avoid trades in critical situations. When traders avoid trade the possibility of loss becomes zero.
12. No Trade Less Than 1:2 Risk Reward Ratio
The meaning of the 1:2 risk-reward ratio in options trading is that when any setup gives 20 point target then its risk is not more than 10 points. Trade only best risk-reward ratio given setups is one of the most important options trading rule because no one can get 100% accuracy in trading so after making small profits due to the wrong risk-reward ratio traders eventually close in losses, so properly work only on a 1:2 risk-reward ratio.
13. Never Trade On a News Basis
Trade only on proper setup, news base trading is nothing but random trading and from random trading, traders expect random results only. It is not a sustainable method of trading. So traders have to avoid news base trading strictly.
14. Never Trade With emotions
Try to do emotionless trading, because most of the time there is a chance that emotional decisions are mostly wrong in trading. To control emotions, trade with a small quantity till getting confidence on setup.
15. Never Trade Randomly
Random trading gives only random results, it can’t give consistent results, so traders have to try consistently the particular strategy or setup, and don’t change setups frequently due to setup-changing habits traders can’t get insights or an edge in a particular strategy or setup and it’s my personal experience.
16. Never Trade To Recover Losses
It is the most important day options trading rule to remember always because, there is no term like loss recovery in the market, the money you lost in the market, is fees paid by you to the market for learning purposes like college fees.
So don’t try to recover your losses try to become the best trader who consistently makes profits even if it’s small.
17. Never Trade To Get Rich Overnight
Many traders enter the market with wrong expectations, they feel like with one trade they can earn a very big amount and get rich very fast, which is not true. The share market is a very hard way to earn money easily and fast.
18. Never Increase Quantity On Profits
Many traders make this mistake on those initial days profits, they start calculating the profits on position sizing which is another big mistake. Never increase lot size till becoming net profitable for at least three months.
19. Never Join Paid Groups
Beginners generally make this mistake, traders always have to remember that no one can make them profitable trader, it depends on that particular trader’s hard work, discipline, and psychology. So strongly avoid joining paid groups for calls and tips.
20. Always Work On Psychology
Psychology plays a crucial role in options trading, with bad psychology no one can become a profitable trader even after learning technical and all other things.
Due to bad psychology, traders never wait for their target, they exit their position with a small profit, and in case of loss, they wait in hope and lose their capital. So work on psychology is a must.
21. Compulsory Maintain Trading Journal
A trading journal works as a mirror in trading, which shows mistakes made by traders while trading. When traders understand their mistakes and work on them, they automatically improve their trading and become better trader.
Why do Traders Fail to Follow Day Options Trading Rules?
Traders often fail to follow options day trading rules for several reasons:
Emotional Decisions
Fear and Greed these two emotions are powerful drivers in trading. Fear of missing out (FOMO) can push traders to take unnecessary risks, while greed can lead them to hold onto positions longer than they should, hoping for greater profits. The high stakes and fast-paced nature of day trading can cause stress and anxiety, leading to impulsive decisions that deviate from established rules.
Lack of Discipline
Even experienced traders may occasionally lack the discipline to stick to their trading plan, especially after a series of losses or wins. Success in a few trades can create a false sense of security or overconfidence, leading traders to believe they can deviate from their options day trading rules without consequence.
Insufficient Knowledge and Preparation
Options trading is complex, and a deep understanding of the strategies and risks involved is essential. Inadequate knowledge can lead to poor decision-making. Failing to thoroughly research and analyze market conditions and specific options can result in uninformed trades.
Inadequate Risk Management
Not adhering to position sizing rules can result in excessive exposure to a single trade, increasing the risk of significant losses. Ignoring stop-loss orders or setting them too loosely can lead to substantial losses.
Market Volatility
Sudden and unexpected market movements can disrupt trading strategies, leading traders to abandon their options day trading rules in an attempt to manage the situation.
Psychological Biases
Overemphasizing recent events or trades can skew a trader’s perception and lead to poor decisions. Traders may focus on information that supports their existing beliefs or positions, ignoring contradictory data.
Technical and Practical Issues
Technical problems with trading platforms, such as connectivity issues or slow order execution, can prevent traders from following their rules effectively. Personal life stressors or financial pressures can impact a trader’s ability to remain disciplined and adhere to their rules.
Overtrading
Trading too frequently can lead to mistakes and deviations from the trading plan. Overtrading is often driven by the desire to recover losses quickly or capitalize on perceived opportunities.
Staying disciplined and adhering to trading rules requires a combination of emotional control, thorough preparation, and robust risk management strategies. Traders must continually work on these aspects to improve their chances of success in the highly challenging environment of options day trading.
In conclusion, these simple 21 day options trading rules can help traders to improve their trading if they follow these rules with discipline. When traders come in market with money only then they earn knowledge from market and when they come with knowledge then they earn money. So traders have to focus on learning not only earning. When traders enhance their learning then earnings will automatically enhanced.
Especially beginners make many mistakes while trading. These rules help them to make a strong basic foundation and sustain in the market for a long time. Best of luck! Happy trading!
FAQ’s
1. How do I start day trading options?
Learn the basics of options trading. Open a brokerage account that supports options. Fund your account. Practice with a demo account. Start trading with a small amount of money.
2. What is the No 1 rule of trading?
Protect your capital. Always manage risk to avoid big losses.
3. How many options can I trade in a day?
There’s no set limit, but trade only as many as you can manage effectively.
4. Is day trading options gambling?
No, it’s not gambling if you use strategies and manage risks. But it is risky and requires knowledge and skill.
5. Can I make $1k a day trading?
It’s possible, but it’s very challenging and not guaranteed. Success depends on skill, experience, and market conditions.