Gambling is what the majority of people think of when they hear the phrase "option trading." And this comparison is appropriate in many cases -- especially if a person is trading without discipline.
But it's a gross generalization to say that trading is always like gambling. Because running a successful option trading practice is much like running a business.
Example: If you were a business owner, you would be most interested in cutting your losses, maximizing your profits, and limiting your risks. All of which are true in option trading.
Reducing Risk
A business owner is not going to try to sell a product or service that the market doesn't want. That's too risky. He's going to sell things that people want.
Similarly, if a stock is not "trade-able," an option trader will avoid it. That's because it's extremely risky to trade a stock that has no clear trend or pattern.
Maximizing Profit
In business, some offers perform better than others. And when a business owner stumbles upon an offer that outperforms others, he'll run it repeatedly. In other words, he'll "get while the getting is good."
Similarly, an option trader will stay in a winning trade until it stops moving in his favor. He'll set trailing stops to lock-in profits if and when the price moves against him.
Minimizing Losses
Whenever a business owner finds he's got a product that won't sell, he'll try to unload it quickly, even if that means slashing the price and taking a loss. That's because it's better to liquidate the inventory and use the cash to invest in a better product.
If an option trader finds himself in a bad trade, he'll admit the mistake and cash out as quickly as possible so he can get into a better trade.
As you can see, being reckless is a sin both in business and in trading. But with the proper attitude and approach, option trading can be serious business. - 15224
But it's a gross generalization to say that trading is always like gambling. Because running a successful option trading practice is much like running a business.
Example: If you were a business owner, you would be most interested in cutting your losses, maximizing your profits, and limiting your risks. All of which are true in option trading.
Reducing Risk
A business owner is not going to try to sell a product or service that the market doesn't want. That's too risky. He's going to sell things that people want.
Similarly, if a stock is not "trade-able," an option trader will avoid it. That's because it's extremely risky to trade a stock that has no clear trend or pattern.
Maximizing Profit
In business, some offers perform better than others. And when a business owner stumbles upon an offer that outperforms others, he'll run it repeatedly. In other words, he'll "get while the getting is good."
Similarly, an option trader will stay in a winning trade until it stops moving in his favor. He'll set trailing stops to lock-in profits if and when the price moves against him.
Minimizing Losses
Whenever a business owner finds he's got a product that won't sell, he'll try to unload it quickly, even if that means slashing the price and taking a loss. That's because it's better to liquidate the inventory and use the cash to invest in a better product.
If an option trader finds himself in a bad trade, he'll admit the mistake and cash out as quickly as possible so he can get into a better trade.
As you can see, being reckless is a sin both in business and in trading. But with the proper attitude and approach, option trading can be serious business. - 15224
About the Author:
Before you risk another penny in this volatile market, go to A.J. Brown's option trading blog for free tips and advice. Better yet, join his option trading learning program to learn the art and business of trading.
