Trading options as a beginner can be intimidating, but with the right guidance, anyone can learn how to make money in the stock market. In this step-by-step guide, we will show you how to get started trading options.
Step 1: Educate Yourself
The first step to making money trading options is to educate yourself on the basics of the market. While there are many resources available online for free, it's important to be cautious when attempting to be a self-taught trader. The barrier to entry to becoming a trader is the lowest it has ever been. Without proper guidance, traders can fall prey to common pitfalls and lose money quickly or risk blowing up their account.
To avoid these risks, invest in a comprehensive options trading course like the Options Mastery Course. This course is designed to teach traders of all levels the fundamentals of options trading, including the exact strategies I personally use to extract money from the market. This course is beginner-friendly and will teach you everything that you need to know - Not only to get started trading but to create a profitable and sustainable trading business.
Additionally, join a community of traders like the Trader's Thinktank. This community provides a supportive environment where traders can share ideas, ask questions, and get feedback on their trades. One of the many benefits is that we put your eyes on the right stocks and trade together as a team.
By educating yourself on options trading and seeking out professional guidance, you can set yourself up for success as a trader and avoid common pitfalls. Remember that just because you have a funded account does not necessarily mean you’re a trader.
Step 2: Choose a Broker
Once you have a basic understanding of options trading, the next step is to choose a broker. Robinhood and ThinkOrSwim are two popular brokers that offer options trading. Robinhood is a great option for beginners because it is easy to use and has no account minimums. ThinkOrSwim is a more advanced platform with more features, making it a great choice for experienced traders.
Step 3: Open an Account
To start trading options, you will need to open an account with a broker. The process is simple and can be completed online. You will need to provide some personal information, but the account opening process should be straightforward and quick. Most broker platforms can have your funds available for trading within a week. During this period while your funds are pending, be sure to practice getting familiar with the platform and the strategy with paper trading.
Step 4: Paper Trade to Practice
Before placing real money trades, using the paper trading (sometimes called simulator trading) feature offered by most brokers is recommended to practice and familiarize yourself with the platform and the strategy. You should learn how to enter a trade, exit a trade, set a stop loss, navigate and annotate charts, etc all while in the paper trading environment. This is a great way to practice your skills and test your trading plan without risking real money. This step should only be used briefly in the beginning and will not be a good gauge of how well you can do trading real money. Paper trading lacks the emotional component which is one of the main areas that plagues developing traders.
Step 5: Place Your First Trade
Now that your account is funded, and you are familiar with navigating the broker platform and trading the strategy, you can start placing trades. Starting small and only risking a small percentage of your account on each trade is important. New traders should always start trading real money with a maximum of 1 contract to continue to familiarize themselves.
Step 7: Practice and Learn
Options trading is a skill that takes time to master. It is important to practice and learn from your mistakes. As mentioned previously, the Options Mastery Course and Trader's Thinktank can help you develop your skills and learn from experienced traders. Odds are stacked against traders who think they will go the “self-education” route - The majority of this crowd will blow up their trading account at least once.
Step 8: Review, Journal, and Create a Trading Playbook
One of the best ways to improve your options trading skills is to review your trades, keep a trading journal, and create a trading playbook. Reviewing your trades allows you to identify what worked and what didn't, while keeping a trading journal helps you track your progress and make adjustments to your strategy. A trading playbook is a set of rules and guidelines that you follow when placing trades, and it can help you stay disciplined and avoid making emotional decisions.
After each trade, take the time to review what happened. Look at the chart and note the price movements, your entry and exit points, and the options strategy you used. Analyze the trade and identify what you did well and what you could have done better. Use this information to adjust your trading plan and improve your skills.
Keeping a trading journal is also important. Write down your trades, including the underlying asset, the options strategy you used, and the outcome of the trade. Note any emotions you experienced during the trade and how you managed them. This information can help you identify patterns and make changes to your approach.
Finally, create a trading playbook. A trading playbook should include your rules and guidelines for placing trades. This can include your entry and exit criteria, the types of options strategies you use, and your risk management plan. Having a trading playbook can help you stay disciplined and avoid making emotional decisions.
By reviewing your trades, keeping a trading journal, and creating a trading playbook, you can improve your options trading skills and become a more successful trader. If you want the Trade Review and Trading Playbook template that I personally use and most of our team uses, click here.
Step 9: Achieving Profitability
It is important to have realistic expectations when it comes to achieving profitability in options trading. It can take time and practice to become consistently profitable. How long exactly? We detail what timeline to expect when attempting to become a consistently profitable trader in this article. If you have a strong trading education and are a disciplined person, you can expect light profits in 9-12 months, perhaps sooner depending on market conditions. Make sure you are patient with yourself and give yourself a long enough runway (both time and capital) to practice. If you are looking for quick riches, trading is not for you.
In conclusion, trading options can be a great way to make money, but it requires education, practice, and discipline. By following these steps and avoiding common pitfalls, you can become a consistently profitable trader.