Option Investor
Trader's Corner

Amazing

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I was amazed. Many of you know that along with reading about trading, I'm also a devotee of the CBOE's and CBOT's free webinars. What better way to learn about new options products, look over the shoulder of someone else trading the same strategies you are or learn about ways to control emotions when trading?

I was amazed when I listened in on a CBOE webinar first aired in September, however. The presenter ran an options-trading site issuing trading signals. Before he could even complete his explanation of the parameters of his trades, their success rates or his experience, attendees were sending in questions to the moderator about how they might contact the presenter and sign up for his service. This was literally two minutes into the webinar. Some wanted to know if they could sign up for automatic trades to be executed whenever a signal was issued. Two minutes these people waited before being ready to hand over their money to someone else to trade!

I tend to be a little more independent than that, and I hope most of you are, too. I want to be taught, but then I want to control my own trades. But even if you don't trust yourself to make trading decisions and want a professional money manager or want to follow the signals of more seasoned traders, you need more information than those people had after hearing a guy present for a total of about two minutes.

That's a phenomenon we sometimes run into on our site, too. I'll tell you a little story about one of my experiences.

I make more money trading these days than I do otherwise working, so I'm at least moderately successful at it. I was originally hired to represent the self-taught trader learning along the way, and that's a role I still take seriously. I'm still self-taught and I'm still learning.

Teaching is one mission of our site, so in my role as the self-taught trader, I confess to subscribers when I've made mistakes. Even if the purpose were only to warn subscribers against making similar mistakes, that should be helpful, but the mission goes beyond that. My goal is to let subscribers know what strategies work and what I've discovered about controlling risk or setting up trades.

I'll never forget a time several years ago when I'd tried an unfamiliar strategy and lost a hefty chunk of money in the effort. I talked about the mistake on the live portion of our site and also mentioned it in Trader's Corner articles.

I also mentioned it at a dinner party. I had no sooner confessed the mistake I'd made at that dinner party when I received a request from one of the other guests to trade his entire portfolio! A more than million-dollar portfolio. Literally within minutes of confessing the hefty mistake I'd made.

Of course, I turned down the offer, as I'm not a broker or a money manager and I'm not inclined to trade anyone's money but my own. But what's up with that? Moreover, the same experience had occurred when I had confessed the same mistake on the live portion of our mistake. The same day, someone wrote and asked if I could manage that person's portfolio. I could understand that if I'd just announced that I'd made a ton of money, but I'd just confessed to trying a mistaken strategy that ending up costing me.

Taking responsibility for decisions about our money--in choosing an advisor, a trading guru or finding our own signals--can be scary sometimes, but we still have the responsibility to make well-thought-out decisions and be wise stewards of the money we've earned. As a nation, we're getting that same lesson and we need to inculcate it in our personal trading decisions, too.

It's okay if you just want signals. Not everyone has to be an independent thinker. For those of you who just want signals, however, I have some advice. Follow the signals someone offers for a period of time before you act on them. Trade them on a simulator, either on your trading platform or on the simulator available through CBOE. Some surprises that can occur along the way, even when you're trading a strategy that you were told has no risk other than the debit you paid for it. For example, you might find out that the call you sold as part of a combination strategy has been exercised just in time for you to owe dividends to someone out there. Surprise!

You might find, too, that a particular type of trade doesn't fit your personality, although you expected it to be perfect for your situation. Someone in a trading group I attend can't trade condors because the moment he opens them in his account, the profit/loss page shows a loss. They're entered between the bid and ask but the P/L page isn't getting between the bid and ask when making its calculations. A trade that appears to be losing money from the moment it's entered proved too harrowing to this trader, even though he understands the probability that the trade will be profitable at expiration. These trades proved impossible for him to tolerate.

While trading on a simulator can't replicate all the emotions of real-life trading, they can do so more than you might expect. I once found myself complaining that currency traders kept picking off my stops right before the currency pair reversed. Only after I'd voiced the complaint did I remember that I was trading on a simulator. No one was seeing my stops!

Employing these strategies allows you to determine if you trust the person or service providing the signals. If you just want the signals, you can find that on our site or on our sister sites, but I urge you to take advantage of the teaching that's offered, too, before you jump into those trades. Independent thinker that I am, I believe that to be the great strength of the information you'll receive from our writers.

But don't believe me just because you've spent two minutes reading this Trader's Corner. Do your own research.
 

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