Can a Beginner Trade Options? (7 Easy Steps on How to Start in 2023)
Can you, a beginner, really be a good fit to become an option trader?
And if so, how do you know?
Let’s dive in If you’re serious about beginning to trade options, and want to get started in your journey.
Can you Control your Emotions?
Trading options doesn’t have to be this crazy wallstreetbets degenerate style of trading. Trading options can be done correctly, and profitable with proper risk and trading management.
When I look at my trading journal and try to find out what was the reason for my account dropping 2 to 3 weeks worth of profits, it always comes down to my ego.
Making decisions off my fear and greed has become my #1 reason why I used to blow my accounts.
In my current $500 Challenge, I doubled the account in less than 2 weeks, and lost 80% of due to my ego not letting go of losers quick enough.
As a beginner option trader, if you let your emotions dictate your trading choices, you may run the risk of blowing up your account, and becoming discourage to stop option trading.
Instead…
The best strategy for a beginner option trader is to operate as emotionless as possible; even when the trades you hit are +100% winners.
Best Way to Learn Option Trading as a Beginner
As a beginner option trader there are steps you need to take before on your first trade.
1. Learn Basic Fundamentals and Terminology
As a beginner option trader, you need to have basic knowledge about option trading, such as what calls and puts mean.
you NEED to know what the greeks mean, how they work, and how it affects the contracts you pick.
You also need to learn how to pick quality option contracts. The last thing you need to is to pick a bad option contract that doesn’t move as smoothly.
Here’s a list of a few article to help you get started on basic fundamentals and learning the greeks:
- Understanding the Basics of Options for Traders: The Ultimate Beginners Guide in 2022 (alfatoro.com)
- Understanding Implied Volatility (IV) for Option Traders: The Ultimate Beginners Guide in 2022 (alfatoro.com)
2. Learn Chart Patterns
As a beginner option trader, it’s important for you to learn common reversal and continuation chart patterns.
Becoming familiar with chart patterns gives you a bigger edge on knowing if the price action is going to continue the trend or reverse.
It also let’s you know when to enter a trade and when to leave a trade–because the chart pattern has been invalidate.
As a beginner option trader you need more consistency, and knowing chart patterns will help you with that.
Here’s an article that lists reversal and continuation chart patterns: Reversal and Continuation Chart Patterns (alfatoro.com)
3. Prepare the Night Before Market Day
Your day starts the night before
As a beginner trader, you must be prepared before the market opens (9:30AM EST). This means you need to do your charting, and homework the night before.
Go through your list of stocks, and see which one has the best setup for the following market day. On top of that you must also look at the option contracts and see which has the best liquidity to trade.
Preparing the night before will give you an edge on winning, instead of trying to chart during the middle of the market hours.
4. Start by Trading Monthly Option Contracts
As a beginner you want to avoid trading weeklies and zero-day expirations, and want to trade more of monthly option contracts–preferably 2 to 3 months out.
The reason for this is because trading weeklies and zero-days requires a level of experience that is acquired over time, and as a beginner you may can lose your entire portfolio trading with shorter expiration days.
The monthly option contracts provide a nice ease into trading without having to stress too much about losing your account value in minutes.
Here’s an article that explains why I prefer monthly contracts over weeklies: 5 reasons why I prefer monthly options over weekly option contracts (alfatoro.com)
5. Start with $100 to $500 account size
As a beginner, you don’t need be trading with big amounts of cash. You can start with a small account size such as $100, and work with stocks that offer affordable option contracts, but with high volume.
Here’s a list of three beginner stocks to trade on a daily basis:
- $SPY
- $QQQ
- $AAPL
My favorite part about these three stocks is that the contracts are affordable, the stocks have a great amount of volume, and they respect their Supply and Demand zones.
6. Set a Simple Trading Strategy
The best way to have consistent, profitable months trading is to set a trading strategy, and follow it to the T.
Every option trader, from beginners to professionals, is going to have losses. But every professional trader knows that if they follow a solid trading strategy they will have successful months.
Here’s an example of a trading strategy a lot traders like to use when they’re beginning.
Per every trade, they’ll risk 20% of their portfolio. Try to aim for 30% profit targets, and have small stop losses such as 10-15% per trade.
Your winning trades will always recover your losses and more.
Here’s a link to page to help you setup your trading strategy and track your progress: Compound Progress Calculator
7. Review the Trade
This one of the most important steps to take after every trade, and that is to review your trade.
Ask yourself questions such as:
- Why did I take this trade?
- Where did it go wrong?
- Why did it do well?
- Did I do something incorrectly such as be impatient or lack knowledge of something?
It’s important to become unbiased about your trades and look at the macro level to become a better trader.
