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Developing An Options Trading System
There are 2 kinds of options trading systems in general; Discretionary and Mechanical. Adiscretionary option trader follows no specific rules but chooses, enters and exits anoption trade using all of his knowledge or gut feeling. A mechanical option trader is onewho translates his knowledge of choosing stocks, entry and exit into objective rules. Sucha system is commonly translated into a computer program in order to completelyautomate the options trading system. The advantage of mechanical options trading isobvious; the removal of human emotions in the trading process thereby reducing humanerrors.I moved from discretionary to mechanical options trading years ago and only started becoming consistently successful in options trading after I developed my personalmechanical options trading system called theStar Trading System (http://startradingsystem.mastersoequity.com).So, what are the steps to be taken in order to develop your personal mechanical tradingsystem for options trading? Here is a guideline…
1. Stock Selection
List down all the criteria you think must be true in order for a stock to qualify as anoptions trading candidate. Make sure all of these criteria are quantifiable. Example : a.Last close more than $10, b. Last price rising for the past 3 days c. PE must be positive.Finally, program a charting software with these criteria so that you can run a scan of allstocks that qualified within seconds daily. Technological advances have made possible toscreen stocks within seconds. Traders used to have to spend hours going through eachstock against a spread sheet in order to find trading candidates.
2. Option Selection Procedure
 Now that you have chosen your stock, you need to determine which option qualifies for your options trading system. Your personal options trading system may be based onOTM optionsor ITM optionsor even based on bullish or  bearish spreads.
3. Entry Procedure
 Now that you have determined what stock to watch and which option to buy, it is time todetermine under what conditions to make that move to buy on. It may be as simple as toenter upon market opening or as complex as to watch the underlying stock movement for a pre-determined period of time before it qualifies for entry. Whatever it is, it mustcompliment your personal options trading style.
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